Downsizing is a toxic solution, used sparingly and with planning it can be an organizational lifesaver, but when used repeatedly without a thoughtful strategy, it can destroy an organization's effectiveness. One outcome of downsizing must be to preserve the organization's intellectual capital. How downsized employees are treated directly affects the morale and retention of valued, high-performing employees who are not downsized. Downsizing should never be used as a communication to financial centers or investors of the new management's tough-minded, no-nonsense style of management- the cost of downsizing far outweighs any benefits thus gained.
Downsizing is extremely difficult. It taxes all of a management team's resources, including both business acumen and humanity. No one looks forward to downsizing. Perhaps this is why so many otherwise first-rate executives downsize so poorly. They ignore all the signs pointing to a layoff until it's too late to plan adequately, then act hastily to reduce the financial drain of excess staff. The extremely difficult decisions of who must be laid off, how much notice they will be given, the amount of severance pay, and how far the company will go to help the laid-off employee find another job are given less than adequate attention. These critical decisions have as much to do with the future of the organization as they do with the future of the laid-off employees, so they must be considered carefully.
These decisions are handed to the legal department, whose primary objective is to reduce the risk of litigation, not to protect the morale and the intellectual capital of the organization. Consequently, downsizing is often extended with a brisk, non-compassionate efficiency that leaves laid-off employees angry and surviving employees feeling helpless, demoralized, and poorly prepared to start rebuilding the business. Helplessness is the enemy of high achievement. It produces a work environment of withdrawal, risk-aversion decisions, severely impaired morale, and excessive blaming. All of these put a stranglehold upon an organization that now desperately needs to excel. Thus downsizing becomes a contributor to an organization's downfall rather than a catalyst for growth and profitability.
Ineffective methods of downsizing abound. Downsizing malpractices such as those that follow are common; they are also inefficient and very dangerous. Most corporate attorneys advise laying off employees on a last-hired, first-fired basis across all departments. The method of downsizing that is most clearly defensible in a court of law, for example is to lay off 10% of employees across all departments on a seniority-only basis. This way no employee can claim to have been dismissed for discriminatory reasons. Furthermore, attorneys advise against saying anything more than what's absolutely necessary to either departing employees or survivors. This caution protects the company from making any implied or explicit promises that aren't then kept. By strictly scripting what is said, the company protects itself from verbal slips by managers who are themselves stressed at having to release valued employees.
This approach may succeed from a legal perspective, but not necessarily from the more important one of organizational health. First, laying off employees by a flat percentage across different departments is irrational. How can it be accounting can do with the same proportion fewer employees as human resources? Could one department be externalized and the other left intact? The decision of how many employees to lay off from each department should be based on analysis of business needs, not an arbitrary statistic.
The concept of laying off employees strictly on the basis of seniority is also irrational. The choice of employees for a layoff should be based on a redistribution of the work, not the date the employee was hired. Sometimes an employee of 20 months has a skill far more valuable than one with 20 years' seniority.