When downsizing backfires
This Labor Day, let us walk the talk. When profit goes down, the knee-jerk response, enthusiastically seconded by consultants, is restructuring the company, a euphemism for downsizing, which involves firing people. But in his book “The Problem With Change,” human resources expert Ashley Goodall, who worked at Deloitte and Cisco, believes that “change stops people from doing their jobs.”
Employees who underwent restructuring described to Goodall how chaotic the process often was, traumatizing those who were let go and lowering the morale even of those who kept their jobs. In fact, according to Goodall’s book jacket: “Whether it’s a merger or re-org or a new office layout, change has become the ultimate easy button for leaders, who pursue it with abandon, unleashing a torrent of disruption on employees. The result is … ‘life in the blender’—a perpetual cycle of upheaval, uncertainty and unease.
“A culture where everything from people to processes to strategic priorities are constantly in flux exerts a psychological toll that undermines motivation, productivity and performance. And yet so accustomed are we to constant churn that we have become numb to its very real consequences.”
Since restructuring is often an excuse for downsizing, this often leads to “dumb-sizing.”
A head of a private school told me that he wanted to let go of several faculty and staff he deemed incompetent, so he dangled a voluntary retirement program in front of everyone. The problem is, he ruefully said, “the good ones left while the bad ones stayed.”
The school ended up with unskilled and inexperienced personnel, forcing them to offer attractive pay to attract other talent, which in turn exacerbated turmoil on campus.
What should have been done was clear in retrospect: refuse the retirement applications of “the good ones,” and negotiate with them on what they need (support, resources, recognition, etc.) to continue doing their tasks effectively.
“Think hard before downsizing,” says consultant Rey Elbo in Businessworld. “Reducing head count can destroy social equanimity when structures are altered, work relationships disrupted, work patterns and workflows modified. It will take time for the surviving workers to do the jobs once performed by many. [Moreover], a pervasive feeling of job insecurity could undermine the efficiency goals that were supposed to be achieved by downsizing.”
Instead, Elbo suggests sharing services, such as centralizing backroom functions like payroll and recruitment, to bolster efficiency—rather than dismissing people. But if downsizing is inevitable (such as when revenue drastically falls), then an outplacement initiative can reskill victims of reorg and increase their chances of landing a post. A caring employer can recommend employees to be hired by the company’s affiliates or subsidiaries.
However, Goodall believes that most restructuring is done even if the company is doing well. Last year, Amazon, Meta, Citigroup, HSBC, Deloitte, Unilever, among many firms, commenced still another round of reorganization—even if all of them have great balance sheets—at the expense of employee morale.
“Repeat restructurings can sow uncertainty across organizations and distract and demotivate workers,” says Andrew Hill in Financial Times. “Few companies are genuinely in such trouble that restructuring is unavoidable.”
“Very often we attach to the story of the CEO coming in, [the idea that] ‘this thing is going down the tubes unless you take serious action,’” says Goodall. “But that doesn’t justify all the parallel restructuring being done for reasons other than actual survival.”
What can be done instead? Goodall suggests “prioritizing team cohesion (instead of reshuffling teams at will), using real words (rather than corporate-speak), sharing secrets (not mission statements), fixing only the things that are truly broken (instead of moving fast and breaking everything in sight) … so that leaders at every level can create the stability that people need to thrive.”
Queena N. Lee-Chua is with the board of directors at Ateneo’s Family Business Center. Get her book “All in the Family Business” at Lazada or Shopee, or the ebook at Amazon, Google Play, Apple iBooks. Contact the author at blessbook.chua@gmail.com
