Keep Layoffs from Killing Performance

Layoffs, downsizing, restructuring, terminations - no matter what it's called, nobody is happy when people lose their jobs. It is a traumatic event for all involved - whether it's the affected employees, the managers who have to deliver the news or the workers who remain to pick up the pieces. It's the latter who are often ignored after downsizing, to the detriment of the organization, and i4cp's Reduction in Force survey has found that few companies have any strategies in place to help survivors.

This neglect often causes the organization to suffer, according to research from Franco Gandolfi (2008), director of the MBA/EMBA programs at Regent University. His research of numerous downsizing studies from the past 20 years found that most firms never realize the financial gains they were expecting from downsizing. In fact, firms that did not undergo downsizing outperformed downsized firms in both the short term and the long term.

Many of the problems that afflict organizations that have reduced their workforce can be traced back to remaining staff. Gandolfi found that survivors often suffer from guilt, fear, anger and insecurity, which leads to absenteeism, distrust, poor performance, lower morale, and disengagement. Remaining workers are also often faced with new roles and different responsibilities and have a difficult time adjusting.

It can be difficult to overcome resistance and redeploy the remaining workforce after a major restructuring, according to Douglas Matthews (2009), president and COO of consulting firm Right Management. So much time and effort are spent on deciding who to let go, handling the terminations and avoiding legal trouble that survivors are often neglected and left to fend for themselves.

Managers can find themselves faced with a workforce that is confused, anxious and sometimes bitter. At the same time, these employees are often expected to take on new roles and responsibilities. Consulting firm Sirota looked at the various reactions employees had following the massive layoffs triggered by 9/11, and the firm suggests that companies will be facing similar situations due to the current recession. The percentage of people saying they felt their job was secure, felt valued, had a sense of teamwork and believed there was opportunity for advancement dropped significantly following 9/11, while the percentage of people who said they had too much work increased from 28% to 34% ("Prepare for," 2009).

A 2008 study from the John J. Heldrich Center for Workforce Development at the Edward J. Bloustein School of Planning and Public Policy at Rutgers comes to a similar conclusion. The survey of 1,000 people in the U.S. found that a majority said there was decreased morale, an increased workload and longer hours or more shifts following a layoff. Nearly half said they experienced an increase in the fear that they might lose their job (Jenkins et al., 2008).

Not preparing a plan for managing remaining staff can have dire consequences for an organization that's probably already in trouble. According to a study from researchers at the University of Wisconsin-Madison, voluntary separations increase following a reduction in force. Even companies that eliminated as little as 0.5% of their workforce saw average turnover rates 2.6 percentage points higher than companies that did not have a reduction (Dresang, 2008). High-performing employees are the ones with the most opportunities available to them in this economic climate, so it stands to reason that companies risk losing the very people they are relying on to see them through the downturn.

Life after layoffs really begins prior to any downsizing initiative. Communication about the reasons behind the reduction and the path going forward must be clear, consistent and constant. A survey conducted by the Institute for Corporate Productivity in conjunction with the American Management Association and found that communication from the leader of an organization works best to improve overall employee morale after a downsizing event. "The rumor mill is at its most powerful state when layoffs occur," said Kevin Oakes, i4cp's CEO, who used to run publicly traded Click2learn (now part of SumTotal Systems), a software company. "In the dot-com implosion several years ago, it was clear our company was overstaffed, given the market conditions. While we were cutting a significant percentage of the workforce, I tried to keep one word in mind: transparency. "

Following the event, corporate leaders need to understand the various levels of motivation and resistance they are dealing with and take the lead in driving change. Managers should be able to execute the change strategy and be role models for motivating behavior, guiding employees into alignment. Author T. L. Stanley (2009) says that it is important that no one speak ill of departed employees, as it will only have a negative effect on those that remain. Instead, managers must remain positive in order to encourage surviving employees and maintain morale. Keeping staff informed of any success that laid-off employees have finding new work can go a long way toward allaying fears.

Many times following a restructuring or downsizing event, there are spots on the org chart that end up blank. These "orphans," as the American Management Association calls them, can create chaos when no one steps up to take responsibility for them. Unless an organization is ready to assign new roles or broaden job descriptions, things can begin to fall through the cracks ("Managing the White," 2008). Matthews (2009) recommends creating a portal where employees can view available positions and post résumés and profiles. Providing career resources such as résumé writing, interviewing techniques and strengths evaluation can help employees find the best role to add value to the company.

i4cp Recommendation: While employees may be relieved that they were not part of the latest round of layoffs, this relief hardly breeds the kind of loyalty and engagement companies need to be successful. What remaining staff members really need is a clear vision forward, with goals to rally around. Recommendations from i4cp's Pulse Survey Analysis: Reduction in Force include educating leaders in how to deal with the concerns and questions survivors will undoubtedly have, informing people why they were kept and what role they play in the organization's success going forward and involving survivors in developing organizational improvements. i4cp's new Corporate Restructuring Highlight Report has much more on implementing reductions, managing survivors and finding alternatives to layoffs.

Documents used in the preparation of this TrendWatcher include the following:
  • Dresang, J. (2008, May 10.) Job cuts can result in more downsizing than anticipated: Voluntary exodus rises, UW researchers find. McClatchy-Tribune News.
  • Gandolfi, F. (2008, Spring). Reflecting on downsizing: What have managers learned? SAM Advanced Management Journal, 46-55.
  • Jenkins, K. et al. (2008, Summer). The anxious American worker. Rutgers, the State University of New Jersey.
  • Managing the white spaces. (2008, September). Executive Matters, 2.
  • Matthews, D. (2009, January). Life after layoffs. Talent Management, 37-38.
  • Prepare for "survivor guilt" and other layoff fallout. (2009, January). HRfocus, 8.
  • Stanley, T. (2009, January). Supervising in turbulent times: A common sense look at restructuring an organization. Supervision, 3-6.
David Wentworth
David Wentworth, Senior Research Analyst
David Wentworth has been a research analyst for the Institute for Corporate Productivity since 2005. David has previously worked with digital media development and delivery, and currently researches several topics for i4cp, including workforce technology and the outsourcing of human resources. David has a bachelor’s degree from the University of Massachusetts.