At the zenith of the old paradigm there was a reaction to anything that was deemed “soft.” This included feelings, relationships, empathy, and anything that was “touchy-feely.”  This is a strange norm, because being alive and human involves relationships, feelings, and connecting with others. However, the value was facts and figures—“hard” stuff! Even though such rock-ribbed disciplines as physics now report that facts are relative, the bias continues.

 Organizations still talk about human resources and training as the “soft” side of management. But not only are people issues as real as financial and production figures, they require just as much skill and strength. In addition, they require authenticity and the risk of self-disclosure. This is much more difficult than hiding behind a memo or stack of figures.

 The good news is that, despite all the reasons that organizations discount “soft” helping skills, there is a slow but steady revision in progress. Organizational leaders are finding that interpersonal competence is in high demand in the new paradigm, and as they make this discovery, they are not only picking up useful skills, they are realizing a new sense of personal relevance as they discover new behavioral options and plumb the depths of their own repressed capabilities

As I travel from organization to organization, I find it interesting that there are a number of ways to describe the involuntary termination of employees.  Here are some recent examples.  Let me know if you have some others.

                  Term                                                                         Meaning

Today’s critical leadership challenge. This is the second of a two-part posting on some of the academic and practitioner based research on the effects of layoffs and the need to heal the wounds and revitalize downsized organizations.  Here is the leadership challenge for organizations using downsizing as a strategy to deal with economic decline and uncertainty.  The research, both academic and practitioner based is overwhelmingly clear: those who remain, the survivors, do not automatically rebound, nor does productivity automatically increase.  Organizations continue to spend time and money helping those who leave. The 2008-2009 edition of Lee, Hecht, and Harrison’s Severance and Separation Benchmark Practices Survey of 1,072 firms indicates, despite current conditions, that 65 percent have maintained their severance policies and 19 percent actually increased them (American Society of Employees, 2009).  The percentage offering outplacement services to displaced exempt employees also increased to 55 percent. While the focus on those who leave is important from both a humanitarian and, to a degree for those who remain, much more strategic effort needs to be expended on a far more important – in terms of competitive advantage – population: those who remain.  Here are two very important activities that global leaders need to assure take place in order that downsizings have the intended results

Make certain those who leave are treated with dignity, fairness, and respect. The perception of the way people are treated on the way out has a lot to do with the commitment and productivity of those who remain.  In an extensive best practice study of the automotive industry (Cameron & Mishra, 1991) it was confirmed that the way downsizings were implemented had a direct impact on post-layoff productivity and quality.  Fredrick Herzberg (1964) developed a theory that divides motivational factors into those that truly motivate (such as recognition and satisfaction with the work itself) and those that simply keep employees from becoming demotivated (the perception of fair pay and working conditions).  He called the latter hygiene factors, and the way survivors perceive the treatment of those who leave – the process of downsizing – is just that: a hygiene factor.  It won’t automatically ameliorate survivor symptoms, but it will greatly facilitate the odds of recovery.  Organizational leaders can insure a double win by assuring that those who implement layoffs do so in a manner that maximizes survivor hygiene. The first win is ethical; treating those who leave with dignity and fairness is the right thing to do.  The second win is strategic; it will help the organization rebound more rapidly.

Avoid unintended consequences. There has been a substantial amount of research e.g. (Brockner, 1986) that connects the prognosis of layoff survivor recovery with the process of downsizing. The key variables are fairness (the selection criteria); equity (the degree to which layoffs are spread across a levels and functions); participation (opportunities for input and choice such as pay cuts, and job sharing); and caretaking (severance, prior notice, and respectful treatment).  In order to avoid untended consequences that could result in significant erosion of any layoff benefits, top executives need to exercise personal oversight over the process.  This will prevent, often well-intentioned, managers from causing irreparable harm by implementing processes such as giving no prior notice and escorting long term employees out of the building.

Empower employees, train managers in helping skills. Researcher Mishra and several colleagues have engaged in multiple downsizing research projects with a number of manufacturing and service organizations over the past twenty years.  They have followed some individual organizations for more than a decade. In a recent update (Mishra, Mishra, & Spreitzer, 2009) they report that the most successful have focused on building trust and empowering their employees.  They point out the necessity of training front line managers in empowerment and communication skills. The Leadership IQ survey (Business Wire, 2008) reinforced this message, indicating that employees who rated their supervisors high in visibility, approachability and candor were 72 percent less likely to report a decrease in productivity. A study of downsized hospitals (Chadwick, Hunter & Walston, 2004) indicated a positive correlation between those hospitals where supervisors focused on surviving employees’ emotional needs and positive financial outcomes.  A study by Kenexa Research Institute (2008) found that key themes in reengaging layoff survivors were building confidence in leadership, helping mange stress, and instilling optimism. The message for global leaders from these studies is that first line management represents a key strategic tool for revitalizing layoff survivors. I have found that training managers in basic helping skills and requiring them to meet individually with their employees is an extremely high leverage intervention that helps both the manager and the employee. 

Adjust to the new psychological contract. As global downsizing continues as primary strategy for reducing costs and responding to economic uncertainty, leaders need to formulate specific plans and exercise ethical and operational oversight for dealing with those who remain.  The research is clear, without paying specific attention to survivors; organizations will not realize the benefits of downsizing.  Innovative, entrepreneurial organizations will have the ability to adjust to a new psychological employment contract that will allow them to compete in the fast moving, temporary business environment of the future.  Success in this new world requires both employees and managers to assume new, often risky roles.  Academics, consultants, and managers need to focus their efforts on helping organizations and individuals cope with the productivity hindering effects of layoffs.  The research is clear; layoffs do not achieve their initial goals and often boomerang and leave the organization worse off then before the reductions.  Since downsizing is an increasing global response to economic decline, those organizations that are most successful in re-recruiting layoff survivors and revitalizing downsized organizations will have a distinct competitive advantage.  I have included the references for this and the preceding posting.   

References

American Society of Employees, “Firms Focus on Severance Study Finds.” April, 2009. http://www.aseonline.org/2009/April/FirmsFocusedonSeveranceOutplacementStudyFi/tabid/6654/Default.aspx

 Bartash, J. “High Tech Layoffs Climb in First Quarter.” Physong, April 6, 2009.  http://www.physorg.com/news158261667.html

 Brockner, J., and others. “Layoffs, Equity Theory, and Work Performance: Further Evidence of Survivor Guilt.” Academy of Management Journal, 1986, 29, 373-384.

 Business Wire, “Leadership IQ Study: Don’t Expect Layoff Survivors to Be Grateful.” December 10, 2008. http://www.findarticles.com/particlesmi_m0EINis_2008_             Dec_16/ai_n31128154

 Cameron, K., & Mishra, A. “Best Practices in White-Collar Downsizing: Managing Contradictions.” Executive, 1991, 5(3), 57-72.

 Cascio, W. “Use and Management of Downsizing as a Corporate Strategy.” SHERM Foundation: Executive Briefing. September, 2009.

 Cascio, W. Responsible Restructuring: Creative and Profitable Alternatives to Layoffs. San Francisco: Berrett-Koehler, 2002.

 Chadwick, C., Hunter, L., & Walston, S. “Effects of Downsizing Practices on the Performance of Hospitals.” Strategic Management Journal, 2004, 25, 405-427.

 DeMuse, K., Bergman, T., & Vanderheiden, P. “New Evidence Regarding Organizational Downsizing and a Firm’s Financial Performance.” Journal of Managerial Issues, 2004 (16) 42-63.

 Dorfman, J. “Heard on the Street.” Wall Street Journal, Dec 10, 1991, pp. C1-C2.

 Ferris, G., Rosen, D., & Barnum, D. Handbook of Human Resources Management. Cambridge: Blackwell, 1996.

 Herzberg, F. “The Motivation-Hygiene Concept and Problems of Manpower.” Personnel Administration, 1964, 27(1), 3-7.

 Kenexa Research Institute, “Priority Number One in the Aftermath of Layoffs: Reenergizing Employees.” Employee Insight Report, 2008, (35).

 Mishra, A., Mishra, K., & Spreitzer, G. “How to Downsize your Company without Downsizing Morale.” MIT Slone Management Review, April, 2009.

 Noer, D. Healing the Wounds: Overcoming the Trauma of Layoffs and Revitalizing Downsized Organizations. San Francisco: Jossey-Bass, 2009. 

 Noer, D., & Bunker, K. (Eds.) “Best Practices in Leading Downsized Organizations.” Center for Creative Leadership Conference Proceedings, April, 1995, Greensboro: North Carolina.

 Prime CB, “Thirty Percent of Layoff Survivors Feel Burned-Out.” May, 28, 2009. http://www.primecb.com/30-percent-of-layoff-survivors-feel-burned-out/  

 Rugaber, C. “Mass Layoffs of 50 or more Workers.” AP World Stream, January 28, 2009. http://www.encyclopedia.com/doc/1A1-D960B3MO0.html

 Stjern, A. “Effects of Survivor Guilt Syndrome in the Workplace.” Associated Content, June 24, 2009.  http://www.associatedcontent.com/article/1877291/effects_of_survivor_guilt_syndrome_pg2_pg2.html?cat=55

Here is a summary of some of the recent research and studies that support the seriousness of the need to heal the wounds and re-recruit layoff survivors.   A future blog will summarize some of the research about actions individuals and organizations can take.

Organizations are experiencing a global pandemic of downsizing.  In order to successful lead organizations through the trauma of layoffs; leaders need new and innovative approaches to organizational revitalization.  Downsizing has become an increasingly popular strategic intervention to reduce costs and increase productivity.  Rugaber (2009) reports that, in the US alone, mass layoffs of 50 or more people totaled 21,137 in 2008, a year that also included the most job losses since World War II.  Layoffs in the technology sector increased 72 percent over 2007 and the trend is continuing, according to a report by Challenger, Gray & Christmas (Bartash, 2009).   

Downsizing has a negative effect on productivity. A study of 4,172 employees representing 318 companies who had kept their jobs after layoffs (Business Wire, 2008) yielded some attention-grabbing results. Key findings were that 74 percent of these survivors reported a decrease in their productivity; 81 percent stated that customer service had declined; and 77 percent saw more mistakes and errors being made.  The three most common words used to describe survivors’ feelings (62 percent of respondents) were guilt, anxiety, and anger. This study by Leadership IQ, is consistent with an ever-increasing stream of downsizing research that provides compelling evidence that leaders of downsized organizations need to pay very careful attention to those who remain.  Here are some highlights of that research.

There is a Tenuous Connection to Financial Performance. A longitudinal study (Dorfman, 1991) followed sixteen large restructurings for five years and found that stock performance in these firms trailed competitors by an average of 26 percent. Another (Casico, 2002) used ROI as an index and found no evidence that downsizing actually worked and that, in many cases, productivity actually decreased. In a pioneering study, DeMuse, Bergman & Vanderheiden (2004) tracked five financial indices of fortune 100 companies that went through downsizing– profit margin, return on assets, return on equity, asset efficiency, and market to book ratios – and compared the results, over a 12 year period, to companies that did not downsize.  The downsized companies generally reported lowered results during the first few years with improvement eventually returning to the level of the non-downsized firms. 

There is No Significant Increase in Productivity and Risk Taking Declines. A survey of 1,468 downsized firms by the Society for Human Resource Management (Ferris, Rosen & Barnum, 1996) reported that employee productivity did not increase and often worsened.  In a recent study (Prime, 2009)  indicated that a survey by CareerBuilders reported that 47 percent of layoff survivors had taken on additional work and 30 percent felt burned out. Cascio (2009) indicated that 58 percent of human resource professionals reported a deterioration of morale and a decrease in loyalty after layoffs.  My own research (Noer, 2009) found that, at the very time organizations needed employees to take risks and increase innovation, survivors tended to do the opposite: keep their heads down and hunker down in the trenches.   Another danger of downsizing is that turnover of those employees organizations want to retain will increase. Stjern (2009) reports that a two year study by of firms wishing to be included in Fortune Magazine’s list of the 100 best companies to work for, found that those with layoffs experienced 2.6 percent more voluntary turnover than those with no layoffs