Layoffs? Cut Costs, Not Capabilities!

The past few years have forced organisations to make difficult workforce decisions at unprecedented speed. While layoffs dominate headlines, the data paints a more nuanced picture of their real impact on business performance. Data from recent years shows layoffs at a historic scale, yet research repeatedly finds that firms relying heavily on job cuts underperform peers that use smarter, capability-protecting efficiency measures.

The scale of recent layoffs

Since 2022, India has also seen waves of layoffs, especially in technology, start-ups, and related service sectors. Recent analyses suggest that many tech and startup workers have lost their jobs in India over this period, with a significant share of cuts concentrated in major hubs such as Bengaluru, Gurugram, Hyderabad, and Pune. In the broader Indian market, several reports indicate that total announced job cuts over the last couple of years reached their highest levels since the previous major downturn, reflecting how quickly employers resort to headcount reduction when funding tightens and demand slows. Yet, these reductions coexist with persistent hiring needs and skills shortages. Industry updates through late 2024 pointed to a large volume of open roles across cloud computing, cybersecurity, data analytics, and AI engineering, even as prominent firms announced retrenchments in non-core or overlapping functions. This contrast of layoffs in some verticals while struggling to recruit in others highlights how blunt layoffs can be as a workforce management tool in India’s evolving digital economy.

Why layoffs hurt performance

Evidence increasingly shows that layoffs frequently erode, rather than enhance, long-term performance. A study of U.S. tech companies found that while markets may react positively in the short term, firms tend to experience weaker return on equity after layoffs compared with peers that avoid major cuts. Other research in the IT and services industries finds that layoffs provide temporary financial relief but lead to lower productivity, higher turnover, and reputational damage over time. The human impact also feeds directly into business outcomes. One widely cited Harvard Business Review study found that layoff survivors can experience around a 41% drop in job satisfaction and a 20% decline in job performance, along with increased burnout and error rates. Innovation suffers too: one academic study reported about a 30% decline in patenting activity in the year following layoffs, reflecting lost expertise and rising risk aversion among remaining employees.

Principles: cut costs, not capabilities

A capability-first approach starts by protecting core skills, institutional knowledge, and customer-facing strengths while surgically attacking non-essential spend. Rather than treating talent as a variable cost, leaders explicitly define which roles, skills, and teams drive competitive advantage in engineering, customer success, data, or design and ring-fence them from indiscriminate cuts. This helps avoid the common pattern where companies save on payroll but later pay more in rehiring, retraining, and lost opportunities.

The Society for Human Resource Management estimates that replacing a salaried employee typically costs the equivalent of 6–9 months of that employee’s salary, once recruiting, onboarding, and ramp-up time are included. When large numbers of experienced people are let go, these replacement and productivity costs compound, often offsetting the headline savings executives expected from layoffs.

Practical cost-cutting levers

Leaders aiming to avoid layoffs have a broad toolkit of cost‑reduction moves that preserve critical capabilities. Common levers include:

• Adjusting work arrangements: temporary reductions in hours, compressed workweeks, and extended unpaid leave can trim payroll while retaining talent.
• Optimizing labor mix: freezing hiring, redeploying staff to higher‑priority roles, and cross-training employees reduces the need for external hires and increases flexibility.
• Reducing non-people costs: cutting travel, renegotiating vendor contracts, limiting new equipment purchases, and shifting to virtual or hybrid offices can deliver substantial savings without touching headcount.
• Sharing the burden fairly: bonus deferrals, or lower pension and retirement plan contributions, especially at senior levels, can preserve jobs while still achieving budget targets.

Building resilience without layoffs

Engaging employees in the search for savings is one of the most powerful and underused strategies. Surveys suggest that a large majority of CEOs expect slower growth in the coming year, yet collaborative cost‑reduction, jointly identifying waste, redesigning processes, and simplifying products can eliminate substantial expense while actually deepening commitment and trust.

This approach works best when organisations have the right systems to listen, align, and act together. Platforms like Prajjo’s Culture Suite help surface employee insights, encourage participation, and turn everyday feedback into meaningful efficiency improvements.

Companies that treat downturns as opportunities to sharpen focus, upskill their people, and improve how work gets done are better positioned when conditions improve. By cutting costs thoughtfully, starting with waste and inefficiency rather than people, leaders protect capabilities, sustain innovation, and emerge from turbulence stronger instead of merely smaller.