In this down economy, many organizations have resorted to downsizing as a way to reduce costs. And, because this recession has hit almost every industry, the effects have been widespread.
Downsizing is expensive. In a report published by the Society for Human Resource Management (SHRM) titled, “Use and Management of Downsizing as a Corporate Strategy,” the author Wayne F. Casico, Ph.D., stated that the downsizing costs for high tech employees can be $100,000 per person.
The above figure reflects taking into account numerous and varied direct- and-indirect costs ranging from severance-payment expenses to losses of institutional memory (how things get done) to higher unemployment tax rates.
Downsizing is painful and demoralizing. The whole ordeal can have long-term effects, especially on an organization’s employees. Most effects are not positive. For example, many surviving employees may start to show signs of diminishing levels of confidence, and they can become risk-averse.
After a downsizing event—and to help surviving employees cope and remain productive—it’s important that an employer understands how employees tend to feel and behave during such times. For instance, you might see that:
- Some employees feel as though the company will not be able to sustain operations.
- Some employees feel as though their career opportunities within the organization are now limited.
- Some employees feel the effects from a loss of talent within a company (loss of skills and abilities).
- Some employees will start looking for what they feel are more stable opportunities.
Downsizing results in numerous challenges and obstacles. Employers are usually faced with post-downsizing challenges and obstacles, which must be confronted in order to win back employees' previous levels of expertise and talent (lost due to a downsizing). Among them:
- Retraining initiatives—once employers find their way out of this current economic situation and they look to hire new employees, those new hires will have learning curves. It’s a very expensive process to recruit, hire and train new employees.
- Re-establishing organizational culture—new hires will need to become familiar with the organization and its operations, including its way of doing things. Not only that, employers might have to face the fact that the organizational culture changed, as a result of the downsizing.
- Organizational strategies—employers will be faced with re-evaluating how they will continue running their business for the long term. When surviving employees are more worried about the next round of layoffs than doing their jobs, their productivity and engagement levels will suffer. Heading this off, employers should do all that they can to communicate with and reassure employees, so that morale-draining uncertainties do not take over.
No employer enjoys a downsizing event. However, if employers are forced to reduce headcount, they should seek the advice and expertise of an HR professional, not only to minimize potential legal risks of a layoff, but also to significantly reduce or even prevent the long term negative effects.