Business Blog: Hoover’s Business Insight Zone

To the surprise of no one, the once-mighty but long-irrelevant AOL has announced that it will cut 2,000 jobs from its 10,000-person payroll.

Excuse me, let me rephrase that so that there are no euphemisms hidden there: AOL has announced that it will fire one person in five from its operations. This comes on top of thousands of job cuts last year.

Here’s the general thought that comes to my mind: Do really good companies — the standouts — ever leave themselves in a position such that they need to lop off a large fraction of their payroll all at once? Sure, even GE sells off divisions sometimes. If you need to make a move, go ahead and make it. But can it be a sign of good business acumen to size up your operations and realize that your payroll is too large by one-fourth?

Put it another way: wouldn’t it make more sense — much more — for an organization of AOL’s size, and especially one facing problems as large as those AOL is facing, to make these cuts over time and by parts, rather than all at once?

The downside of cutting jobs over time would seem to be dwindling morale: “Wow, they keep cutting all over the company, and they won’t even let us replace the people who have left.” Whereas if you make cuts all at once, you can tell the survivors that it’s a hard choice, tough medicine, hate to let good people go, etc. — but now it’s done and we can all go forward together toward a new dawn of profitability. Or words to that effect.

Of course, morale was already down at AOL anyway, and this long-rumored layoff certainly can’t help.

To my mind, the upside of shedding jobs over time seems to be manifold:

• It forces management to make harder choices about the innards — the specifics — of each business line from month to month and quarter to quarter. Is the Widget Division the right size for the level of business we’re seeing today? Our Thingamajig subsidiary is the part of the company that’s doing the best business — is that where we’re growing in terms of staff? And so on.
• You can avoid nasty internal surprises, and especially nasty layoff surprises that will sap morale for weeks or months in advance. You know that AOL must have lost plenty of good people during the past year, people who saw the writing on the wall and decided to get out while they could.
• You can do an end run around layoff announcements. The bitter irony for many folks who are laid off is that layoffs often lead to a bounce in a company’s stock, since they’re supposedly “proof” that management is “serious” about reshaping the company. (Time Warner is up very, very slightly on the AOL news this morning.) Management can stave off that bitterness, and decline the opportunity to say grave things while thousands pack up their desks, by handling business better from month to month.

In sum, I’m prone to declare that these sorts of big layoffs are always a sign that management doesn’t have a grip on what it’s doing. In the case of AOL — which has seemed quite dissociated from the new realities of the Internet for some time now — I think that judgment is sound. But I always (?) hesitate to say “always.”

So, you tell me — can mass layoffs come from good management practices, or are they a sign that something is broken?

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* N.B.: For “trimming” read “trimming,” “slashing,” or “gutting” as appropriate.