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28 Mar The Effects Of Downsizing Human Resources

A process issue that deserves careful thought in contemplating a downsizing concerns the choice between dramatic, swift cuts versus a more gradual, less wrenching approach. The advantages of a gradual approach are apparent: The firm may be unsure how deeply to cut and a onetime massacre runs the risk of cutting too much. Of course, the psychological costs may be attenuated by a gradual approach. Local labor markets may be better able to absorb the discharged workers if they are discharged gradually, which in turn may ameliorate the adverse impact on the local economy and community. On balance, however, those who have suffered through downsizing tend to believe that a “get it over with in one fell swoop” approach is superior (at least, for the firm) to a process that drags on.

A number of the beneficial effects such as increases in quality and productivity – do not manifest themselves for some time following the layoffs. This suggests that a protracted process, in which it is presumably more difficult for employees to identify a discernible end to the layoffs and associated structural changes, may simply delay or prolong the adjustment period of up to a year or more that frequently seems to follow workforce reductions. By moving boldly and rapidly, companies may minimize the long-term psychological damage and also perhaps achieve a more pronounced and rapid increase in shareholder equity.

When structuring a downsizing program, firms often must decide whether to implement cuts across the board, with every unit shedding a fixed percentage of its employees, or concentrate the cuts in specific units. The costs of targeted layoffs are clear: They lead to internal political activity aimed at redirecting the decision at some other target. When our own university engaged in a large-scale “repositioning” some years back, which entailed the first significant layoffs in its long history, many of the staff support areas that had been targeted for the largest cuts spent enormous quantities of time in jurisdictional disputes and trying to document their workloads by creating forms, databases, and other devices intended to demonstrate to the university administration how much service they were providing. Such political campaigning is apt to be particularly ferocious and disruptive when a firm’s culture and technology emphasize cooperation and collegiality. In an attempt to head off such efforts, and also simply to avoid hard and painful decisions, management may – we believe, too often will – take the seemingly easy route of equally shared pain and across-the-board cuts in employment levels.

This route may seem easier for management, but it has real dangers for effective downsizing. For one thing, although a “share the pain” strategy of equal, across-the-board cuts may have some appeal as being distributive just, there can be significant perceptions of distributive injustice by units that are performing exceptionally or that have through disciplined efforts kept their headcount down and thus should be reduced less. Management doesn’t want to anger any of its workforces. De-motivating these units in particular is an especially bad outcome. Across-the-board downsizing will also tend to score low on procedural justice because of the arbitrariness and inflexibility of the targets. Appeal mechanisms that allow special pleading, which would increase perceptions of procedural justice, invite just the sort of politicking and internal competition that the across-the-board strategy is designed to preempt. In addition, this sort of downsizing strategy, if it is anticipated in the future, may (perversely) lead unit-level managers to try to pad their payrolls, in anticipation of an across-the-board cut to come later. For organizations with a strong clan – like culture – and especially if emotional bonds and task interdependencies are more intense within units than across units-this “spread the pain” strategy will do just that: Everyone will feel intense loss of friends and colleagues, as opposed to having concentrated the pain in a few units. Finally, across-the-board downsizing have the same reactive odor as does downsizing alone (without some accompanying restructuring initiative): It signals to workers that management doesn’t really have a well-thought-out plan for the future.

Artur Victoria

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