In November, Mark Zuckerberg announced he would be cutting about 11,000 employees at Meta, the parent company of social media giant Facebook. Elon Musk made massive cuts at Twitter, then begged some team members to come back (even as he is getting slapped with class action lawsuits over the handling of layoffs). Amazon is cutting 10,000 workers. Other Big Tech firms are considering similar actions to reduce expenses.
It’s cold, hard math, but in the simplest of terms, headcount is the easiest target when it comes to cost-cutting because it’s the biggest cost on the ledger (on average, 80 cents on the dollar is the cost of labor to operate a business). Since the 1980s, few leaders have challenged that thinking or considered alternatives.
However, there is a growing body of writing on what is being called “labor hoarding” (not to be confused with “talent hoarding,” which is a very different thing). Labor hoarding has been described as the intentional effort to retain staff through an economic downturn, rather than “cutting heads” to manage costs. It’s based on the premise that each person in a company is a unique and valuable asset and can continue to add value even during down economies.
Costs of cutting
Letting people go is incredibly costly. There is the near-term impact of severance packages and other benefits, such as COBRA insurance. There are medium-term costs of doing the same amount of work with fewer people, and the corresponding emotional drag on those who remain after the laid-off staff are gone. And there are the long-term costs of trying to rehire previous staff or hire new staff once business turns the proverbial corner.
And that’s not accounting for the lost knowledge of practices, processes and rules of engagement, as well as relationships built with customers and vendors — what some would call “tribal knowledge” — that exists primarily in peoples’ heads.
The labor market went through tremendous upheaval during and after the COVID pandemic, and it’s trying to re-establish itself. Unemployment is low and there are still more jobs than there are people to fill them. Hiring is possibly more difficult today than it has ever been.
Factor in the nature of work and the type of skills needed and some estimates suggest that 80-90% of job openings in three to five years will be for roles that have never existed before.
Overall, hiring is going to stay tough — and likely get tougher.
Employees are assets
As a business owner, you need to consider how all these elements will come together in the next few years. Chances are, your company isn’t large enough to have worker redundancy, so you only have one person for each role, and each of those roles is both high skill and critical to your success. If you’ve been strategic, you’ve documented not only the work you do, but how you get it done, the so-called “tribal knowledge” mentioned above. If you haven’t, you and your team are carrying that information in your heads, and it could be bad if you had to cut them.
If you’ve hired the right people, that problem gets even more difficult because they are probably quite good at what they do and contribute positively to your business and add real value — intellectually, physically and emotionally — to your bottom line. Your bookkeepers might cringe at this statement, but the fact is, your people really are assets; they belong on that side of the ledger. They are not costs, they are not liabilities, and they are not widgets. It’s short-sighted at best, and disastrous at worst, to think of them as dispensable.
Labor hoarding is not new. The concept has been around since World War II, but has been largely ignored since the late 1980s. But the circumstances we find ourselves in now, with the impending possibility of a recession, have caused some business leaders to consider embracing this old-fashioned approach.
As we head into the next 12 to 18 months, it behooves each of us in cannabis to consider the cost of replacing employees and the value of tribal knowledge and then think very deeply about how we will handle this decision, should we get to that point.
Terry Smith is a consultant in the cannabis industry and a senior leader in organizational development and change management. He has served as an adjunct professor in the School of Business Administration at Portland State University. He is a certified facilitator and coach through Korn Ferry, The Leadership Circle, Organizational Systems International and Achieve Global. He can be reached at firstname.lastname@example.org.