How Businesses Can Help Survivors of Downsizing

Today, early 2017, may bring some fresh changes to the business climate in the United States. Hopefully, many businesses that have been overseas for years may be returning to the United States. If so, the trend of company's downsizing may be reversed.

However, in recent years, the economic climate in many Western countries has been somewhat unstable, particularly regarding jobs and unemployment. In the United States, many Americans who believed they had a stable work situation, realized that their work life was anything but stable. A large number of American jobs went overseas. In the wake of this economic turmoil, families were uprooted as breadwinners relocated in order to find new jobs. In some areas of the United States, unemployment rates have improved, but the turmoil is not completely behind us. Job losses over the last couple of decades are due to a number of factors, but one of the most common underlying causes is a phenomenon called downsizing. Several studies offer research-based strategies that organizations can use in helping those who experience downsizing, especially the survivors, those who remain with the company after the downsizing process has been completed.

Definition of Downsizing

During the last half of the twentieth century, the financial business climate in the United States began undergoing major changes, mostly in the financial arena. Most of these issues focused on the rising costs of operating a business. There were several reasons for these higher operating expenses. One reason for the increasing business operating costs is that global markets turn out competitors who can produce goods and services at a much lower cost than American producers can. Thus, many companies have moved their businesses overseas, and people in other parts of the world are now performing jobs that once belonged to Americans.

In addition to businesses moving overseas, machines, not people, now perform many tasks in the companies that have remained in America. Most organizations have had to cut expenses to some extent because of competition and rising operation costs. One method that many businesses use in dealing with higher costs is to reduce the number of employees, a phenomenon called downsizing. The term downsizing in business means that an organization decides to reduce its workforce permanently.

Brief History of Downsizing

Downsizing, sometimes referred to as redundancy, has become more prevalent since the 1980s. In fact, as early as 1994, a survey indicated that between one-third and one-half of the medium and large firms in the United States downsized every year between 1988 and 1994 (Henkoff, 1994). Although overseas competition and automation have affected the manufacturing industry more than most segments of business, almost all organizations in the United States and Europe have undergone downsizing and restructuring at some time in the last few years. Restructuring is the term used to refer to the reorganizing of the company that immediately follows downsizing. Since the restructuring period also affects survivors, factors related to both downsizing and restructuring are included in this research.

Effects of Downsizing

Although downsizing affects several groups of people----the employees who lose their jobs, the employees who remain with their jobs after the downsizing (the survivors), and the organization itself---the survivors’ adjustment has not received as much attention in research as the other groups who are involved in the downsizing process. In the past, most business research has focused on those who lost their jobs. However, financial analysts have come to realize that the survivors, those who remain with the company after the downsizing, undergo major adjustments in the downsizing and restructuring process. Downsizing, which the literature occasionally refers to as redundancy, definitely affects employees who remain with the company after downsizing.

In the past, management may have viewed downsizing as a necessity and largely ignored the needs of both displaced employees and surviving employees. Nelson (2004) quotes downsizing analyst David Noer, who describes many downsizing situations, “Survivors are left to fend for themselves, to somehow make it on their own.” However, the survivors’ adjustment, or lack of adjustment, during downsizing, can affect the stability of the company after the downsizing process ends. Recent studies in Great Britain point out that downsizing affects employees’ attitudes, behaviors, and perceptions more than any other organizational change (Worrall, Cooper, & Campbell, 1999; Worrall, Cooper, & Campbell, 2000). Downsizing survivors have reported experiencing feelings of “hurt” and “disillusionment” and of feeling “undervalued” when going through downsizing. In addition, survivors have indicated that the redundancy affected their well-being, their home life, and their relationships. Therefore, human resources management has a responsibility to the survivors and to the organization to employ research-based strategies to help survivors adjust to the downsizing and the subsequent restructuring that usually follows downsizing.

Organizations Affected by Downsizing

Manufacturing Industry

Downsizing has affected almost all types of organizations in the economy. The segment that may have experienced more severe economic downturns, including downsizing, is the manufacturing industry. One reason for the large numbers of manufacturing organizations undergoing downsizing and taking other cost-cutting measures, is that manufacturing companies could lower their operating costs by moving to foreign countries. In addition to lowering their costs by moving overseas, the companies who remained in the United States began replacing American workers with automation, resulting in more job losses for American employees. The cost cutting and downsizing trends have hit the furniture and apparel industries especially hard. For example, according to Dunn and Bradstreet, a steel factory in Gary, Indiana, which employed 30,000 people in 1950, today has only 5000 (Holmes, 2011, p. 8). However, the manufacturing segment is not the only area of business to experience cost cutting.

Higher Education

Although the manufacturing industry has experienced more economic cutbacks than most other segments of business, another category that has experienced downsizing is higher education. Operating costs for higher education institutions have exceeded the income that these institutions generate. The state and federal governments are allocating less money to higher education, yet these institutions are under pressure to maintain high standards. The downsizing move in higher education has been growing for several decades; in fact, large numbers of colleges and universities began downsizing as early as the 1990s. Several well-known organizations reported financial hardships as far back as the early 1990s. These include Harvard, the University of California, Yale, and the University of Maryland, to name a few (Cameron & Smart, 1998).

Downsizing in higher education, as with other organizations, affects the survivors as well as the organization in general. When higher education organizations downsize, they may develop several negative attributes, which affect the effectiveness of the organization, resulting in more stress for survivors and more adjustment difficulties for these employees. Cameron (1998) refers to these negative qualities as “the dirty dozen.” Some of these negative responses to downsizing include the idea of becoming protective of one’s “turf.” Another negative response to downsizing is that the organization becomes extremely conservative and avoids any risk-taking or innovative projects. The organization’s members pass only good news up the channels in the organization, and the company uses savings for operating expenses. Eventually, the company develops a “mean mood,” resulting in an increase in stress and anxiety for the surviving employees. All of the “dirty dozen” negative factors contribute to the adjustment difficulties caused by the downsizing process for employees of higher education (Cameron, 1998).

Healthcare

Another segment of business that has experienced downsizing is the healthcare field. Survivors of downsizing in healthcare organizations also suffer from adjustment issues during the downsizing and restructuring process. A study by Young and Brown (1998) found that several strategies work well in helping employees adjust to the downsizing. Although the authors conducted this study on healthcare survivors in 1998, this research is important to the overall body of information regarding effective downsizing strategies in a variety of organizations. The most effective strategies listed in this study are two-way communication, sufficient planning, and the practice of gathering input from a broad group of staff. For the seeking and gathering of information, the best methods are individual and group meetings our discussions. Throughout the article, the authors emphasize the importance of two-way communication between survivors and human resources management throughout the downsizing process (Young & Brown, 1998).

Since downsizing affects businesses in manufacturing, higher education, healthcare, and numerous other fields, neglecting to help the survivors, those who remain with the company, can have serious adverse effects on downsizing organizations. Human resources management has a responsibility to the survivors and to the organization to employ research-based strategies to help survivors with the adjustment process. Today, the consequences of not helping employees adjust to the downsizing could result in a number of negative results for the organization, including a high turnover of skilled employees or employees who do not perform as effectively as they should. Ultimately, the entire economy can suffer if human resources management fails to address the needs of the survivors during downsizing.

How Organizations Can Help Survivors of Downsizing

Sense of Empowerment

.Not only should human resources management help survivors through the downsizing process, but leadership should continue helping survivors throughout the restructuring process that usually follows downsizing. The process of the actual downsizing is not the only stressor for survivors. According to empirical evidence, the post downsizing environment, sometimes referred to as the restructuring period, can be a source of stress for the employees retained by the company (e.g., Greenhalgh, 1983; Armstrong-Stassen, 1993a). If the survivors of downsizing are trying to cope with stress, trauma, and hidden anger, the results could cause adverse circumstances to develop within the organization during downsizing and during the restructuring period, ultimately affecting the efficiency of the company.

Several studies provide valuable research for human resources management for helping survivors adjust to downsizing and restructuring. Two of these studies, one by Armstrong-Stassen (2006) and another by Ugboro (2006), focus on effective downsizing strategies for human resources management. These authors’ articles point out that one of the most important steps that HR can take in the adjustment process is to help survivors have a sense of empowerment. Ugboro (2006) discusses the relationships between sense of empowerment, job enrichment, and employee loyalty, which are essential if survivors are to adjust to downsizing effectively. Niehoff et al. (2001) studied these particular relationships “and found positive association between empowerment, job enrichment, and employee loyalty in a downsizing environment” (2001, p. 234).

Although there are a number of definitions of empower or empowerment, a commonly cited definition of this term by Conger and Kanungo is “a process of enhancing feelings of self-efficacy among organizational members through the identification of conditions that foster powerlessness, and through their removal by both formal organizational practices and informal techniques of proving efficacy information” (1988). One component of this definition is the idea of increasing employee feelings of self-efficacy. This definition has its roots in the management theory of delegation of power and authority to employees in order to use organizational resources to bring about desired outcomes for the organization (Ugboro, 2006).

A survivors’ sense of empowerment is one of the most crucial tools that HR management can help survivors acquire during downsizing. Having a sense of empowerment means the employee has the feeling of some measure of control over his or her job circumstances. Several studies report that the survivors’ sense of empowerment is essential if these employees are to contribute effectively to the organization after the downsizing process is complete. One reason that a sense of empowerment is so important is that the restructuring process often overloads survivors with additional work, resulting in the employees having a feeling of a loss of control over their lives or their jobs. Having a feeling of empowerment can help restore employees’ sense of control, particularly in their career-related associations.

Methods for Helping Survivors’ Sense of Empowerment

Human resources leadership can help survivors have a sense of empowerment in several ways. First, they can allow for greater empowerment if they allow employees to participate more in decision making because that will allow them to have greater autonomy (Ugboro, 2006; Aiken & Hage, 1966; Ashforth, 1989; Kanungo, 1992). The employees tend to feel as though they have some control over their work environment (Ugboro, 2006). Armstrong-Stassen found that federal government departments who tend to rely on hierarchical arrangements restrict the empowerment of management-level employees. The government employees in this study showed the lowest mean score to be for sense of power. That score was below the midpoint of the scale (M = 2.59). That score indicated that the managers in this study felt that they had little control over their work circumstances and could not prevent or control negative events from affecting their job and work situation (Armstrong-Stassen, 2006).

Counteracting Negative Effects of Downsizing

Intent to Quit

In addition to helping survivors by improving survivors’ sense of empowerment, intrinsic job satisfaction, and other positive factors, human resources management needs to counteract the negative dynamics at work during the downsizing and restructuring process. One of the negative effects of downsizing is the intent to quit, a term that means that the employee, because of the lack of adjustment to some or all of the downsizing, decides to quit the present job and he or she seeks employment elsewhere. The intent to quit attitude is one of the most reliable predictors of voluntary turnover (Price and Mueller, 1995; Mueller et al., 1994); therefore, human resource leadership has a responsibility to take a conscious and structured approach to survivors’ adverse reactions to the downsizing process----the intent to quit and the voluntary turnover, which often follow (Urboro, 2006). The intent to quit is the most serious threat to a company’s effectiveness and stability after downsizing restructuring. It is one of the strongest negative results of downsizing examined by Ugbor (2006).

Several factors cause an employee to adopt the intent to quit perspective. Often, survivors experience intent to quit because of the work overload, a sense of job insecurity, or a poor matching of employees ability with the demands of the job. They may also have anger toward the organization because of the methods used by the company in downsizing. Survivors often take on additional work obligations, or overloads, as they take on the tasks of those laid off. Since restructuring often occurs right after downsizing, human resources management has an opportunity to make sure survivors’ roles are well suited to their strengths and abilities as survivors’ adapting well to a new role after downsizing can lead to intent to quit (Ugboro, 2006). If HR management does not recognize and deal with intent to quit, this phenomenon may lead to problems of a more serious nature for the organization.

Voluntary Turnover

A more serious problem resulting from the phenomenon of intent to quit is voluntary turnover. Since the early 1990s, research reveals that intent to quit almost always leads to voluntary turnover. That is, high performing survivors leave a company in search of a workplace that does not have the overload or stress of the present job. A major concern of many survivors of organizational restructuring is that they have a greatly increased workload. This overload is often the direct result of restructuring. Management rarely gives attention to this concern because they are more concerned with surviving the transitional period (Cameron et.al, 1993). When management does not address employees’ concerns regarding job conditions like overloads, the employees often develop intent to quit because their intrinsic job satisfaction suffers.

If survivors have increased job responsibilities after downsizing, human resources management must redesign the job in such a manner as to enhance the intrinsic job quality (Brockner, Grover, Reed and Dewitt (1992). The job redesign should enhance the intrinsic job quality in order to help survivors cope with increased job responsibilities and work load. In addition, (Mishra & Spreitzer (1998) suggest that the extent to which survivors’ jobs have changed will affect the survivors’ response to downsizing. Of most importance is whether the survivors have the ability and inner resources to perform their new job tasks effectively. Those survivors who have the ability to perform their new jobs effectively are more likely to experience job satisfaction with the new job tasks (Brockner & Wiesenfeld, 1993). The survivors who lack the ability to perform the new job tasks effectively are more likely to respond negatively to the downsizing (Mueller et al. 1984; Spreitzer and Mishra, 1998).

Encouraging Effective Coping Strategies

Besides a sense of empowerment, intrinsic job satisfaction, organization loyalty, and counteracting the negative effects of intent to quit, research indicates that effective coping strategies have a positive influence on survivors of downsizing. Armstrong-Stassen conducted a longitudinal panel study on survivors’ coping strategies during downsizing (2006). She examined coping strategies used by managers in two Canadian federal government departments that underwent a large-scale organizational downsizing (2006). The Canadian federal government announced in 1995 that they were planning to eliminate 45,000 civil service jobs over the next three years. The two departments targeted by the Treasury Board of Canada were actually reducing 20 % of their workforce. The downsizing eliminated approximately 39% of all executive positions, and in one department alone, the company eliminated 52 executive-level positions.

Control-Oriented Coping

The Armstrong-Stassen study focused on two types of coping strategies, control-oriented coping and escape coping. For the purposes of her study, Armstrong describes control oriented coping as “represented by positive thinking coping, direct action coping, and support seeking.” Support seeking means that the employee tries to get informational or emotional support from others (2006). Usually, support seeking involves the employee receiving support from immediate supervisors. Employees who practice control oriented coping tend to focus more on their present job, and they spend more time in dealing with issues associated with that job rather than attempting to escape. Direct action coping means the person directs more attention to solving one’s problems on the job, thus giving more attention to the current job.

Escape Coping

On the other hand, escape coping comprises avoidance of the problem at hand. Armstrong-Stassen defines avoidance coping as “putting one’s attention on other things and avoiding thinking about the problem at hand.” Escape coping “comprises avoidance coping, disengagement, and job seeking coping” (2006). She defines disengagement as withdrawing and putting less effort into one’s job. Job seeking coping means actively looking for a job elsewhere, thus one takes his or her attention off the situation at the current place of employment (2006). In other words, employees who practice escape coping tend to focus less time on their jobs. Her findings are similar to those of Ugboro (2006) who describes the intent to quit perspective that many survivors adopt when they begin to think of quitting and looking elsewhere for a job. Armstrong-Stassen refers to this mindset as job seeking.

Of the two types of coping strategies, control-oriented coping appears to yield the most productive results for employees. Earlier research tends to bear this idea out. Escape coping appears to be associated with negative results similar to the intent to quit and voluntary turnover described by Ugboro (2006). Positive results are more often associated with control-oriented coping (Armstrong-Stassen & Cameron, 2003b; Armstrong-Stassen et al., 2001; Tyson, Pongruengphant, & Aggarwal, 2002). As the downsizing process unfolded, those employees who did not use escape coping, but used control-oriented coping strategies, used the most effective strategies for dealing with the downsizing and resorted to the less effective escape coping. From the results of this study, Armstrong-Stassen determined that managers who promote control-oriented coping strategies, tend to help employees avoid escape coping, have a sense of empowerment, and deal with the trauma of downsizing more effectively. Therefore, human resource managers can help survivors adjust to downsizing if they create an environment that helps them develop control-oriented coping strategies (2006).

Conclusion: Research Findings

The success of implementing coping strategies depends to some extent on the organization’s coping resources. Some of these organizational resources include perceived support from one’s immediate superior, perceived organizational support, and affective commitment to the organization. The Armstrong-Stassen study measured these perceived organizational forms of support in her research. Researchers measured survivors’ perceived lack of potential for future job success and survivors’ level of escape coping. The findings indicate that helping employees adjust to downsizing includes helping them develop control-oriented coping strategies by seeking help from their superior and other departments in the organization. Employees who sought help and saw the organization as a source of support engaged less in escape coping and invest more energy and time into the job (Armstrong-Stassen, 2006).