Layoffs or lift-off? How CFOs can cut costs without clipping wings

The mandate to aggressively cut costs has put the modern CFO at a critical junction: how to achieve necessary financial discipline without sacrificing the talent and capabilities vital for future growth. Since 2023, nearly two-thirds of large, public organizations have announced cost-cutting efforts, with many resorting to multiple rounds of layoffs.

Yet, as Gartner Senior Director Analyst Vaughan Archer observed, these efforts “often failed to reduce operating expenses”.

The data underscores the rising pressure. Gartner’s Global Talent Monitor Reports show that the percentage of employees experiencing layoffs has been climbing quarter-by-quarter since the start of 2024. This makes the decision around workforce cost reduction arguably the most sensitive and strategically complex item on the finance leader’s agenda. As Archer points out, unproductive layoff decisions often result when finance teams lack the capacity to absorb more work or provide strategic oversight.

The CFO’s role is no longer simply approving cuts; it is to ensure those cuts are strategic, targeted, and sustainable. Based on insights from the recent Gartner CFO & Finance Executive Conference in London, here are the four indispensable steps finance leaders must follow to strike a thoughtful balance between financial imperatives and organizational staffing needs.

1. Target Reductions Based on Strategic Goals, Not Symmetry

The traditional approach to headcount reduction often involves a diplomatic, even-handed mandate: spread the cuts across all functions and departments. This is a fundamental mistake. While diplomatic, it is “far more effective to target headcount reductions in a way that supports enterprise margin targets while minimizing disruptions”.

A rigorous, strategic evaluation should consider several factors:

• Strategic Importance: For an organization facing digital disruption, does it make financial sense to impose a blanket cut on the IT department? 
• Talent Reacquisition Cost: How difficult and expensive will it be to recruit this talent again when the market eventually improves? 
• Operational Alternatives: Can the roles be effectively automated or relocated to a lower-cost geographical base? 
• Industry Benchmarking: Is the function or team already lean, or does its cost structure lag behind industry peers? 

By answering these questions, the finance function ensures that cuts are not just about reaching a numeric target but about preserving value and sharpening the company’s competitive edge.

2. Equip Budget Holders with Strategic Decision Tools

Budget holders, when faced with the difficult task of making layoff decisions, often revert to arbitrary methods like “last in – first out”. Archer warns that such approaches are likely to “do more harm than good” because they ignore the broader impact on organizational strategy.

Finance must empower these leaders with tools that foster a strategic mindset:

• Alignment with Strategy: Provide clear frameworks to identify layoff candidates based on their current role’s alignment with the future business strategy.
• Quantifying Impact: Tools should help budget holders assess the candidate’s direct impact on current revenue or performance.
• Cost-Benefit Analysis: Finance should aid in quantifying the short-term costs (e.g., severance) and, critically, the ongoing cost savings of any planned layoffs.

This partnership elevates the process from a punitive chore to a strategic function.

3. Establish Tracking to Prevent Cost Reemergence

One of the most insidious threats to cost-reduction efforts is the resurfacing of costs shortly after a round of layoffs. This happens through aggressive rehiring, excessive overtime, or reliance on expensive contractors. Going through the pain of layoffs only to have the costs “reappear in subsequent quarters” defeats the entire purpose.

To combat this, finance must collaborate closely with HR to develop proactive and practical tactics:

• FP&A Oversight: The Financial Planning & Analysis (FP&A) team should be tasked with maintaining a rolling list of departments and roles that have seen cuts in the last two years. This centralized tracking helps monitor and minimize the risk of costs reemerging.
• Budget Holder Empowerment: Equip managers with guidelines to proactively manage workloads and hiring needs post-reduction, preventing a panicked backfill of roles.

4. Master Communication to Retain Critical Talent

Workforce reductions, if handled poorly, can generate “fear, guilt among remaining employees and damaging rumors in the workplace”. This atmosphere of uncertainty cripples the organization’s ability to execute its plans.

CFOs must work with HR, communications, and industrial relations to ensure communication addresses two critical phases:

• Management Preparation: Preparing the leadership team to deliver layoff notifications with empathy, clarity, and legal compliance.
• Post-Layoff Engagement: Ensuring that the employees who remain, especially the top performers—remain consistently engaged, focused, and motivated.

By tailoring the layoff notifications and rationale to their specific organizational circumstances, CFOs protect the firm’s reputation and secure the productivity of its most valuable asset: its retained, high-performing talent.

Adopting this four-step framework moves the finance function from being a cost center enforcer to a strategic leader in organizational design. It is the roadmap for turning mandated cuts into sustainable, value-enhancing workforce optimization.

What measures is your organization taking to ensure that current cost-reduction mandates do not undermine your long-term talent strategy?