Tony was working for the Vancouver arm of a European-based software development company when the first round of layoffs hit. It was January 2009, and in his office of 1,200 employees 200 were shown the door overnight – but that wasn’t the worst of it. “I was transferred to a new department and then was told that they’re going to close it at some point in the future, and no one knew who would stay and who would go,” says Tony.
Over the next six months, the office rumour mill took its toll on the staff, and morale was decimated. “People sort of stopped working altogether,” says the 36-year-old engineer. “Apparently, due to a union in Europe, management couldn’t share any information with the regular employees. But it meant the working conditions here were awful. Morale was terrible.” Though Tony (not his real name) was one of the lucky ones who stayed on when the department closed, he’s now actively looking for another job.
In the current economic climate, Tony’s situation isn’t unique. He’s one of the walking wounded: those employees left behind as colleagues were given pink slips. In an economy where at least 240,000 jobs disappeared across the country in 2009 – including nearly 55,000 in B.C. – downsizing survivors are made to feel they should be grateful just to hang on to their job, regardless of their new working conditions. They are the supposed “winners.” But working long hours for less pay and with more responsibility takes its toll on staff, and employers are discovering that cutbacks don’t always result in a more efficient, more productive workforce.
We’ve been here before. In 1994 the American Management Association conducted a survey of 700 U.S. companies that had downsized during the last big recession, between 1989 and 1994. While 34 per cent of those surveyed reported an increase in productivity, 30 per cent saw a decline. Employee morale declined in 84 per cent of the surveyed companies, while 30 per cent of them experienced a drop in profits. Another study done in 1994 in Canada by Watson Wyatt Worldwide found that, of the 148 major companies they surveyed, 40 per cent reported that downsizing didn’t result in reduced expenses, and more than 60 per cent didn’t experience higher profits after cutting staff.
At the time, much of the discussion around the negative effects of downsizing focused on “dumbsizing”: cutting too quickly and losing too many quality employees in the process for the sake of keeping up with the competition. But until recently, the concept of the walking wounded wasn’t on researchers’ radar. “In a lot of ways, these guys were invisible,” says Lee Butterfield, program director at the master of arts in counselling psychology program at the Adler School of Professional Psychology in Vancouver. “They weren’t chronically unemployed; they’re not marginalized. It was thought, You have a job; you’re on easy street.”
[pagebreak]In Butterfield’s experience, that wasn’t the case. Before entering academia, she spent 25 years in human resources management in a variety of sectors, including finance, insurance, real estate and public utilities. “After downsizings and other major changes in the organization, I was watching people crash and burn at fairly significant rates,” says Butterfield. “We saw that absenteeism was going up, productivity was going down, long-term disability was on the rise and, with it, more people using employee assistance programs – and still not doing all that well.”
In every department, however, she noticed that there were a few people who seemed to ride through the changes, remaining cheerful and fairly optimistic. They often took informal leadership roles and helped to bring departments together. So in 2004, she collaborated with William Borgen and Norm Amundson at UBC’s department of educational and counselling psychology and special education on a study of employees who considered themselves as doing well with major changes in the workplace, such as a downsizing. They hoped to discover these individuals’ secrets to survival.
“We were expecting to get a story of thriving, but that isn’t what we got,” says Butterfield. “These people are the best workers a company has, and when asked how they’re doing, they say, ‘Fine.’ But press a little further and we found they were in psychological turmoil.” Eighty-five per cent of their study group experienced negative emotional impacts such as fear, frustration, stress, anger and depression. “We had to keep reminding ourselves that these were people who considered themselves as doing well,” says Butterfield. “We were hearing things like, ‘I hit the wall. I was in the hospital. I was sick from exhaustion.’ They were on the same emotional roller-coaster that other downsizing survivors experience.” Butterfield says that, with only one exception, every person interviewed said they were actively searching for a new job and planning to leave the company as soon as an opportunity presented itself, despite appearances of thriving in the new work environment.
When even top performers are suffering, it’s bound to measure out in declining productivity at the office. A November 2009 survey of 5,000 U.S. households for The Conference Board Inc. reported that workplace satisfaction is currently at a 22-year low of 45 per cent and that 65 per cent of employees are actively looking for a new job. A December 2009 report from RBC, called the Canadian Consumer Outlook, put job anxiety in B.C. at 29 per cent – highest in the country.
So how does an organization prevent a walking-wounded scenario? Chris Zatzick is an associate professor in SFU’s faculty of business administration who specializes in downsizing and layoffs. “The notion that organizations should avoid downsizing at all costs is antiquated, but that doesn’t mean that companies should downsize in any manner they desire,” says Zatzick. A well-managed downsizing, he says, starts with identifying the employee’s importance within the organization. “High-performance firms are organizations that invest in their employees and view their employees as an important competitive advantage,” says Zatzick. “They spend a lot of money on their employees, trying to create this advantage.”
He contrasts these firms with organizations such as McDonald’s, whose competitive advantage isn’t its workforce but its low-cost product. High-performance workforces need to be more careful about how they go about downsizing. “In a company like McDonald’s, how an employee feels they’re being treated during a downsizing isn’t critical to its success,” says Zatzick. “The company can go back and hire from a large labour pool of employees.”
Organizations that need to protect their relationship with past and present employees – such as software development firms, where the talent pool is smaller and highly competitive – should be following best practices when orchestrating a downsizing, says Zatzick. Cutting costs without reducing the workforce should be the first priority, followed by reducing the workforce without forced layoffs – either by means of transfers or voluntary layoffs. Throughout the process, managers need to provide clear, candid and inclusive communications, and they should be giving employees a voice to ask questions and air concerns. Finally, the process needs to be fair and compassionate. That can encompass both who is selected for layoffs (union agreements notwithstanding) and the size of the severance package, which can signal to remaining employees their perceived value with employers. (Though size of company and length of service affect severance, a generous package might include compensation per year of service for up to six to 12 months, extended health insurance for a period of time as well as access to placement services and training opportunities.)
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What that looks like in the real world varies from organization to organization. Zatzick refers to Cisco Systems’ response to the previous market crash. The company laid off 8,500 employees in 2001, roughly 20 per cent of its workforce, but many felt that the cuts happened too deeply and quickly, resulting in a decline in morale and a significant amount of voluntary turnover post-layoff. Since then, says Zatzick, Cisco CEO John Chambers has vowed to “build” rather than “acquire” talent, with a corporate focus on motivating and developing high-potential employees. In 2008, when the company implemented layoffs, it was only as a last resort, consistent with what Zatzick calls Cisco’s commitment-oriented approach to talent management.
How a company works with its employees post-downsizing is also critical. “Ultimately, it’s all part of creating a new psychological contract,” says Zatzick. “It needs to be renegotiated between employers and employees.” Layoffs signal to employees that the existing psychological contract, that the employer will provide the employee with a stable job, has been broken. “What can an organization do to rebuild loyalty? Part is skills development; part is increasing an employee’s marketability in the event of another round of layoffs,” explains Zatzick. “It’s an investment that an organization can make in employees to help them feel committed to the organization while they’re there but also to know that they can get another job elsewhere if it becomes necessary.”
Studies have shown that having an outlet for employees – for instance, counsellors – to process what was happening during the downsizing and afterwards seemed to have a positive effect. “After our interview with each participant, the majority of people said there was an increase in their positive feelings about their situation,” says UBC’s William Borgen. “And this was not counselling we were doing; this was a research interview. It indicated to us that one source of help for these employees was to be able to talk about the situation with someone who was an arm’s-length removed from it. Not that they can change anything, but they can help see things in a different light.” On-site counsellors help workers examine their existing resources, says Borgen, and develop new resources for coping.
[pagebreak]Often the first thing to fall apart after a downsizing or other major change in the workplace is communication, says Butterfield, and it’s also the most important ticket to staving off the walking-wounded syndrome. “I’ve been a survivor of downsizing and I’ve lived it,” she says. Butterfield recalls how one of her employers did such a poor job of communicating during a downsizing that employees almost completely stopped engaging with their work. “Some of the employees felt that the company had ripped the spirit right out of the organization. Before the layoffs, employees would take calls in the middle of the night and head out when it was minus 60 to fix a problem. After the downsizing, they wouldn’t even answer their phones; they’d wait till morning when they were back on the clock. The rumour mill goes crazy. Employees don’t need to like the message, but they need to hear what the message is. They can deal with [bad news] a whole lot better than they can deal with the void.”
Much of the research on employee morale focuses on the manager’s role in maintaining a positive culture post-downsizing, but Toronto-based career consultant Randall Craig says that’s not the only place responsibility lies. “I want to correct an assumption that it’s always the employer’s responsibility for morale,” says Craig, author of the career-planning book Personal Balance Sheet. “I don’t think they are. Nowadays, each of us is individually responsible for our careers.” In Craig’s opinion, those workers left behind need to find ways to make the most of their new employment scenario: “I would ask an employee, What are you doing to increase your value on the job and in the marketplace? What positive things are you doing?”
Low morale is often a function of powerlessness, Craig explains, and “when you don’t feel in control of your career, you feel terribly disempowered. The antidote is to do something about it yourself.” He recommends employees set a goal for where they want to be three years out and then figure out how to get there: filling in gaps in their resumé now to get where they want to afterwards. “Some of those things are external: taking a course, getting involved in an association,” he says. “But some of those filling-in-the-gaps activities are on the job. Ask to be on a special project. Tell your manager, I’d love to try something new. Once you’re doing something that has you heading toward a goal of your own choosing, you’ll start to get your swagger back.
“It’s interesting,” continues Craig. “One of the common fears of employees who stay after a lot of people have been let go is, Am I next? But taking control of your career is a great way to mitigate that fear.”
Regardless of how the downsizing was handled, Zatzick encourages companies who have already gone through the process to assess where the company is at now. “Did the layoffs work? Have they accomplished what we wanted them to do? How productive is the remaining workforce? Because this is going to happen again,” he says. “We have to realize that in another five or 10 years there will be another cycle of layoffs. We need to integrate our approach and treatment of employees in the layoff process.”
How successful a company has managed its downsizing process is most evident once the recession eases, says Zatzick. “What organizations need to look out for,” he explains, “is that once the economy turns around and there’s jobs out there again, are people jumping ship?”
The biggest risk that management takes in not handling a downsizing well is losing their top performers, as Craig iterates. “The truth is that the stars may feel that they’re going to be next on the chopping block,” he says. “They’re a huge flight risk. If they leave, and you’ve already let go your poor performers, then you’re left with the folks in the middle. That makes it much harder to compete. Make sure the people you want to stay recognize they’re valued and that they’re a part of moving forward.”