How successful organisations can hire and fire at the same time

As organisations shed staff from one part of the business while hiring for another, workforce tensions must be managed during this process, writes IMD's Lars Häggström

This article is republished with permission from I by IMD, the knowledge platform of IMD Business School. You may access the original article here.

Over the course of 2022, US employers announced more than 360,000 job losses. Meanwhile, economists estimated that businesses across the country were five million employees short of requirements.

Hiring and firing are not mutually exclusive strategic mindsets, but rather a consequence of most strategies being implemented. A simplistic model of employment assumes businesses recruit staff when they’re doing well and let people go when they’re under pressure. However, the business reality is rarely this linear, especially for larger companies with compartmentalised businesses and functions.

Just ask Microsoft. In January, the technology giant announced it would shed 10,000 jobs, primarily in its cloud computing business. Meanwhile, CEO Satya Nadella was promising to make hires in “strategic areas” of the business such as artificial intelligence. Banks in both Europe and the US are following a similar redundancy-recruitment pattern in response to the changeable economic environment.

The danger of mixed messages

However, simultaneously managing hiring and firing processes can prove exceptionally challenging for company leaders and the HR function. It requires the C-suite to be crystal clear on business strategy – both internally and externally – and to make explicit how recruitment and workforce management practices contribute to the organisational mission.

It is also crucial to manage the noise inevitably created by such announcements. Staff across the business can be unnerved and demoralised by seeing co-workers shown the door, whether or not they’re directly affected by the departures. Getting it wrong is, therefore, a significant risk. When the C-suite fails properly to articulate the logic of apparently conflicting strategies, key stakeholders may begin to question the thinking behind them – and perhaps even whether the business has a coherent strategy at all.

Moreover, when poor communication with staff results in disillusionment, employees may turn to “quiet quitting” and begin to think about opportunities elsewhere. Talented people that the company should be desperate to retain – particularly in today’s employment market – may be lost through if management handles this poorly, and out of sync with the organisation’s purpose and values.

Cutting staff in numbers may also make it harder for companies to recruit in the areas where they need staff. Businesses that are seen to make regular swathes of job cuts look less attractive to potential candidates. Today’s applicants do their due diligence: they talk to those already at the organisation, either directly or through channels such as Glassdoor. Even if a business works hard on building its employer brand, this can be undermined when current employers depict a contradictory reality.

Establishing honest and open dialog with staff is, therefore, essential, as is reassuring retained employees that they have the full confidence of their managers. Speaking to individuals and teams about why their talent and experience are valued highly will inspire confidence. People want to know that they have a future at their organisation – if they have doubts about that then, naturally enough, they will start to look for one elsewhere.

Read more: Six important ways COVID-19 has changed the workplace for good

Recruit or reskill?

One important question is the extent to which job losses are, in fact, required. If one part of the business is hiring, could staff earmarked for redundancy be usefully redeployed there? Such an approach, recycling skills and experience where they are most needed, has a number of benefits – cutting recruitment time and costs, reinforcing employee morale (as they feel both valued and looked after), and limiting reputational risk.

CHROs will be required to drive this repositioning. In many cases, there’s natural pushback from business units that are asked to take on staff from other parts of the organisation, rather than being allowed to choose from the full range of internal and external candidates. CHROs must make a strong case for reskilling and back that up with supportive programs and incentives.

Indeed, in economically challenging times, reskilling should be the norm. While there may be some roles where it simply isn’t possible to redeploy people in this way, motivated and committed staff with the aptitude to acquire new skills are the last people that businesses should want to lose. These qualities will also make them the easiest to retrain, given the opportunity.

One way for CHROs to win the argument may be to focus on retention. Organisations hire the best people available to fill crucial roles, only to see them move on quickly when they receive a better offer from elsewhere, recreating the problem. Staff redeployed from within the business are more likely to feel a sense of belonging and, therefore, to show ongoing loyalty.

The work required to reskill an employee, even in a field where a deeper level of expertise is required, can quickly pay for itself. Hiring externally may seem like a quick fix but will prove the costlier – and more frustrating – option, if it has to be repeated over and over again.

In any case, “cross-fertilising” departments with employees transferred from other teams allows an organisation to make the most of its collective skills and expertise, as well as reaping the benefit of fresh, varied perspectives. IMD recently worked with a business that deliberately moved a team of people into an area where they had no expertise, challenging them to assess strategic priorities for that area of the business and offer recommendations. These individuals were chosen because they had demonstrated outstanding levels of commitment and motivation; their insights, developed in a matter of a few months, proved instrumental in driving transformation.

Business leaders may feel uncomfortable about pushing people toward roles for which their backgrounds have not prepared them but, by acknowledging that these employees were chosen for their attitudes and characters as much as their skillsets, they can continue to benefit from the former while rapidly expanding the latter.

Making the most of commitment

In any case, the transactional approach to employment that was once the norm is rapidly losing currency. Organisations that still believe they can manage their workforces through a mixture of heady incentives and ruthless cuts are likely to find their inefficiencies catch up with them as they lose out in the overheated labour market. A growing proportion of employees – particularly younger people – will no longer accept such a working environment; they do not regard themselves as simply commodities, to be procured in greater or smaller quantities according to businesses’ requirements and capacities. Rather, they want to feel valued, fairly compensated, and part of a larger purpose.

C-suite leaders, supported by CHROs, can harness that desire as they seek to maintain a balanced, motivated workforce. While an impressive resumé will always be valuable, recruitment teams should be looking out for candidates ready to embrace the strategic direction and purpose of the business. These are the people most likely to show adaptability, reliability, resilience, and loyalty.

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To attract such staff, organisations will need to advertise genuine intentions in terms of sustainability, business strategy, and social purpose. This includes being frank in difficult times – admitting, say, that a particular business activity is no longer part of the organisation’s plans. There will be uncomfortable conversations, but engaged employees will grasp the opportunity to learn and continue to contribute to an organisation in which they believe and of which they feel themselves to be a part.

For those organisations that get it right, the need to hire and fire may be mitigated. Instead, the challenge will be to work out where to deploy staff so that intellectual capital is retained and drives maximum value for the organisation. CHROs will play a crucial role in managing this process.

Lars Häggström is Senior Adviser at IMD Business School and a former CHRO at Stora Enso, Nordea and Gambro.