Downsizing: Dangerous Thinking

Executive: “We need to cut costs. What should we do?”

Consultant: “Where does most of your cost come from?”

Executive: “Payroll.”

Consultant: “The answer is obvious. Reduce payroll.”

Such “obvious” thinking has cost many companies. A study of 5479 “changes in employment” found that those companies that simply reduced headcount didn’t achieve much profit. Successful downsizing is complicated. You must deal with many factors, not the least of which is the psychological impact.

Emotions drive behavior. Consider the impact of downsizing on the emotions of those who keep their job, whom the company must rely upon to shoulder more responsibility. How would you feel if you just saw good friends lose jobs through no fault of their own? Most people feel relief, survivor guilt, fear and anger.

At first, people feel relief that they still have a job. Then they feel bad for feeling good while others, whom they know and care about, suffer. Then comes anger over what happened to their colleagues. Finally, they fear that future job cuts may affect them. “If they’ve done it once, they can do it again,” is the thinking. Not one of these feelings drives greater efforts.

Planners usually do not factor in the impact of such feelings on productivity. They might even expect that fear would increase motivation, and it may in the very short term. In the long run, anxiety and anger sap energy and creativity. Quite often the company winds up with a compliant work force, one that will do exactly what it is told, not one that does the extras or takes the risk of creative thinking. High fear and creativity are incompatible.

What can be done? When companies find a way to deal with the emotional aspects of such difficult decisions, the economics usually come out better. Leaders must consider, acknowledge, and work with the feelings of three groups - those who will lose their jobs, those who will keep their jobs, and those charged with the daunting task of deciding who will stay and who will go.

This won’t be easy. Because the feelings are so uncomfortable, there will be lots of pressure, usually unspoken, to ignore them. The message from such behavior is “This is too awful to talk about.” It isn’t. Ways can to be found to manage the feelings involved. Otherwise, the feelings involved manage the economic outcome.

First, it helps all three groups when the employer provides support to those who are let go, to help them find new jobs. Those leaving have hope. (In fact, they often become the happiest of all.) Survivors are likely to conclude that the company sees value in employees and feel more comfortable. Decision makers know that they have done what they can for people while attending to the business needs of the company.

Second, the employer should conduct the downsizing within a context of quality improvement. Don’t just “lop off heads.” Make the company become smarter about how work gets done, reduce duplication, eliminate unnecessary processes, and so forth.

Finally, downsizings produce superior results when leaders involve employees at all levels to help plan the changes in the business. Such involvement requires leaders to communicate, which maintains their credibility. Further, when people feel a sense of involvement, they feel less vulnerable, and more ready to take risks and think creatively. As a bonus, employees at different levels come up with ideas that those at the top of the hierarchy might not think of.

Dana C. Ackley, Ph.D., is founder and CEO of EQ Leader, Inc., which helps individuals and companies solve problems and build skills. He can be reached at (540) 774-1927, or by e-mail at dana.ackley@eqleader.net.