Layoffs: The Ultimate Failure Of Strategy
Lately, it feels like every other headline you read is about layoffs. Leaders frame them as tough but “strategic” moves to cut costs and right-size the company.
But let’s be blunt: layoffs aren’t a strategy for you as a leader. They’re a reaction. They signal you didn’t plan ahead.
I’ve seen it firsthand. A few years ago, a company in my portfolio hit a rough patch. Instead of a proactive plan, the immediate solution was the same thing you see everywhere—cut people. The day after, I got on a call with the CEO. His voice shook as he explained firing employees who had been loyal for years. The entire company was in shock. On paper, it looked decisive. In reality? It was the least creative and most brutal form of cost-cutting. And once you go down that path, you bleed in places a balance sheet can’t measure.
The True Cost of Cutting People
The damage you risk isn’t just financial; it’s cultural. And it hits in ways you might not expect.
You lose your best people: Top performers are often the first to go because they have the most options. I remember a conversation with a senior executive who wasn’t even affected by the cuts, but the trust was gone. He said to me, “Jigar, I can’t build my career on a foundation of sand.” A month later, he was gone. And with him, part of the company’s future.
But it’s not just who you lose. It’s the knowledge you sacrifice.
You lose institutional knowledge: When you lay off people, you’re not just trimming salaries; you’re erasing years of experience and problem-solving. That’s a massive blow to your company’s intelligence.
And the damage doesn't stop there.
You undermine trust: Nothing makes people question your leadership more than seeing their colleagues forced out. Those still at their desks are left thinking: “Am I next?” This leads to fear, disengagement, and a lack of loyalty.
And in the modern era, the most strategic leaders are facing an even bigger challenge.
You fail to adapt to AI: I’ve heard leaders say they’re cutting jobs because “AI is here.” That’s not a reason; it’s an excuse. Laying off people because you failed to invest in their training is a failure of leadership, plain and simple.
So What’s the Alternative?
A proactive leader thinks about these scenarios long before they become a crisis. Here are a few alternative strategies that are far more effective and less damaging than blunt-force layoffs.
Implement a hiring freeze: Stop adding to your payroll immediately. This is a simple, non-destructive way to stop the bleeding without causing mass panic. How to? Redirect internal talent to fill critical open roles instead of hiring new staff.
Voluntary separation packages: Give employees a choice. Offering attractive severance or early retirement can help you reduce headcount without forcing people out. How to? Present a clear, time-sensitive offer that makes the decision beneficial for both the company and the employee.
Cross-training and skill development: Use a period of slow growth as an opportunity to upskill your team. This makes your workforce more agile and better prepared for the next growth cycle. How to? Launch internal training programs to help employees transition into new roles or take on new responsibilities.
Strategic pay adjustments: In extreme cases, a temporary, tiered salary reduction for a few months can be a powerful way to show shared sacrifice. I know, it’s tough. But a transparent move like this can save jobs and unite your team against a common challenge. How to?
Tie the salary adjustment to specific, transparent financial metrics so the team knows when it will end and why it’s necessary.
I worked with a founder who faced a downturn. Instead of layoffs, they explained the situation honestly and rolled out a three‑month salary adjustment. The team didn’t see it as a betrayal; they saw it as a challenge. They rallied. And when the market recovered, the team was stronger, more loyal, and more united than ever before.
The Real Test of Leadership
The true measure of leadership isn’t how fast you cut costs in a crisis; it’s whether you built a strategy that avoided the crisis in the first place.
Layoffs are a confession of poor foresight. In the AI era, the leaders who protect their people, who find creative ways to preserve trust and talent, will be the ones who actually win.
Because at the end of the day, your people are your strategy.