Lay Off the Layoffs! Game professionals working at small and large studios alike are finding themselves out of work, many for the first time in their lives. Can employers find alternatives to laying off their staff? GameRecruiter CEO Marc Mencher continues his series on game industry career planning with suggestions for game companies considering layoffs.
by Marc Mencher
The financial mess the world finds itself in is affecting the video game industry, even though this 2008 we experienced record sales. Some of the larger publishers have already cut jobs or are planning to trim their staff after failing to meet profit projections. Professionals working at small and large studios alike are finding themselves out of work, many for the first time in their lives. Trying to dodge a layoff can feel like battling Sheeva in Mortal Kombat—eventually she's going to get hold of you, and some serious pain is in store for you if that happens. Unless you enjoy battling a multi-armed mistresses of doom, of course.
So this 2009 we can expect game companies are going to be tightening belts and cutting some staff. Sega has axed 30 people as it tries to streamline its operations and Electronic Arts confirmed it was making "significant" layoffs on Thursday at its Black Box studio in Vancouver as part of a restructuring effort the company hopes will save $120 million.
"We should ask ourselves, why is it that in a tough economy, employers primarily use layoffs to cut labor costs? Why don't they look for alternatives?"
Just days ago, Microsoft announced it is laying off hundreds of people from its game division, including the wholesale closing of ACES studio, which produced the Flight Simulator franchise. When a company like Microsoft starts announcing such large cuts, you know the economic storm is worsening, and you may be in for a rough landing.
In lieu of implementing layoffs however, many game companies can learn from what other companies like Dell Computer, Cisco Systems and Motorola are doing – finding alternatives to layoffs. Layoffs are done to save money. Unfortunately, they are usually a short-term fix, detrimental to the company. So why do so many companies persist in using layoffs as a first choice for cutting costs, and what are some of the alternatives?
A growing number of employers, hoping to avoid or limit layoffs, are introducing four-day workweeks, unpaid vacations and voluntary or enforced furloughs, along with wage freezes, pension cuts and flexible work schedules. These employers are still cutting labor costs, but hanging onto the labor. If the basket of complimentary bagels has suddenly disappeared from your office kitchen, now you know why.
Companies trimming their work forces say they do not want to prune too much, as specialized talent, especially in the game industry, is hard to find. I mean, really, how many people do YOU know who are experts at shading, right? The new strategy is ensuring they hire or maintain highly productive workers. No longer is it easy for a 'slacker' to remain on the payroll. If you've got that bagel in hand, now would be a good time to put it away and get back to work!
But we should ask ourselves, why is it that in a tough economy, employers primarily use layoffs to cut labor costs? Why don't they look for alternatives? By alternatives, I am referring to labor cost-cutting measures that allow employees to keep their jobs while lowering their costs of employment.
What else could employers do to cut labor costs and keep employees on the job? Before deciding that a layoff is necessary, consider whether or not there are any alternatives to a layoff that could work in your operation. However, keep in mind, when your company is facing such a dire situation, layoffs might be part of the solution.
Jeff Anderson, CEO of PlayHard Sports, says layoffs are generally the result of insufficient upfront planning. "When you're at the point to make layoffs, you haven't grasped the fundamental problems," he says. "It's sort of like a hurricane. When it occurs, you have to deal with it."
As Anderson explains, game companies need to find every possible way to cut costs – while, ideally, avoiding morale-busters like layoffs. Here are some ways companies are doing just that.
1. Companies can reduce allowing employees to work overtime.
2. Companies can cut costs by limiting travel and attendance to some of the industry events.
3. Companies can cut costs by limiting the purchases of office supplies and equipment.
4. Companies can cut costs by temporarily suspending 401(k) matching contributions. "If you're thinking that you can't afford to do 401K matching or something, think of where you are in your business trajectory," Anderson suggests.
5. Companies can cut costs by allowing more employees to work from home. Rent for commercial space is expensive. Why maintain large office space when you can reduce these costs by sending some employees home?
6. Reducing the size of the workforce through attrition or a hiring freeze are possible alternatives. Another alternative is to offer employees incentives for early retirement. "Take as many people as you have and make them contingent—outsource animators and other technical people," Anderson says. "We try to keep the head count as low as possible."
7. Lateral transfers are becoming more common, and more acceptable. Employees are allowed, to move from one department or division to a related position in another. This can be a good move for the employee who gains a broader base of knowledge and becomes more valuable. Lateral transfers are also good for the company. They are one way to retain valued employees. They bring fresh, innovative, and potentially cost-saving ideas into a division, without the full cost associated with a new hire.
8. The concept of downward movement or job demotions is less well accepted and less often used but this is also a very good tool for lowering costs without losing valued team members. No one wants a demotion but isn't it fairer for some employees to suffer a little rather than be part of a layoff?
9. Companies can cut costs by allowing some administrative employees to work four-day, 40-hour weeks.
10. Companies can cut costs by doing more of their own marketing. Do you really need to spend big bucks on marketing consultants or advertising firms? For example, stop spending money on SEO services who are supposed to improve website traffic. Quit paying for Google Ad Words. Encourage your existing technical staff to blog and create a bonus program around revenue generation as a result of the effort. Blogs are a great way to connect with your audience in an informal way. Use your products to demonstrate your knowledge of the industry, and use humor to keep people reading! (Just go easy on the competitive jokes—you don't want to start a blog war with other game companies.) Game companies already maintain technical staff, so encourage then to blog about your games or your company in their spare time.
The direct costs of layoffs from outplacement services and severance pay can add up initially, but indirect costs — like losing experienced employees who have strong relationships with 3rd party developers, retail buyers or even new IP holders can cause lasting damage.
Additionally, the direct costs of layoffs negate any financial benefit if new employees are hired within six to twelve months, according to a Bain & Company study. This type of "binge-and-purge" tactic, common during recessionary periods, can place an organization in an unfavorable position.
Your best employees might bolt after a round of cuts.
It is also possible that the top performers who survive a layoff won't necessarily feel obligated to stay. A study from the University of Melbourne and the University of Colorado at Boulder both confirmed that employees were far more likely to quit jobs in environments of downsizing. The likelihood that an employee will quit actually increases the more layoffs he or she "survives," the CU-Boulder study found.
"Layoffs can be perceived as a violation of the psychological contract between an organization and its employees, resulting in decreased trust and greater stress in the workplace," says Wayne Cascio, author of the book "Responsible Restructuring: Creative and Profitable Alternatives to Layoffs."
The negative effects on the survivors of a layoff are decreased commitment and productivity. Game companies rely on employee involvement and motivation. Not only are top-performing employees more likely to leave, but the employees that remain may exhibit less effort and involvement.
"Once people feel there's insecurity in the business, they start to look at other options themselves," Anderson agrees. "But when you do have to let somebody go, you need to demonstrate the compassion you have for former employees, and that says a lot to your current employees."
Layoffs don't improve organizational performance.
Since some of your best and most experienced employees will jump ship after a layoff, workplace productivity is bound to suffer, and the psychological effects of a layoff on those who remain can be even more detrimental to your company's continued performance. The New York Times reporter Louis Uchitelle examined these effects in "The Disposable American: Layoffs and their Consequences," finding that company performance suffered significantly in a post-layoff atmosphere.
Layoff announcements speak of jobs eliminated or percentage reduction of the workforce, but behind those pretty words are the company's people. Whether the company is able to continue to compete effectively, is able to fulfill the promise the layoffs make to the investors, will continue to generate the innovation required to survive in the marketplace depends on those people.
It depends on those who are left after the layoffs, those of them that choose to remain after the layoffs are completed. It depends on how they feel about how others were treated and how they themselves might be treated in the next round of layoffs, which may come. "Things you can do to encourage confidence is to say hey, this is happening because of situations outside of our control, and we're doing the best we can to help our family members that this affects," Anderson says. "You want to do the best job you can of giving confidence and security that you won't have to repeat this, and stress that this is a one-time occurrence."
A company may lay off employees it considers the low end producers, but in doing so it creates a climate of personnel uncertainty. As Anderson notes, that uncertainty causes others to leave. The first people to leave due to uncertainty in the company are the best people, because they can always get another job somewhere else. The climate of uncertainty that follows a layoff, therefore, always guarantees a reduction in the quality of the staff, not just the quantity.
Companies contemplating layoffs need to consider more than just the hoped for cost savings from a layoff. They need to consider, and plan for, the less obvious effects. They need to consider the reduced morale and the reduced performance and innovation it will bring. They need to consider the reduced quality of the company's overall workforce that will result.
Restructuring does work
There are alternatives to across the board layoffs that do work to reduce costs. One of the most effective and most immediate of these is restructuring. Often, when job cuts are undertaken in order to pacify the investors, the announcements talk about the cuts as part of a "streamlining" or "restructuring," but they refer only to the people involved. There are other aspects of the company's business that need to be restructured as well. These often include things such as closing of obsolete plants or branches, administrative overhauls, selling of non-core operations, or improving internal processes.
Arguably, these kinds of things take longer to affect the bottom line than cutting out the salaries of the laid off employees. However, when one considers the costs of severance payments to those employees, continued health care payments for some, increased unemployment charges as a result of the layoffs and reduced productivity following the layoffs, that may not be valid. (Not to mention all of the office supplies which "disappear" following an employee's departure!)
Typically companies will take a "one-time charge" against earnings to cover the layoff, which clears these costs from the books quickly. In reality the change won't make any difference until at least the next quarterly report. In that same period, other, slower changes could have been implemented and have shown similar cost reductions. The difference then is mainly cosmetic. Making the numbers look good quickly (layoffs) so Wall Street is happy versus a slower method of restructuring the business that preserves the company's significant investment in its employee capital.
Find and fix the problem.
Don't just cut jobs to look good to the investors. Make the changes that will make the company better instead of damaging the very thing that made the company successful in the first place, its employees. And the awesome games they all joined to help the company make, of course!
Restructure the business to make it better. If a function is not contributing to the company's success get rid of it, but cut from the head down, not from the bottom up. Make sure remaining employees clearly understand the selection process that was used to cut under-performing units or functions no longer sufficiently valuable to the company. As Anderson points out, sometimes layoffs are inevitable, but before you start swinging the ax like you're fighting for the survival of The Horde, think carefully how you can best improve your business without losing your most important assets. "Layoffs are generally the result of insufficient upfront planning," Anderson says. "How do you solve the problem after you've already got a problem?"
— —
Marc Mencher is CEO of GameRecruiter and a game industry career specialist who has helped thousands of jobseekers land positions with the leading games companies.
Posted By: Game Vibe
Tuesday, February 3rd 2009 at 4:40PM
You can also
click
here to view all posts by this author...
