Lay-offs should be last resort for crisis-hit companies

“When you are in a storm, the only thing you think about is how to get through the storm and survive,” Csaba Gergely, president of HR Club, tells Business Review. “If this means freezing salaries, it can be a solution in this context. If the strategy is not to let go of your people and continue successfully, it is all very well,” he says, adding that laying people off is not desirable since there are certain vital competences directly connected to the service and product the company delivers and it is essential not to cut certain investments so that people do the job correctly. “If you do cut these expenses, for example, a worker will no longer turn the screw well enough and if he does not do it because he was not provided with the necessary training, then the product of the company is low quality and
the client will ‘tax' this,” says Gergely.
The average salary growth in 2008 amounted to 15 percent compared to the same period last year, according to studies conducted by PricewaterhouseCoopers.
“It is hard to anticipate what the evolution of the salaries will be. We are not yet feeling to the fullest extent the effects of this financial crisis but we certainly will. This is manifested through an attentive management of the costs. When you are in a difficult situation and the volume of sales drops, you have to manage expenses,” says Gergely.
According to The Economist, this difficult period will last around 18 months. Some of the effects are already visible in Romania in domains such as the car industry. Last week Dacia announced it would cease production for four days, having revised its production plans due to lower demand on the local and international market.
While all industries will be affected, the ones that will bear the brunt will be those who produce “higher priced and durable goods” and financial institutions, as crediting conditions have become tougher. “They are practically unable to sustain the growth they have proposed,” says Gergely. The construction industry and all the sub-branches that are connected to it will also be affected. “Not as much will be built, and not as many apartments will be sold. So constructions, real estate, the car industry, all these will be affected,” he says.
According to pundits, the IT domain will also suffer because demand for IT solutions will significantly fall. The first bankruptcies will also appear and demand for personnel will also drop since companies will no longer invest in research and development, according to Gabriel Marin, managing director of Omnilogic.
The reasons for this slowdown start from the everyday behavior of customers. “If I am unsure about the income I will have, I will be more cautious. This manifests itself through delaying major investment decisions: I will not change my TV set, I will not change the car or the fridge, but I will postpone these decisions. Everyone operating in these industries will feel in time a drop in their volume of sales. If until now I have had to pay installments and this installment has increased, I will probably not buy new outfits very frequently. These are the spiraling effects that will be seen in the market,” says Gergely.
As a last resort, when cutting costs is not enough, you have to think about reducing the number of people who work for you. When laying off people, you should first look at the positions you have and understand what their importance is within the company. “You have to look at who your best people are, the ones that you cannot let go of, and make sure that those people do not leave,” says Gergely.
However, laying off people does not necessarily mean that the remaining employees will have extra work to do. “If previously I had to manufacture 10 cars and now I only need to make four, it means I no longer need this many people.”
While developed markets have serious issues, since companies should realize the volume and profit somehow, more vitality can likely be found in emerging markets such as Romania. This is why Romania has a good chance of getting out of this situation more easily if certain macroeconomic decisions are respected.
“I think it is extremely dangerous at the moment to greatly increase salaries in the budgetary sector since this growth cannot be supported,” says Gergely, giving as an example Hungary, which has a net superior infrastructure to Romania. “Several years ago they made bad decisions and greatly increased salaries in the private sector without following it with efficiency and accentuated technology, without reducing the number of personnel and reducing red tape, and they have not recovered from it yet,” he says.
While the unemployment rate grows in developed economies, Romania may face the possibility of having a great deal of its workforce returning from abroad. The local labor market will not be able to absorb the several hundred Romanians who would return in the midst of the financial crisis.
Recruitment companies will also be affected by this situation since “no one is expanding at the moment and certain positions in the HR pool are frozen. The volume of recruitment will therefore drop significantly. The category of employees who will be most sought after on the local market will be specialists in various domains, says Gergely.
“In the context of a reduction or halt in the volume of employment, next year the personnel deficit will diminish and will only exist for certain specialized positions. The fluctuation of personnel will also be reduced,” he says.
However, at the same time, this crisis can be seen from a positive perspective since strong organizations will have to look around in this difficult period and see who are the best people in their domains and attract them into the organization.
“It would be a strategic mistake to pass over training and cut training expenses since the personnel should know how to perform, otherwise the quality of the services and products will suffer. So there are certain investments in people that you should maintain.”
What should be done first and foremost is to keep tabs on cost management and also see if there are too many levels in the organization? “Cutting the hierarchy system is also a solution but you have to bear in mind that in a year or two you must have a competitive organization and therefore make decisions accordingly so that your competitiveness on the market is not affected,” says Gergely.

By Otilia Haraga