Project Description

COMPANIES are increasingly turning to downsizing and layoffs to maintain their survival and ability to compete in the global economy. This has resulted in a decrease in morale, productivity, loyalty and commitment of employees.

Both “survivors” and displaced workers also experience tremendous emotional and psychological trauma.

Companies therefore have to ensure that they develop appropriate and well thought-out plans — before implementing the downsizing process and, even more importantly, after the downsizing process has been completed — to meet these challenges.

How you treat the people who leave and the people who remain is crucial. How downsized employees are treated directly affects the morale and retention of valued, high-performing employees who remain.

Make no mistake: downsizing is extremely difficult. It taxes all of a management team’s resources, including its business acumen and humanity. No one looks forward to downsizing. Perhaps this is why so many otherwise first-rate managers downsize so poorly.

Critical decisions

The extremely difficult decisions of who must be laid off, how much notice they will be given, the amount of severance pay, and how far the company will go to help the laid-off employee find another job are often given little attention. These are critical decisions that have as much to do with the future of the organisation as they do with the future of the laid-off employees.

Downsizing is often executed with a brisk, callous efficiency that leaves laid-off employees angry and surviving employees feeling helpless and demotivated.

Helplessness and uncertainty are the enemies of high achievement. They produce a work environment of withdrawal, risk-averse decision-making, severely impaired morale, and excessive finger pointing. All of these put a stranglehold upon an organisation that now desperately needs to excel.

Doing it effectively

When confronting an organisation that is not functioning at optimal efficiency and faced with the decision that a layoff is needed, there are a few key principles to keep in mind.

Observing these principles won’t completely eliminate the dangers of downsizing, but they will help to avoid the common pitfalls of a poorly planned layoff.

Before any layoff, ask this critical question first: is the need for this layoff driven by having too many employees or too little profit? If it’s too little profit, this is the first warning sign that your company isn’t ready for a layoff.

Using a layoff solely as a cost-cutting measure is utterly foolish: throwing away valuable talent and organisational learning by dumping employees only makes a bad situation worse. When your business lacks revenue, annihilating intellectual capital and thus reducing the efficiency of remaining resources as well as the potential for future growth is not the solution.

If the answer is too many employees, then you have begun the process of a well-thought-out strategy for change. To legitimately determine if you have too many employees, look at the organisation’s business plan, not its head count.

What product and services will you be offering? Which of these products and services is likely to be profitable? What talent will you need to run the new organisation?

These questions will help you plan for the post-layoff future. These issues will enable a quick turnaround from the inevitably negative effects of downsizing to positive growth in value and efficiency.

Be respectful

The methods employed in many poorly executed layoffs treat employees like children. Information is withheld and doled out unwillingly. Human resource representatives scurry around from one hush-hush meeting to another. How laid-off employees are treated is how surviving employees assume they may be treated.

Why does this matter? Because successfully planning for the new organisation will keep it going and improve its results. You must keep the exceptional talent who are also the employees most marketable to other organisations. When they see the company treating laid-off employees poorly, they will start looking for a better place to work, fearing their heads will be next to roll.

Making it happen

Downsizing successfully is immensely difficult. Here are some ideas to consider if your organisation intends to downsize:

  • Treat all employees with respect. Communicate rather than withhold information.
  • Try and take appropriate action in one go, if possible. Constant downsizing over the year destroys morale
  • Research applicable laws, and follow the spirit of the legislation.
  • Afterward, give employees the psychological space to accept and discuss what has happened.
The last resort

Downsizing or doing layoffs is a toxic solution. Used sparingly and with planning, downsizing can be an organisational lifesaver, but when layoffs are used repeatedly without a thoughtful strategy, downsizing can destroy an organisation’s effectiveness.

There are two important factors to keep in mind when planning a layoff: respecting employee dignity and business planning. No one, from the mailroom to the boardroom, enjoys downsizing. But when the need for a reduction in staff is unavoidable, a layoff can be accomplished such that the problem is fixed and the organisation excels.