While layoffs may seem like a good way to cut costs in the short-term, the direct and indirect costs of downsizing can paralyze your company's long-term revenue-generating streams. "The books look great for two or three quarters, and then things don't get done," says Jonathan Phillips, managing director of Houston-based executive search firm Magellan International.
The direct costs of layoffs from outplacement services and severance pay can add up initially, but indirect costs -- like losing experienced sales and marketing employees who have strong relationships with clients -- can cause lasting damage to a business. Phillips saw this phenomenon first-hand when he worked in various management roles at Shell in the late 1980s. "They let a lot of senior executives go, mostly out of sales and marketing, which they thought was a marginal activity until their clients didn't want to buy from them anymore."