Preserving Employee Morale during Downsizing

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As companies continue to downsize, they need to consider how to maintain their employees' morale in order to realize gains such as higher productivity and more flexibility. Those who survive layoffs and the managers who must implement those layoffs frequently exhibit reduced commitment. Their trust in the company may be destroyed and they may feel powerless in the wake of top management's actions. Mishra et al. propose a four-stage approach to downsizing, gleaned from interviews and surveys, that will retain workers' trust and sense of empowerment.

First, the company should consider its decision to downsize only as a last resort, not to be taken lightly. Downsizing should be part of a clearly defined, long-term vision that fits into the company's overall strategic plan.

Second, the company should consider all stakeholders' needs — survivors, laid-off employees, the community, local and national press, and any affected government agencies. The company should form a cross-functional team to represent all stakeholders' interests, hire outside experts for outplacement and counseling, ensure that managers know how to deal with all questions, and give employees full information on the company's finances.

Third, at the announcement stage, senior managers should explain why the downsizing is necessary and how it will help the firm in the long term.

The fourth stage, implementation, is the most important. Management should communicate frequently and be open and honest. The company should do its best to ensure that laid-off employees are employed elsewhere and offer them generous benefits packages. It should seek remaining employees' ideas about restructuring work processes and provide training, particularly in new technologies, to work in the new environment.

According to the authors, each stage, if well executed, will mitigate workers' mistrust and disempowerment and will help build a better company.

Karen Mishra is managing partner, AKM Consulting & Research. Gretchen M. Spreitzer is assistant professor of organizational behavior, Department of Management and Organization University of Southern California, Graduate School of Business. Aneil Mishra is visting assistant professor of organizational behavior, Department of Management, Eli Broad Graduate School of Management, Michigan State University.

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