How entrepreneurs can win the war for talent in times of economic headwind

Yannick Dillen

By Yannick Dillen

Professor of Management Practice

29 May 2023

Companies are currently operating in an uncertain economic climate. As a result, many entrepreneurs see the demand for their products or services stabilising or slowing down. Laying off employees often seems the most obvious and quickest solution to cut costs. But in the long run, it may turn out to be a bad idea. Yannick Dillen, Professor of Entrepreneurship at Vlerick Business School, explains why saving on your labour costs should be your last resort.

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What is your advice when companies are struggling with a loss in turnover and costs remain stable or are even rising?

“When turnover decreases, a logical step is to look at cost-cutting initiatives. As labour costs are for many entrepreneurs one of the largest – if not the largest – cost category, looking at lay-offs might be one of the consequences. And indeed, we have witnessed in the past weeks and months several lay-off rounds across all types of businesses ranging from scale-ups to large corporations.

“But we also know from our research that in the last decade, one of the biggest struggles for companies was to find the right talent. Hence, laying off people merely as a cost-cutting initiative may be something you’ll regret later on.”  

Yannick Dillen

Why you shouldn’t surrender the war for talent

When economic headwinds are blowing – and demand for your products and services drops – what should you do to cut costs? Reducing the size of your workforce might seem the most obvious solution. But saving on labour costs should be your last resort, says Professor of Entrepreneurship Yannick Dillen.

Why is laying off people so dangerous and should it only be considered as a last resort?

“We are living in what is called the war for talent – and some even say the war for people. If you cannot attract the right talents, companies can also train less qualified people in such a way that they become talented workers by developing the skills they need for a particular job. With that in mind, saying goodbye to a certain percentage of your workforce is often a suboptimal choice. The crucial question that business owners need to ask themselves is: “Will we be able to attract the same amount of skilled people when things start to improve again?”. In a rapidly changing world, an economic upturn can happen much sooner than many people would expect. Permanently laying off people is a drastic measure that can backfire in a matter of months. So, you need to have a plan where this option is only activated when other options have been considered or already implemented. In this day and age, human capital is scarce and it’s your most crucial form of capital.”

If laying off people is not a good idea, what could then be alternative ways of cost-cutting?

“There are many other cost-cutting options you could consider first. Mainly you need to look at expenses for products or services that can be repurchased or reactivated quite easily when the state of the economy starts improving again. Examples are assets or subscriptions that are not really being used at this moment, or other expenses that are not really so effective such as certain marketing or IT costs.”

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Yannick Dillen

Yannick Dillen

Professor of Entrepreneurship