Gartner Says CFOs Should Follow 4 Steps for Workforce Cost Reduction Amidst Increasing Corporate Layoffs

CFOs should consider four steps to strike a thoughtful balance between financial imperatives and organizational staffing needs when managing layoffs, according to Gartner, Inc., a business and technology insights company.

“Nearly two-thirds of large, public organizations announced cost-cutting efforts between 2023 and 2Q25,” said Vaughan Archer, Senior Director Analyst in the Gartner Finance practice. “Despite most of them conducting three or more rounds of cuts, they often failed to reduce operating expenses.”

Headcount reductions are one tactic organizations have been using to cut costs. Data taken from Gartner’s Global Talent Monitor Reports showed the rate of employees experiencing layoffs has been increasing quarter by quarter since the start of 2024 (see Figure 1).

“Budget holders often look to finance for support when making cost-reduction decisions,” said Archer. “However, when finance teams don’t have the capacity to absorb more work it can lead to unproductive layoff decisions.”

Gartner experts advise CFOs and finance leaders to follow four steps when considering layoffs. 

“CFOs faced with a mandate to reduce headcount often act diplomatically: spreading reductions across functions and departments evenly,” said Archer. “Yet from a cost reduction perspective, it is far more effective to target headcount reductions in a way that supports enterprise margin targets while minimizing disruptions.”

In practice, this kind of evaluation will consider several factors. For example, the strategic importance of the department: does it make sense to make blanket cut to IT for organizations that are facing digital disruption? How easy will it be to acquire this headcount again when the market improves? Can roles be automated or relocated to a lower cost location? How does a function or team benchmark against industry peers, is it already lean or costly?

“This is important because budget holders often lean towards arbitrary heuristic methods such as ‘last in – first out’ when implementing layoffs, instead of considering the broader impact on organizational strategy,” said Archer. “Such approaches likely do more harm than good.”

Instead, providing tools that can help budget holders identify layoff candidate according to their alignment with future business strategy and direct impact on current revenue or performance. Additionally, finance should help provide budget holders tools to help quantify the short term costs and ongoing cost savings of any planned layoffs.

“It doesn’t help an organization to go through a round of layoffs to meet a target, with all the problems that can entail, just to have those costs reappear in subsequent quarters through contractor hiring, overtime and aggressive rehiring,” said Archer. “Aside from being judicious with layoffs in the first place, it will pay off for finance to collaborate with HR to develop a suite of practical tactics that empower budget holders to proactively address and minimize the risk of cost reemergence after workforce reductions.”

This could include, for example, Tasking FP&A with maintaining a rolling list of departments and roles where cuts have been implemented in the last two years to help monitor cost reemergence.

“Without clear communication, workforce reductions can lead to fear, guilt among remaining employees and damaging rumors in the workplace, which can hurt the organization’s ability to carry out its plans,” said Archer. “Communications must address two critical phases: preparing management for employee layoffs and ensuring retained employees — especially top performers — remain consistently engaged, focused and motivated postlayoffs.”

CFOs should work with senior leadership in HR, communications and industrial relations to tailor the layoff notifications to their organizational circumstances before deploying to the affected audiences.

Gartner clients can read more in 4 Steps for Workforce Cost Reductions While Maintaining Staffing Needs, and nonclients can read The CFO Report.