How can you tell which employers are likely to lay people off this year? Sadly, look to any employer that did layoffs last year. Why do organizations fall into this pattern? Cascio is passionate about how effective the alternatives to layoffs can be, but he certainly understands the temptation to cut the workforce. Future costs like payroll, he knows, are much easier to estimate than future revenues and profits. So if business isn't so hot, it's an easier task to cut expenses than it is to go after increased revenues. Easier means less risky­a surer bet, right? Research done by Cascio and his colleagues shows exactly the opposite result.

He and two co-authors studied the Standard & Poor's 500 and Russell 3000 publicly held companies for 18 years, finding that those that restructured by laying off workers were not as profitable as those that offered employment security. The longer they followed these companies, comparing them with the 100 Best Places to Work, the more the disparity in long-term profitability grew. Shareholders of the 100 Best made more than twice as much money between 1998 and 2001 as those with comparable holdings in other companies. In addition, the 100 Best got twice as many job applications and had 50 percent less turnover. There's a basic reason for these results, Cascio offers: You can't shrink your workforce or other kinds of assets and continue to generate the profits you did before the cuts. Only growth is truly profitable.

Layoffs can cost for severance, but you also lose institutional knowledge, valuable relationships with customers, and productivity, as survivors confront new responsibilities. Ironically, hiring and layoffs are often done simultaneously. Something's wrong with that picture, Cascio believes.

Do what instead? He points to companies that he believes do it, or have done it, right. Intel's primary business strategy is to make its own technology obsolete before competitors can imitate it faster or cheaper. But that strategy could leave employees floundering­lacking the new skills that new technologies demand. So a companion HR strategy is to "redeploy" people through training, transfers to different departments or types of jobs, or geographic relocations.

In another example, Lincoln Electric, which makes low-tech arc-welding equipment, watched revenues drop sharply in 1990 and 1991. Instead of layoffs, it trained 90 employees in sales and marketing, then sent them out to find new customers and new uses for Lincoln products. The team generated millions of dollars of new sales, boosting profits to historically high levels.

A Closer Look

Downsizing has disadvantages in and of itself, but doing it wrong can make the outcome infinitely worse. If your organization is determined to conduct layoffs, carry out the process prudently, advises downsizing expert Wayne Cascio:

1. As soon as top management begins to worry about low growth or diminishing revenues, communicate those concerns to all employees, asking for their suggestions about cutting expenses and/or generating new revenue.
2. Make downsizing your last resort, not your first cost-cutting step.
3. Include downsizing as part of a larger restructuring plan, not the only plan. Before layoffs, for example, Charles Schwab took these steps: Curbed travel and entertainment expenses, encouraged employees to take unused vacation time and Fridays off without pay, and cut salaries of top management. Later, laid-off employees (20 percent) who were rehired within 18 months got $7,500 bonuses and generous tuition reimbursement.
4. Choose those to be laid off carefully and strategically. Across-the-board downsizing never makes sense. Consider how easily you can replace needed skills and whether candidates for layoff are high, middling, or low performers. Seek the input of as many employees as possible about eliminating positions, streamlining work, and other restructuring ideas.
5. During the process, communicate clearly with all employees about why you must restructure and what the company's goals are. Address fears and concerns as fully as possible without promising job security.
6. After layoffs, don't insist that business continue as usual; operating in the same way and doing all the same work with fewer employees will destroy morale and encourage burnout.
7. Enlist the ideas of all survivors in fleshing out the company's restructuring plan and making it work.
8. Clearly articulate to all survivors why they should stay with the company, and remain committed to encouraging and supporting them.
9. If you must recruit more people during or shortly after layoffs, explain to survivors how new hires' skills are different from those of laid-off colleagues. Survivors want to know not only that layoffs were necessary but that they were done consistently, fairly, and strategically.
10. Train all survivors thoroughly in the company's new, postdownsizing, ways of doing business. Monitor operations to ensure that veteran employees don't cling to the old ways or insist on performing functions that have been eliminated.