The Human Side of Downsizing


Robert M. Tomasko


[This is a revision of an article that appeared in New Jersey Bell Journal, Summer 1988.]


American industry has followed a crash diet throughout much of the 1980s. Over a million and a half staff professionals and middle managers have had their positions eliminated during this downsizing decade. More than two-thirds of the Fortune 500 companies have flattened their organizational pyramids as have many smaller businesses. This wave of cutbacks has been driven by a difficult combination of fierce overseas competition, free-falling commodity prices, deregulation and junk bond fueled corporate raiders. Few industries have been immune to downsizing; it has affected high tech computer builders as well as labor intensive trucking companies. Industrial states such as New Jersey with its concentration of chemical manufacturers, telecommunications firms and transport companies, have been especially hard hit.

An Unintended Consequence
Most downsizing efforts are directed at cutting costs, eliminating corporate bureaucracy and speeding decision making. Unfortunately, achieving these laudable objectives has too frequently been accompanied by lowered morale, diminished employee spirit and retarded risk taking and innovation. These unintended outcomes, ironically, have weakened some companies abilities to compete - the very reason many of them downsized in the first place. And fear of them has kept some businesses from making organization changes that they need to sustain their economic success.

Why does morale drop? Consider these complaints, typical of those heard expressed (usually after hours) by employees in corporations that have recently undergone cutbacks.

" There's just too much work to do now. It's a rare night when I'm home early enough to see my kids before they go to sleep. I'm doing all the work I used to before the staff cuts plus a good bit of that left behind by one of my recently laid-off colleagues."

"It was great at first having more management responsibility and more people directly reporting to me. But all the budget reductions have left me with less staff support to run my operation. And none of the paperwork and reports have disappeared - only the people that used to do them."

"I managed to survive the first round of cuts, but I'm just waiting for the other shoe to drop when I'll be called in and told to clear out my desk."

"Since 'Black Monday' my boss has been really unapproachable. He spends most of his time in his office with his door closed, leaving the rest of us wondering and worrying about what's going to happen next."

Does morale always have to fall victim to downsizing? No. Not in companies where executives have managed the human as well as the economic aspects of staff reduction. Morale, like market share, can be managed. But the tools needed, the skills required and the information necessary are different from those usually used to manage the business.

Downsizing's Three Phases
Companies that have maintained, and sometimes even enhanced, morale while pruning their organizations tend to give careful attention to each of the three phases of downsizing:

- its planning

- its implementation, and

- its aftermath.

Many companies rush through the planning phase in hopes of quickly achieving the economic gains promised by implementation. By the time the downsizing has occurred there are often strong pressures to "get back to business as usual," leaving little time to give attention to managing its aftermath. The net result, too frequently, is a whip-lashed and depressed work force.

Morale often suffers after downsizing because an inadequate job of organization planning was done at its outset. Realistic and sustainable downsizing has to start with a careful reconsideration of the work being done by the company. What is essential and what can be done without? What activities are redundant, which are excessively fragmented? How can work be done in different, better ways? What work can best be done by outside contractors?

Until questions such as these are answered, the company is in a poor position to determine its staffing needs and to identify positions for elimination. But, unfortunately, in most downsizing situations the first question asked is "how many people can we get rid of?" The answer is often: "We're not sure, but let's eliminate as many as we need to reach our cost reduction objective."

The result of this kind of feeble analysis is usually an across-the-board staffing reduction, with some areas cut too deeply, others not enough. Little attention is given to adjusting the workload until after those let go have gone. By not starting with a bottom-up review of the nature of the work done in each department, employees are often eliminated, but the bureaucracy remains.

And the employees left behind know it. Some are overworked, others are underutilized, and all are aware that little has really changed in the company's efficiency or effectiveness. And morale suffers.

But the opposite result has occurred in the companies that approached downsizing in a less hurried, more analytical fashion. They sent a clear signal to their employees that they wanted the work done better, not just with fewer people. Many of the people who remained after the cutbacks found they had jobs with more responsibility, and less wasted efforts. Their morale increased because they felt their company had finally structured their work in a way that made the most sense.

Participative Downsizing
Some businesses, very concerned about the receptivity of the work force to the slimmed down organization, have made sure they involved the employees in the actual redesign of their jobs. Some have found it was not too high a price to pay to get the best thinking about how to rearrange work to offer employees the security of a position somewhere within the company as a way to encourage them to suggest eliminating even their own job.

Many companies shy away from approaches such as these because they are fearful of what will happen to morale - and productivity - if the word gets out they are planning cutbacks. So they try to involve as few people as possible in the planning and they do it as quickly as possible. Unfortunately these two factors tend to work against developing the best possible reorganization plan. And they ignore the power of the grapevine and rumor mill.

Overcome the Rumor Mill
It is almost impossible for a company to keep its employees unaware that a downsizing is being planned. Informal communications channels will quickly fill any vacuum created by tight-lipped executives. And more times than not the rumor mills overstate the company's problems and the steps being considered to deal with them. They contribute to lowered morale by fueling employees apprehensions and worst-case fears.

For executives concerned about maintaining strong morale the only way around this is to keep the vacuum from being created in the first place. They continually communicate, even over communicate, information about the company's situation and what is being done about it. They do not hold back information just because all the planning is not completed or all the decisions are not made. They provide at least give an indication of what is being considered and when any uncertainties may be resolved.

Too few business take this proactive approach. One major telecommunications did, and kept all it employees posted very frequently about the progress of its restructuring. A first line manager in one of its marketing units told me the official communications were so frequent that few rumors had time to get off the ground. He even admitted that some of his chief concerns were addressed before he even had a chance to voice them.

Good internal communications programs are two way streets. Executives should not have to speculate what is on the minds of their employees. They should have hard information to work from, based on frequent surveys, internal focus groups and other sensing methods. Without having these ways to bypass the hierarchy and understand directly what employee concerns are most pressing, top management's efforts to overcome rumors are blind shots in the dark.

Good planning and continual communications are critical to maintaining morale while downsizing. But they are not sufficient. The net result of most streamlining planning efforts is the identification of a surplus in the work force. How this surplus is dealt with will have a powerful impact on the morale of those remaining. Stories will be told about how the cutback was handled that will have a life far beyond the immediacy of the downsizing. These stories will do a lot to shape the future corporate culture.

Treating employees well who have been loyal and good performers, but for whom the company no longer has work, is critical. This implies that a systematic effort has been made to match their abilities with the staffing needs of other units in the company. Otherwise the demotivating revolving door phenomena of laying off in some departments while hiring in others will undermine management's credibility.

It implies providing them with adequate notice that work for them will be no longer available. This allows them to leave with their dignity intact. Not only does this help them prepare for the career transition they will be forced to make, but it communicates to the survivors of the cutback that they do not have to fear the unexpected "knock on the door in the night."

It implies that adequate severance and benefit continuation policies have been provided.

And most important it implies that the company has organized and funded an effective reemployment effort to finds new jobs for those being let go. This lets those remaining know that if future reductions become necessary, the company will do its best to take care of them also.

The Aftermath
The final threat to employee morale is the phase of downsizing that many companies ignore: the months that follow the layoffs, early retirements and reorganizing. These companies make the mistake of managing organization change the same way they implement changes in computer systems or manufacturing processes.

These technological changes are usually implemented using a "cut-over" philosophy. The new system or machinery is built adjacent to the old. When it is completed and fully tested a cut-over day is designated when the old equipment will be shut down and the new inserted in its place. This technique works well with inanimate objects; it is dismal when human beings are involved. People seldom assimilate change instantly. They need time to anticipate it, prepare for it, and experiment with the new while hanging on to the security of the old.

When the change is downsizing the way employees react to the departure of their colleagues is not unlike the stages they go through when mourning the death of a friend. Time is needed to talk out the grief they are feeling, to move from denying anything has happened to accepting the new reality and moving on.

Companies that expect change to occur overnight and who treat the employees let go as if they never existed are only blocking the psychological adjustment that the survivors must work through. They are laying the groundwork for a much longer than necessary period of disruption, low productivity and weak morale.

Corporations are increasingly learning how to manage this period. They are providing counseling to those left behind as well as those who needed outplacement. They are making good use of task forces with members that cut across organization units to provide a mechanism to rebuild the work relationships that need to be in place for the company to resume functioning effectively.

During this transition period some companies have closely examined many of their management practices to weed out those that might reinforce employee's feelings of inequity and future concern. Special executive perks are questioned ("How can they keep three corporate jets when hundreds of managers are loosing their jobs"), performance standards and their evaluation are tightened ("What bothers me most about this cutback is that good people were let go and too many laggards remain"), and eligibility for incentive pay is broadened ("We've had to share some of the risks, now give us a crack at the rewards resulting from our improved performance").

The aftermath of a downsizing is a time when senior management has the attention of all the employees in a way that seldom happens in the normal course of business. Continual and frequent communications are as necessary as they were while planning the cutbacks to insure rumors have no vacuum to fill. Some companies have chosen this period to state or restate the firm's overall purpose and mission. Others have taken advantage of the heightened receptivity of managers for new marching orders by starting special management training programs to inculcate the company's new vision and the values that must be practiced to bring it into reality.

The New Employee-Employer Contract
Finally, maintain morale beyond the post-cutback period requires top management to address the new implicit "contract" or "bargain" they are making with their employees. The old unspoken agreement of "work hard, be loyal and we'll provide job security and a career with prospects for upward advancement" has been shaken by recent events in many companies. If management does not work to fill this new void created by the massive white collar layoffs of the 1980s, something else will. Executives may find they have a very short-term oriented team of managers more interested in polishing their resumes than building the business.

But companies that have been actively managing the human side of downsizing will find they have laid the groundwork for a new, strong relationship with their employees. It is one based on mutual respect, a no-blinders view of the difficult international competitive situation, and a willingness to remain caring for employees even if the company can no longer promise them lifetime employment.

These are the companies that will be able to face the challenges of the 1990s with a high spirited and committed work force.


© Robert M. Tomasko 1988, 2002



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