The Wall Street Journal (via Curious Cat) has an article on companies that refuse to do layoffs despite the crisis.These companies have made a kind of social contract with their employees and explore more creative ways of coping with excess capacity, like transferring employees and using 4-day workweeks.

The article also mentions some of the obvious benefits of layoffs:

Some workplace experts say layoffs are a useful part of the business cycle, allowing employers to weed out poor performers, increase efficiency and promote a high-performance culture. Layoffs “are not inherently bad,” says Mark Nadler, a partner at management consultancy Oliver Wyman’s Delta practice. “Some people…are just more crucial to the survival of the organization than others.”

But the downsides are severe too and include loss of productivity and loss of knowledge capital (even in “low-tech” industries, like metal processing).

Lincoln Electric, a Cleveland maker of welding and cutting products, guarantees employment to U.S. workers with at least three years experience, says spokesman Roy Morrow. He says the company, with 9,000 employees world-wide, hasn’t had a U.S. layoff at least since 1949.

Is there a premium gained from such altruistic behaviour? Increased loyalty and flexibility come to mind. But, how can one achieve such stability without things becoming too stable – and driving away top performers?

From LBS Professor Freek Vermeulen comes piece of counter-intuitive (and therefore interesting – Bateson) advice: in a downturn a company should diversify rather than focus exclusively on the core product. The rationale is that, in a downturn, no single pocket of revenue is big enough to sustain the firm. This kind of thinking extents to the firm’s clients too:

…firms should not be focused on winning any big accounts, major new products or customers; they should aim for many smaller ones. They are relatively cheap to access and often the firm will already have knowledge about them; they shunned them in the past considering them too small to advance at the time.

The only real downside of Vermeulens’ idea is that such diversification and focus on more and smaller accounts will exhaust the managerial and “attentional” resources of the firm, in a period when it needs them the most in order to perfect its operations.