Discussing Downsizing, Refocusing Rightsizing, Laying off the layoffs...

The recent spate of announcements regarding corporate losses and subsequent expected job losses has got me thinking again about the nature and process of redundancies. Call them what you will, layoffs, redundancies, job losses, downsizing or even rightsizing (indeed being an HR Manager I have a few of my own terms including “non-forecast human resource growth inversion”, or “non-essential human capital rebalancing through organisational expatriation”... ok, Ive never actually been game enough to use either of those...); the fact remains the same - Real people losing their job and potentially their career, their livelihood. It is more than numbers on a balance sheet and needs to be treated as such. 

I first investigated the impacts of layoffs in 1998 for my Masters’ thesis (which you can probably find gathering dust in the University library somewhere) and will be continuing to research the phenomenon for my Doctoral thesis in a couple of years. It is appropriate to reiterate some of the key findings of my research here given the current economic conditions and likely continuation of such announcements.

While many organisations implement “an appropriate change management strategy” or provide transition support, outplacement and career counelling, very few consider the true impact of losing one’s job. While employers might try to limit the apparent human impact of mass job cuts by using terms like rightsizing, restructuring or rebalancing, the reality is that downsizing is a serious, emotional process that affects people’s lives. The focus might be on cost cutting and new business directions but ultimately it is the people who are central to the process.

Employers need to understand that it is not only those laid off that will be affected. Organisations need to be aware of the impact that these processes have on those employees remaining in the organisation, (the “survivors”) as well as the managers responsible for giving the bad news (the “executioners”) and the effects that a poorly handled process can have on an organisations customers, brand and bottom line.

It is important for managers and executives to understand that Downsizing is not another simple change process. Programs that treat downsizing the same as the implementation of a new software system or a new reporting system and provide the same change management education and support as they would to such a process, gravely underestimate the potential impact of downsizing on both victims and the future of the organisation post-downsizing. A range of studies show the far reaching consequences that can result from the practices that currently prevail. 

Research shows a range of cultural and performance impacts in both the short and long term including:

- a post downsizing environment characterised by higher levels of long-term sick leave

- a fearful, cynical, self-interested and distrustful culture

- organisations can become cautious, less innovative and internally more competitive

- experience has shown that in a destabilised environment the best employees go first

 Of particular concern to businesses using downsizing as a cost cutting or efficiency strategy are findings that in most studies, profitability and share value tend to show no change or decline over both the short and long-term following downsizing. 

Research has shown that when downsizing is undertaken hastily and implemented quickly, downsizing associated negatively with innovation output. In contrast, the results revealed that taking time to plan and implement downsizing reduced the harm of downsizing on innovation output. Also, as predicted, they found that downsizing to cut cost was negatively associated with innovation output.

Victims can experience significantly higher rates of stress, depression and show increases in burnout and decreases in job satisfaction in later jobs. The effects can be long-term, sometimes still present years after the event. In one study up to 40% of homeless adults indicated that job loss was a cause. Research also shows involuntary job loss may also be a contributing factor to higher levels of chronic disease, higher mortality rates and, in one study, higher suicide rates.

Survivors also face significant impacts, including significantly higher levels of depression, stress and burnout than those who had not experienced colleagues losing their jobs. Survivors of downsizing also had higher rates of disease, prescription use and risk of being on a disability pension.

Executioners, the managers responsible for delivering the news to their employees, are not immune from the damaging emotional and psychological effects either. They report higher levels of withdrawal and higher levels of job insecurity. Being responsible for laying off employees is also a significant predictor of managers’ intentions to quit their job. They also experience higher rates of physical health problems and symptoms such as disturbed sleep than their colleagues.


There is an up side, research also shows that in some cases downsizing can be a positive experience. Future career and personal prospects of victims can be positive, engagement and productivity of survivors can improve, downsizing can remove non-performing parts of the organisation and some research has shown improved profitability and positive sharemarket returns for the organisation.

The key to achieving these results lies with effective management intervention including an a strategically and emotionally intelligent approach. This involves planning and implementing the process thoughtfully (not just operations, structure and systems, but more importantly planning communication and support for all affected): treating employees with sensitivity, dignity and respect; undertaking a procedurally fair process with appropriate communication and providing effective personal and career support to all staff during the process.

Change management is in many respects emotion management. Leaders and managers must undertake a more emotionally intelligent approach to their downsizing program – putting people first, considering the impact and outcome of all of their actions and plans because downsizing is fundamentally a human process not a business process.


So what can organisations do?

As long ago as 1997, a benchmarking study report by the United States Government concluded that successful downsizing that alleviated survivors’ concerns and focused the organisation on the future was characterised by

         - a participative and inclusive planning approach with senior leaders being seen by employees to have been involved in the process from the beginning.

- honest and open two-way communication throughout the process. Communication must be constant and credible

- separating employees being treated with dignity and respect. This includes ensuring a fair process (and not giving them five minutes notice and marching them out of the building with a security guard)

- Support and assistance to both the victims and the survivors (including managers and executives), including both practical career support and personal counselling to support emotional transition.

- Support (and more importantly, training before the fact) for managers who have to deliver the news and manage the process for their staff is also important in successful downsizing.

None of this is rocket science, and yet 20 years later it still seems so hard to get right.

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