Downsizing the Company Without Downsizing Morale

When downsizing is unavoidable, smart managers look for opportunities to improve flexibility, innovation and internal communication to improve trust between managers and employees.

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After more than two decades of research into corporate downsizing, there remains a fundamental question: “How can managers and employees rethink their organizations even as they confront the need to downsize?” More specifically, how can organizations support learning, innovation and creativity while at the same time finding effective ways to improve costs, quality and productivity? Some might argue that these goals are at odds with one another — that you can’t build a better and a leaner organization. We disagree. In our 1998 Sloan Management Review article, “Preserving Employee Morale During Downsizing,” we maintained that strong organizations need to develop resilience so they could take advantage of new opportunities that arise during periods of economic retrenchment.1 Our subsequent research, consulting and management coaching has reaffirmed our view that downsizing isn’t just about “doing more with less.” It is also about creating flexibility, innovation and better communication that lead to increased trust and empowerment between managers and employees. (See “About the Research.”)

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In our original article, we presented four widely accepted goals of downsizing: reducing total costs; increasing labor productivity; improving quality; and enhancing the efficiency with which capital is employed.2 As we recommended then, downsizing programs should take place in four stages:

  • Stage 1: the decision to downsize;
  • Stage 2: planning the downsizing program;
  • Stage 3: making the announcement; and
  • Stage 4: implementing the downsizing program.

For each of these stages, we advocated openness and honesty about the state of the business, the reasons for downsizing, the process by which the downsizing program would take place and the future of the business. This type of open and honest communication is essential to building trust and empowerment among those who have been designated to leave the organization, but it is equally important for survivors of downsizing.

Survivor Responses to Downsizing

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References

1. K.E. Mishra, G.M. Spreitzer and A.K. Mishra, “Preserving Employee Morale During Downsizing,” Sloan Management Review 39, no. 2 (January 1998): 83-95.

2. Ibid.

3. Ibid.; G.M. Spreitzer and A.K. Mishra, “To Stay or to Go: Voluntary Survivor Turnover Following an Organizational Downsizing,” Journal of Organizational Behavior 23, no. 6 (September 2002): 707-729; J. Brockner, G.M. Spreitzer, A.K. Mishra, W. Hochwarter, L. Pepper and J. Weinberg, “Perceived Control as an Antidote to the Negative Effects of Layoffs on Survivors’ Organizational Commitment and Job Performance,” Administrative Science Quarterly 49, no. 1 (March 2004): 76-100. We define empowerment as a personal sense of control in the workplace as manifested in four beliefs about the person-work relationship: meaning, competence, self-determination and impact. See G.M. Spreitzer, “Psychological Empowerment in the Workplace: Dimensions, Measurement and Validation,” Academy of Management Journal 18 (1995): 1442-1465.

4. G.M. Spreitzer and A.K. Mishra, “Giving Up Control Without Losing Control: Trust and Its Substitutes’ Effects on Managers’ Involving Employees in Decision Making,” Group and Organization Management 24, no. 2 (1999): 155-187.

5. Phone interview with Bob Lintz, Jan. 9, 2009.

6. A.K. Mishra and K.E. Mishra, “Trust is Everything: Become the Leader Others Will Follow” (Chapel Hill, North Carolina: Lulu Press, 2008). In this book, we profile several leaders who created high levels of trust and empowerment before they needed to downsize their organizations. After 20 years of studying trust through scores of interviews and several thousand surveys, we have found that trust is made up of four components: reliability, openness, competence and compassion. We call this the ROCC of Trust.

7. Mishra, “Trust is Everything.”

8. Phone interview with Ted Castle, Jan. 23, 2009.

9. S. Mahroum, “Innovate Out of the Economic Downturn,” Business Week, Oct. 27, 2008. www.businessweek.com.

10. Mishra, “Trust is Everything.”

11. F.F. Reichheld, “The Loyalty Effect: The Hidden Force Behind Growth, Profits, and Lasting Value” (Cambridge: Harvard Business School Press, 1996).

12. A.K. Mishra and K.E. Mishra, “Trust From Near and Far: Organizational Commitment and Turnover in Franchise-Based Organizations” (paper presented at the 65th Annual Meeting of the Academy of Management, Honolulu, Hawaii, Aug. 5-10, 2005).

13. M.B. Gavin and R.C. Mayer, “Trust in Management and Performance: Who Minds the Shop While the Employees Watch the Boss?” Academy of Management Journal 48, no. 5 (2005): 874-888.

14. A.J. DuBrin, “Applying Psychology: Individual & Organizational Effectiveness” (Upper Saddle River, New Jersey: Prentice Hall, 2000).

15. Mishra, “Trust is Everything.” A good example of this can be found in the e-mail Princeton University president Shirley Tilghman sent to alumni/ae on January 8, 2009, in which she wrote: “Our planning is guided by the goal of preserving the ‘human capital’ that is so essential to the quality of the University — its students, faculty and staff.”

16. A. Gronstedt, “The Customer Century: Lessons from World-Class Companies in Integrated Marketing and Communications” (New York: Routledge, 2000).

17. S.A. Deetz, “Democracy in an Age of Corporate Colonization: Developments in Communication and the Politics of Everyday Life” (Albany: SUNY Press, 1992).

18. R. Likert, “The Human Organization: Its Management and Value” (New York: McGraw-Hill, 1967).

19. Mishra, “Trust is Everything,” 59-60.

20. A.K. Mishra, K.E. Mishra and K.S. Cameron, “Power or Empowerment at General Motors?,” in “Managing Organizational Behavior,” 9th ed., ed. J.R. Schermerhorn, Jr., J.G. Hunt and R.N. Osborn, (New York: John Wiley & Sons, 2005), W58-W60.

21. F. Gandolfi, “Learning From the Past — Downsizing Lessons for Managers,” Journal of Management Research 8, no. 1 (April 2008): 3-17.

i. A.K. Mishra and G.M. Spreitzer, “Explaining How Survivors Respond to Downsizing: The Roles of Trust, Empowerment, Justice and Work Redesign,” Academy of Management Review 23, no. 3 (July 1998): 567-588.