By Brian Usher

Organizations of all sizes across all sectors have been intensely focused on how to weather the current economic crisis. Changes in global, national and local economies have been sudden and intense. We have all seen the most visible cost cutting tactic playing out in headlines as unemployment lines have grown and grown. The gut-wrenching decision to downsize is usually swallowed with a good helping of “it’s all for a greater purpose” mentality with the assumption that cost cutting is what’s best for the company.

On the contrary, 30 years of research and experience have taught us that layoffs as a “recessionary measure” often have an adverse effect and can actually prohibit or prolong recovery. Layoffs of this nature can prompt demoralized survivors and key talent to disengage or even to quit. In combination with a host of other unintended consequences, a company is left with an unexpected talent shortage that can impede sought-after efficiencies and the ability to achieve a sustainable competitive advantage.

In comparison, downsizing driven by a focus on organizational efficiency – with all the associated strategic activities around culture and productivity – produces significantly less negative impact both individually and organizationally in the short and long term.

The Business Conundrum

Organizations in the current economic climate face a conundrum. On the one hand there is a clear need to rethink organizational efficiency, productivity and competitiveness. Indeed, as a result of the global financial crisis, many companies see a reduction in operating costs through downsizing as an “inevitable” or “only” solution. On the other hand, given the cyclical economic nature of global financial markets and the optimism that is inherent in business, there is a clear need to retain people for future sustainable business growth.

Mid to long term future business activity will continue to be impacted by a reduced pool of talent caused by dramatic demographic shifts in the labour market. The need to retain the right people and sustain successful organizational cultures is critical given the increasingly competitive job market and demand for intellectual capital that lies ahead.

In brief, the conundrum reflects two divergent views – one with people as costs; the other with people as assets.

Downsizing vs. Restructuring:

How to Recast Downsizing as a Strategic Activity?

Successful organizational change and restructuring has two essential components. The first involves the financial and business strategy that motivates the need for change and restructuring; the second involves the quality and scope of the implementation that can align business and talent.

To be most effective in realizing strategic objectives, decisions to downsize talent need to reflect the core business values and culture of the organization. As much as possible, the decisions to downsize should be communicated in terms of business strategy and talent requirements – both present and future – and anticipate the “down stream” effects on survivors.

Our experience indicates that downsizing driven by a cost cutting focus alone produces far more negative impacts on employee morale, engagement and productivity. In comparison, downsizing driven by a focus on organizational efficiency – with all the associated strategic activities around culture and productivity – produces significantly less negative impact both individually and organizationally in the short and long term.

Communication, Involvement and Engagement

With a view of people as assets, we find that business leaders and human resource professionals engaged in a more strategic restructuring are more likely to make special efforts to communicate the business realities and seek input from “star” employees or opinion leaders. This scope of involvement goes a long way to ensuring that the rationale and strategy for the restructuring is broadly communicated and promotes an increased level of understanding, trust and support for the plan.

A Best Practice Framework for Restructuring

As part of a strategic restructuring activity, downsizing is not an event per se, but is rather part of an ongoing strategic management process by which corporate leaders and human resource professionals engage employees as sources of innovation, creativity and renewal.

In managing talent during economic crises and on through recovery our Best Principles research and experience indicates that successful businesses maintain and improve productivity and profitability by attending to workforce management issues with an eye to people as assets, as opposed to costs. To achieve this focus:

1. Leadership must be aligned and have a mid to long term strategic view of the business;
2. Internal and external communication initiatives must be thoroughly designed and consistently executed;
3. Departing employees need to be supported in their transition with dignity and respect;
4. Star performers need to be identified, involved and retained; and
5. Remaining employees need to be engaged in and aligned with the new organization’s vision.

All of these steps are critical for ensuring that leaders are able to effectively achieve the goals of restructuring and maintaining business momentum.

This is a summary of a more detailed article, if you would like a copy of the complete article, please email kevin.noronha@right.com.

Brian Usher, Ph.D. is Vice President and Principal, Talent Management for Right Management. Dr. Usher is a leading Canadian expert on leadership assessment, succession planning, executive team building and talent redeployment. He can be reached at brian.usher@right.com.