The term downsizing represents the broad variety of ways in which organizational leaders reduce employee ranks to achieve business objectives. Downsizing occurs through voluntary programs, such as early retirement packages; involuntary dismissals, such as layoffs; and the displacement of employees through outsourcing. No matter which method is used, the underlying objective of a downsizing is to reduce costs in order to contribute to the achievement of short-term financial objectives and/or long-term strategic shifts in response to the ever-changing global marketplace.
Corporate restructurings and downsizings have become deeply woven into the fabric of contemporary organizational life. What once were infrequent and, in some cases, unheard-of occurrences in most work organizations now have become regularly occurring actions. What once were managerial reactions to difficult market conditions now have become proactive tactics for attaining strategic and financial objectives. And what once were poorly managed events that eroded the psychological relationship between employer and employee have become, at least in some organizations, opportunities to define or reinforce desired corporate cultures that reflect the realities of today’s ever-changing business environment.
Downsizing activities have been implemented in organizations of all sizes, in all industries, and across all geographic areas. Many huge corporations headquartered in the United States have experienced multiple waves of downsizing. Smaller organizations are not immune from downsizing. In recent years, over 500 dot.com start-ups have undergone reductions in force. Practically every industry sector—telecommunications, manufacturing, financial services, education, health care, high technology, and retail, among others—has experienced a major displacement of employees during the past decades.
What initially was an American phenomenon has transcended national boarders. Several large European and Asian organizations have experienced layoffs, divestitures, and closings in recent years. These downsizings are especially significant given the labor laws, worker councils, and national cultures that have traditionally supported lifelong relationships between employers and employees. In China, for example, mores were at one time so strong that this type of organizational activity was referred to as “taking away someone’s rice bowl.” That is, the company would be removing an individual’s means of income.
The Unintended Impact of Downsizing on Careers
In principle, downsizing should enable an organization to improve its competitiveness without impairing its ability to execute its strategy. In practice, however, a downsizing can exact a heavy toll on organizational effectiveness and the well-being of both survivors and those whose jobs were eliminated. Organizational scholars assert that companies must change today to remain competitive, and they identify a wide array of organizational strategies (such as downsizing) to accomplish this change. Ironically, the term organizational change depersonalizes change. It suggests that “organizations” need to change when, in fact, organizations are composed of employees. Employees are the ones who need to change. Employees are the ones who need to bend and flex to the current demands of the work environment. Employees are the ones whose jobs, careers, and lifestyles are directly affected by a downsizing.
In general, downsizing threatens the self-esteem and sense of fair play of all employees. People can rationalize layoffs based on performance, for example, when an employee is repeatedly late to work or fails to meet production standards. However, people cannot rationalize the fact that hardworking fellow employees have lost their jobs because of an economic downturn. Downsizing victims blame themselves for not having seen it coming or not having done something to protect themselves. For victims and survivors alike, a downsizing eats away at the assumption of fairness in the workplace, as they wonder why leadership could not stave off the dreaded event or identify some alternative course of action. Survivors see the human carnage of lost jobs and destroyed careers and wonder, “How could an organization I want to dedicate my life’s work to do this to people?”
Some executives believe that downsizing survivors should be grateful just to have a job in tough economic times—that employees should be ready to roll up their sleeves and get down to work. However, the real consequences are very different. Survivors of organizational transitions experience a broad range of psychological and behavioral reactions that begin with rumors of impending events, continue through the weeks and months of transition planning and implementation, and linger long after the dust settles. Downsizings have a lasting impact on employees’ perceptions of their workplaces and their career opportunities.
In their research on human responses to major organizational events such as mergers, acquisitions, and downsizings, organizational psychologists Philip Mirvis and Mitchell Marks identified the transition syndrome. This process describes the set of expected employee responses to living through a major transition in a company. They found that the transition syndrome arises even when executives have taken some care to devise a downsizing plan designed to minimize upheaval and provide due consideration for its effects on people.
The following six symptoms of the transition syndrome occur in practically every downsizing and have implications for career expectations and progress:
- Preoccupation. When first hearing of a reduction in force, employees become distracted from their work responsibilities and preoccupied with their personal situations. People often feel guilty for having been spared, similar to the psychological reaction of children who lose a playmate or sibling in a fatal accident. Survivors also may become depressed at their inability to avert future layoffs or disruptions to their careers.
- Worst-case scenarios. Not only do people become distracted, they focus on worst-case scenarios. Dire rumors spread throughout the downsizing organizations.
- Psychosomatic reactions. The stress of living through a downsizing is manifested in a variety of ways. Sick leave increases as many employees are worried and others simply do not want to be around a dismal workplace. Many survivors and victims of downsizings report psychosomatic reactions, ranging from sleeplessness to increased tension and fighting with spouses and children.
- Constricted communication. People often turn inward in a downsizing and restrict their communication. Trust can be eroded in the downsized organization, and people do not know the consequences of speaking up about their careers. Ironically, this occurs at a time when people need to reach out to one another and provide support, both emotionally (e.g., How do we get through this difficult time?) and practically (e.g., How do we minimize the adverse impact on our careers?).
- Crisis management. Many employees lurch into a crisis-management mode. The high level of stress that accompanies every downsizing impairs perception and judgment. People may make rash decisions and jump at what may appear to be decent career moves when, in reality, they have not fully assessed their options.
- Loss of control. What really concerns employees in a downsizing is the sense that they have lost control over their careers. They perceive that no matter how well they do their jobs, they could be hit in the next wave of layoffs. This feeling explains why they may jump at the first opportunity outside the firm or take other actions that initially provide some psychological satisfaction of exerting control but, over the long haul, may prove to be detrimental to their careers.
Career Management and Downsizing
Past research has indicated that employees who have been terminated due to downsizing should keep four perspectives in mind during the period after the job loss. These four perspectives include marketability, composure, standard of living, and attitude. To survive a downsizing experience, indeed, to capitalize on it, individuals will need to manage each of these areas effectively.
Downsizings have become an integral part of organizational life. The right time to start planning for the impact of a downsizing on one’s career is well before it occurs, before the cuts and associated stress hit. This minimizes the likelihood that stress and uncertainty will color one’s perceptions and actions. Individuals should develop a contingency plan of what actions would be taken if one’s job were suddenly put at risk. A good place to start is with an honest assessment of the current situation. A number of key assessment questions should be asked, including “Do I know what I contribute to my company?” “If my job opened up today, would I get it?” and, finally, “What would I do if my job disappeared tomorrow?” With regard to these questions, it is important for individuals to keep an up-to-date record of achievements, and it is imperative to keep abreast of trends and developments in the field by reading trade publications, joining industry groups, and attending conferences.
In today’s economy, whether an employee is laid off often has little to do with job performance and more to do with the turbulence and uncertainty in the global marketplace. It is helpful for individuals to know a few of the signs that a downsizing is likely coming in the organization. For example, is upper-level management having a lot of confidential meetings? Are middle-level managers being questioned more closely or simply turned down when asking for more staff or funding? Is your boss less and less willing to talk to you about the future, or does he or she avoid you as much as possible? Does your boss seem unusually stressed? Has your company’s senior-management team changed suddenly? Has your company merged with or acquired another company? Has your company’s stock price fallen greatly or its debt rating been substantially downgraded? Has senior management’s focus shifted from competing in the marketplace to attempting to cut costs wherever possible? Do Wall Street analysts appear to know more about what’s going on in your company than employees do?
It is important for employees to be proactive in this instance. If there is a lack of information coming from leadership, individuals should set up a meeting with immediate supervisors to ask for more details on company plans. If one’s supervisor is eliminated in a downsizing, the individual should take the initiative to sit down with the new superior to talk about contributions and get direction for setting new priorities.
When individuals are laid off, it can be a shock, producing feelings of demoralization, fear, frustration, anger, and resentment. Past research has shown that one of the best ways for individuals to effectively cope with job loss is to spend a half hour or so a day writing about the trauma of being terminated. Penning one’s thoughts actually can speed up the chances of landing a new job. In a study of 63 men who were laid off by a computer firm, researchers Stefanie Spera, Eric Buhrfeind, and James Pennebaker found that employees who wrote down their thoughts daily found jobs sooner than those who did not. It appears that translating events into words diminished the stress those men experienced and enhanced their understanding of the downsizing process. According to the authors of this study, the writing forced the employees to address their emotions and cognitively reappraise their situations, which prevented negative emotions from resurfacing during job interviews.
Losing one’s job is a traumatic event for most people. However, it can be helpful to realize that the typical college graduate today will have several career changes during his or her lifetime; a job change can be perceived as simply an interlude in one’s lifelong employment journey. Maintaining poise and confidence during this unemployment phase will help enable downsized employees to more effectively reposition their skills, talents, and experiences into the next job.
Maintaining Standard of Living
When a downsizing occurs, employees should consider all aspects of the company’s actions to be negotiable (e.g., severance pay, outplacement services, medical insurance, stock options). It is important for individuals to know their rights during a downsizing. For instance, although no law requires an employer to provide severance pay, it is a common practice in companies today. A widely used rule of thumb is to offer employees two weeks’ pay for every year of employment. If an individual is earning more than $100,000 a year or is 50 years or older, it may take a little longer to find a comparable new position. A frequently used benchmark for individuals seeking reemployment is to figure one month of job-search time for every $10,000 in salary earned at the previous position. Consequently, two weeks of pay per year might not be sufficient for many individuals. In this case, individuals should not hesitate to negotiate a better severance with the direct supervisor or the human resources director. In addition, it may be possible to negotiate a “stay-on bonus” if one commits to remaining on the job until a current project is completed.
Approximately 80 percent of U.S. companies provide outplacement services to downsized employees. Typically, a standard package includes resume-writing and job-interviewing skills workshops, temporary use of office space, career counseling, and, in some cases, one-on-one coaching sessions. By law, employers must provide COBRA (Consolidated Omnibus Budget Reconciliation Act) coverage. This provision means that individuals have the option to pay a health insurance premium that is much lower than what they would have to pay on their own. However, an employer is legally required to offer COBRA for only 18 months. If one anticipates that the job search might take longer, it might be appropriate to negotiate an extension. Stock options should be considered as well. Usually, an individual has 90 days after a layoff to exercise vested options before losing them. However, most companies, when asked, will agree to extend that period to as much as a year.
In return for providing the above services to the employee, the company will require the signing of a legal waiver of some sort. This document precludes the individual from suing the employer for unjust termination and often includes a clause that the individual will not “bad-mouth” the company to employees or customers.
Maintaining a Positive Attitude
A downsizing can be a stimulus for revitalizing a dead-end career. Most people avoid change at any cost, even when they are unhappy with the current state of their careers. A downsizing, from the perspective of either a victim or a survivor, can be the impetus required to rethink one’s career progress and career strategy. It can be a launching pad for exploring new industries or even new occupations. Employees often get so accustomed to functioning within one company that they cannot see their way to “reinvent” themselves. The loss of a job can be the impetus to finally get that dream job, buy that franchise you have been talking about all these years, or to set up that small business. Furthermore, the Trade Adjustment Act (TAA) offers money for many downsized workers to seek retraining. Besides such retraining funds from the federal government, many states provide additional money for retraining opportunities.
It is important for downsized individuals to stay busy while seeking new employment. Becoming involved in civic organizations, volunteering for youth sports programs, or becoming more involved at school are all ways to stay active while seeking reemployment. Moreover, individuals should take advantage of the opportunity to spend more time with family.
Overall, downsized individuals must recognize that it is ultimately their own responsibility to manage their careers after a layoff, and they should not forfeit the responsibility to a company or another person. On the positive side, a downsizing can lead to a new career and a brighter future. Downsizing can be the stimulus for a more challenging, more invigorating, and more rewarding career and provide individuals a second chance at victory.
- De Meuse, K. P. and Marks, M. L., eds. 2003. Downsizing the Organization: Managing Layoffs, Divestitures, and Closings. San Francisco, CA: Jossey-Bass.
- De Meuse, K. P. and Tornow, W. W. 1990. “The Tie That Binds Has Become Very, Very Frayed.” Human Resource Planning 13:203-213.
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