Research

Survival of the smartest: After the layoffs, manage for long-term stability

If you're one of the millions of workers left behind after layoffs, sweating over an inflated workload, fretting that you might be next, you already know how demoralizing a "reduction in force" (RIF) can be. If you're managing layoff survivors, you have even more reason to worry. RIFs can clobber morale, erode loyalty, stymie creativity and set your firm up for a migration of talent that could hobble you long after the economy revives. Experts at the W. P. Carey School say that now is the time to manage employee angst and solidify relationships so that once you survive this recession, you'll be able to thrive in the recovery ahead.

2009-04-15

RIFs can clobber morale, erode loyalty, stymie creativity and set your firm up for a migration of talent that could hobble you long after the economy revives. Smart managers don't let that happen. Now is the time to manage employee angst and solidify relationships so that once you survive this recession, you'll be able to thrive in the recovery ahead.

Winds variable

"Uncertainty, doubt and fear are absolutely crippling to people," says Blake Ashforth, a professor of management at the W. P. Carey School of Business. But, they may strengthen the team, also. "When emotions are involved, funny things can happen both for good and for ill."

According to Ashforth, layoffs can bring office RIF survivors together "if they feel they're in the same boat. But if they feel it's me against you and everyone is fighting for the same jobs, it can turn pretty nasty." Then, too, there is the distraction of possible further layoffs. "When you're concerned about tomorrow, it's hard to bear down and focus on your work today," he adds.

"On the other hand, people who are worried about the future may be more inclined to hunker down and do their job to avoid being let go next." He says layoffs may improve productivity, though he doesn't "recommend fear as a managerial prerogative. It takes a huge toll. It burns people out."

What's more, it can derail innovation. "People are far less inclined to take chances during tough times," Ashforth notes. "It's often hard to get people to do things in a different way when they feel as if their jobs are at stake." For companies concerned about turnover and retention, economic turmoil often keeps employees in their seats. This, too, can have mixed results.

When laggards lag

What's the benefit of voluntary turnover? "Most people like to keep voluntary turnover low, but there is an upside," says management Professor Peter Hom. "Maybe your poor performers will leave. Or, higher-priced employees may leave so you can fill the positions with lower-priced employees. Or, senior people leave, opening up promotional opportunities for those that stay."

Also, Hom points to one study that found inventiveness stagnates when research and development teams remain together too long. "Team members might form a cohesive group, but they're not as creative. You need some churn on R&D teams," he notes.

Given these circumstances, having some voluntary turnover can be healthy. What's troubling is when the top-tier people quit — and that's more likely in a struggling economy. If companies lose only their corporate stars, retention scholars call it "dysfunctional turnover," and that's what is happening right now.

In fact, Hom says he is hearing about high performers being "vulnerable to cherry picking." They're getting poached away from their employers by more aggressive firms. That's not so with the low performers. Studies show that people are more likely to stay put during business downturns, Hom notes. Since low performers are less mobile, they're the folks most likely to hang on. Although it's not a term used in academic scholarship, Hom jokes that this might be called "dysfunctional retention."

Hom's research shows a direct correlation between unemployment and voluntary quit rates. In a research project Hom conducted on behalf of a major national retailer, he found that, "Every time unemployment went up 1 percent, the quit rate went down 12 percent."

There is a flip side to this recessionary retention phenomenon: "Once the business cycle turns up and unemployment drops, you'll find an explosion of quit rates," Hom adds. And, he warns, "If you treat people badly now, they might be leaving in droves."

Pink slip-ups

What might constitute "bad" treatment? "Callousness — assuming employees should be happy just to have a job," Hom says. Shea Stickler, an executive MBA student at the W. P. Carey School of Business, has seen the emotional wallop of layoffs from multiple angles.

He's been laid off, he had to lay people off last year in his position as a vice president at a Fortune 500 company, and currently he's in between jobs, since he recently took a buy-out package.

According to him, "Fear of the other shoe dropping" is the biggest concern of employees who are left after a RIF. They're wondering, "When is it going to be my turn?" he says. Along with fear, he has seen people struggle with survivor's guilt, grief and, of course, the extra workload.

According to Ashforth, organizations often "cut more than they should. They cut past fat into real meat and bone." In fact, he thinks a lot of layoff pain is "self-inflicted, because companies over-downsize and the people left behind have to dance faster to get things done."

Ashforth advises companies to think twice and not "over-react to tough times. If you don't over-react, you’ll have more loyalty down the road, because employees realize how the company's belt-tightening" strengthened the company for all, he says. Ashforth also echoes Hom's warnings against insensitivity, claiming "emotional support" is an important key to keeping employees productive when you've cut staff and need those who remain most.

"Even if you can't change the fact that people have a lot to do, simply knowing that the organization and managers understand the burden they've imposed goes a long way toward helping those who remain be accepting of the extra workload," he says. "When managers are callous, acting as though people should be grateful just to have a job, people resent it. It can become cancerous over time."

Seeing the light ahead

The challenges are clear: After a layoff, managers must oversee a stressed workforce and keep top performers from moving on when times rebound. What actions can help you meet these challenges? "Communicate, communicate, communicate," says Stickler. "If you don't manage communication, people will make up their own stories, and those can be far worse than reality."

When communicating, Stickler adds, "be honest," but hopeful. Hom has similar advice: "Persuade people there is a future with the company," he says. Ashforth, too, counsels honesty mixed with optimism, and he points to President Obama's recent address to the nation as a "masterful" example of how such communication should be handled.

According to him, Obama "didn't pull any punches" and used "pretty brutal language" in describing today's economic reality. "But, by the end of the address, people felt energized, because he ended on an optimistic note, telling us the things we can do and the core strengths we can draw on to get us through these tough times."

For companies facing layoffs, he adds, managers "want to remind people of what made the company great all along and what they, as employees, bring to the table to see the company through to better times." Having been in the trenches as a manager forced to reduce his workforce, Stickler has a few more words of wisdom to offer. For one thing, there are logistics to consider in the communications plan.

One is timing, which can be particularly tricky for international companies, in which one employee's quitting time is another's daybreak. "How terrible is it to learn from some guy in Japan that your group is being cut?" he asks. Even for national companies, timing can be a challenge, he adds, noting the three-hour difference between East Coast and West Coast workers.

And, before communicating the layoff, it is a good idea to get employees to communicate their work processes, Stickler notes. Some caught in the layoff may worry about those left behind and try to help with the transition; others may not, and may hamper the transfer of knowledge by deleting files or records. Often they believe their files and records are personal property, when in fact they belong to the company.

Documenting business processes and procedures will help you keep productivity up when headcount goes down. Another productivity concern comes from Peter Hom: According to him, studies have found that those companies practicing "high-commitment management" experience more severe employee reactions to layoffs.

High-commitment workplaces "tend to invest a lot of training and development in employees, provide them with plentiful incentives, including collective rewards, and give people a lot of job security," he explains. "When high-commitment companies decide to lay employees off, productivity suffers even worse than it does at low-commitment companies." People perceive the layoff as a "violation of the psychological contract," Hom continues.

Experts "recommend something counterintuitive" to combat this. "You should try to maintain your investment in employees through the recession. If you don't, things are going to be worse for you in the long run." At bottom, it is the long-term view that should govern management's recession-days behavior — with or without layoffs. As Ashforth says, "People can take a lot of grief in the short term if they have hope that these rough seas will end."

Bottom line

Layoffs clobber employee morale, productivity and, ultimately, retention.
High-performing employees may leave; poor performers probably won't.
After a recession, voluntary quits may skyrocket, particularly if managers don't treat employees well when times are tough.
Honest but hopeful communication can help keep employees dedicated to the future of the company and their place in it.

Management Career development Faculty