These companies are making a choice. They’re deciding that it’s faster and cheaper to chuck people overboard and find new ones than it is to retrain them. The economics of cutting rather than training may seem simple, but it’s a more complex calculation than most people believe.
Firing people is not free. Back in 2010, I wrote a story about how Hewlett-Packard had announced 75,505 layoffs since 2002. As part of those cuts, the company had to pay $5 billion in severance pay. Since then, HP’s layoff count has climbed over 120,000 since 2002. It’s an amazing number for a company that remains profitable.
And how’s all that cutting working out? I don’t think anyone would argue HP is anything but still adrift.But severance is not the only cost. There are intangibles, like morale. And there are other fiscal costs, like the price of recruiting and orienting new employees. There is a cost in time and money when you have to train new employees in your internal procedures and culture, get their computer hooked up, help them find the toilets, etc.
Again, I blame the MBA mentality that only allows a company to look 3 months down the road. Well that and the fact that most people think hidden costs are not real costs.