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downsizing

Which is preferable, Layoffs or Alternatives to Layoffs?

by cv harquail on May 4, 2009

My esteemed colleague and fellow Michigan PhD alum, Aneil Mishra, is a well-known expert on the ’softer’ organizational affects of downsizing and layoffs: morale, commitment and trust. Writing today about furloughs at GM on his blog Total Trust, Aneil mentions that

"In our research on downsizing, we’ve found that across-the-board cost cutting like this (specifically, pay reductions) rarely achieves its intended goal of actually reducing costs. That’s because such measures have a significant negative impact on employee morale, among other negative outcomes."

For reasons that became clear to me a little later, this comment stopped me in my tracks. I wondered: Have I been advocating alternatives to layoffs, like voluntary pay reductions, that actually don’t reduce costs any better than layoffs themselves?

Are we really stuck between two options, Layoffs and Alternatives to Layoffs, where both options fail to reduce costs and instead depress morale and commitment — and thus obstruct productivity and innovation? What’s a leader to do? What have we missed?

Then, reflecting on Paul Levy at Beth Israel Hospital, Diane Hessen’s post about "Return on Openness" and my own experience in the Ivorydale Soap Plant with high-commitment/high-involvement work systems, I remembered:

It’s not what you do, but how you do it. More specifically, it may not be ‘layoffs’ or ‘pay reductions’ per se that fail to reduce costs, or depress morale. Rather, it may be how these decisions are made and implemented in each organization that generates these less-than-desirable outcomes.

Said another way– Which is preferable: Layoffs or Alternatives to Layoffs ?

Neither?! W hat’s preferable is a democratic, transparent, high-involvement, decision-making process for creating a cost-cutting, ‘right-sizing’ strategy.

Because I think of Aneil’s research as being focused on situations where layoffs and downsizing were inevitable , I hadn’t considered how Aneil and his colleagues’ findings might offer insights about getting the cost and commitment benefits that alternatives to layoffs are supposed to bring. Although their research doesn’t address situations where alternatives to layoffs are chosen, the steps for increasing commitment while reducing costs are the same:

Consider: Mishra & Spreitzer (1998) argue that if employees:
chart.jpg

1.  Feel they can can trust top management,

2.  See the outcomes of the process as being just (i.e., using a fair process, sharing the burden fairly, having a reasonable rationale), and

3.  Feel empowered to address the additional problems created by the solution they agree to (such as adding new roles to current jobs, or managing different work schedules),

=> Employees will respond to downsizing/layoffs in a "hopeful" way.

"Hopeful Responses" are active (not passive) and constructive (not destructive).

When members respond in a hopeful way, they are excited about the future in spite of the present difficulty, they are optimistic, they focus on solving problems rather than complaining, they take initiative, and they become "active advocates" within the organization. They are more able to cope with the complexities of downsizing (both psychologically and operationally), because they experience a sense of ownership and take responsibility for making the plan work.

It’s all about "cost plus…"

… A focus on cost PLUS a process that centers on democracy, transparency and involvement. Whether the choice is layoffs, pay reductions, furloughs or reduced work weeks, it is the process that cuts costs while sustaining morale and commitment– or not.

So a little reminder to myself

– I need to advocate strategic alternatives to layoffs decided upon through transparent, democratic organizational processes.
– Advocate both a goal and a process. Don’t assume that a goal that seems to disrespect employees (e.g., layoffs) is always achieved through process that disrespect employees.

Layoffs chosen through democratic, transparent processes, rather than by executive fiat, can actually sustain morale and generate commitment.

Similarly, don’t assume that goals that appear to respect employees are always achieved through process that respect employees.

Alternatives to layoffs decided by executive fiat may save jobs, but alternatives to layoffs chosen though transparent and democratic processes preserve and sustain organizations.

Success depends not only on desirable, humane goals (avoiding layoffs) but also on desirable and humane strategies (transparency and democracy) for choosing these alternatives.

The takeaway?

It’s not just alternatives to layoffs, but also cost cutting strategies that involve, empower, and trust organization members, that lead to increased productivity and innovation, and to cost-savings in times of crisis.

For more detail, see : Explaining How Survivors Respond to Downsizing: The Roles of Trust, Empowerment, Justice, and Work Redesign, Academy of Management Review (1998) Aneil Mishra and Gretchen Spreitzer

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Alternatives to Layoffs: One Truth and Three Lies that keep organizations from trying

by cv harquail on December 21, 2008

After weeks of reports of one organization’s layoffs after another (leaving me to wonder who in corporate America still has a secure job) comes a brighter bit of news – some organizations are trying to find alternatives to layoffs to manage the downturn in their economic prospects, according to The New York Times today and The Wall Street Journal . Says the Wall Street Journal

Despite a flurry of headlines announcing layoffs from high-profile firms, a recent study suggests that more companies are likely to cut incentives and bonuses than to let workers go, as they focus on retaining the right employees and avoiding long-term disruptions.

That’s good news! Yet it still begs the question–

Why aren’t more organizations trying alternatives to layoffs?

For all of their ubiquity as the cost-cutting strategy of first resort , laying off employees (aka cutting jobs, downsizing) sounds easy to execute. In reality, layoffs are difficult to execute. And, the organizational reengineering and reorganization necessary to return an organization to top working form is even harder. Even the CEOs who execute these layoffs will tell you, as Tony Hsieh at Zappos did, that cutting headcount is hard to do. Worse, layoffs are more broadly damaging to organizations — to costs, relationships , reputation– than is even considered in the layoff decision. It’s a wonder then, especially with this empirical evidence that layoffs don’t work all that well, why don’t more organizations try alternatives to layoffs ?

Three lies and one truth about organizations help to explain why layoffs occur instead of alternatives:

(1) Lemmings really do believe.

(2) "Workers are Widgets".

(3) Real Men Wield Axes. And,

(4) I’m the Lumberjack so I’m Okay.

Let’s start with the truth. Robert Mankoff : What Lemmings Believe - Cartoonbank.com_1230088780485

1. Lemmings really do believe.
Many managers, along with the business analysts and investors who evaluate the financial impacts of managers’ decisions, actually believe that layoffs work– despite much evidence to the contrary.

Most think that layoffs really do make an organization more lean, less expensive to run, and more efficient. However, there are many hidden costs to layoffs. Despite all the data that show how ineffective layoffs are at reducing costs, or how much organizational knowledge is lost when workers’ jobs are eliminated, or how an organization’s capacity to respond to the marketplace is crippled , people still believe that layoffs cut costs. Because their confidence in layoffs as a cost cutting strategy is so strong, managers and business analysts validate and legitimate the decision to lay people off. They ignore the data that show no post-layoff increase in efficiency , no post-layoff increase in share price, and the high cost of lost expertise.

It’s easy to ignore the truth when everyone around your is busy cutting headcount. What’s more salient to these lemmings is the validation of going along with the group– a certain kind of herd mentality, if you will. It’s not that managers are stupid, or intentionally making bad choices. They are just doing what they are rewarded for and what they believe is right, even though it’s wrong. Thus, organizations continue to choose layoffs, even when cutting head count takes them perilously close to the brink.

Moving on to the lies…

(2) "Workers are Widgets."
Firing workers and downsizing make sense when you think of workers as widgets. A widget (pre Web 2.0) is the term in economics for an abstract object that’s part of the production process. Where workers are widgets, their names, skills, experience, loyalty and human characteristics are irrelevant because the people are deemed interchangeable. The lie that workers are widgets is reflected in the practice of treating workers as just another kind of cost, without acknowledging what any given worker is creating within the organization. Workers are a "cost" or an interchangeable "input" rather than talent, heart, commitment and expertise.

As Peter Capelli of Wharton explains…. "The really small companies are probably more willing to find alternatives," Cappelli suggests. "Relationships are much more personal. It’s one thing for the CEO to call the HR person and say, ‘Lay off 10% of the staff.’ It’s another thing for the person at the top to look the [laid-off employee] in the eye" and say he or she no longer has a job.

The workers are widgets fallacy is also the reason why so many organizations fail to reap the grim benefits of layoffs, such as they are.

Layoff strategies often ignore the ways that organizational knowledge is embedded in and departs with the fired employees. When employees are shown the door, often some important expertise leaves with them.

(3) Real Men Wield Axes or, Alternatives are for sissies.
Management is still a macho profession. Exemplary managers are "guys" — guys like the old-economy’s Chainsaw Al, or the new economy’s Tony Hsieh. These are guys that make the ‘tough" choices, that see the world in black and red, and that are willing to make the "hard decisions".Paul Noth : “Wait a minute. We’re lemurs! Lemurs!” - Cartoonbank.com_1230089039586 Choosing alternatives to layoffs isn’t macho.

To consider alternatives to layoffs, top managers have to be willing to open up the discussion and decision-making processes to others — you can’t expect a mandated 10% across the board paycut to go over well without employees participation and agreement. But, it’s hard to look like the star CEO when you ask your investors to wait patiently– maybe for a whole quarter or two — for alternative economizing measures to take hold.

Plus, holding fast to your corporate values of ‘family’ or ‘empowerment’ or ‘commitment’ can, as one of my MBA students put it memorably in a class conversation about SAS Institute :

"Managers who do that are just a bunch of chumps."

(The combination of assonance and misanthropy make this line particularly memorable, don’t you think?)

The idea of considering alternatives, what with their buzzwords like ’sharing’ and ‘considering’ and ‘moderation’ and ’sacrifice’, doesn’t go over well with real men managers. Better to inflict pain, cry and get it over with, than to empathize, interrelate, create and negotiate with other people/workers.

(4) If I’m the Lumberjack, I’ll be okay.
If you’re part of the group choosing to lay others off, you’re the lumberjack. For you, cutting costs by cutting jobs makes sense . Whack. It’s done. And no harm to you.

Why? Because heads roll downhill. Choosing layoffs lets you exercise you power. Plus, it’s easier and safer than spreading the cost cutting around through other means. … If the pain is spread around, you yourself might have to give up something– but if you just fire (other ) people, your job remains secure. As the lumberjack, you get to do the chopping– and you make sure you don’t cut yourself while you’re doing it. Robert Mankoff : “Look, I have my misgivings, too, but what choice do we have except to stay the course?” - Cartoonbank.com_1230088990275

What choice do we have?

It’s not like alternatives don’t exist (and let’s hope to hear more about them)… and organizations can’t claim that they have no other choice. Organizations do have choices.

1. Real, authentic leaders will resist the call of the misinformed herd rushing towards layoffs. Instead, they will confront the myths about how cost cutting decisions should be made, and consider alternatives to layoffs. Instead of believing that layoffs work, real leaders will look at the empirical evidence about layoffs, and recognize how rarely layoffs are the solution. And, they will look at which alternatives have worked, how, and when, and they will model their own programs after these successful models .

2. Instead of treating employees as parts of the machine that can be turned off or shunted aside at will, authentic leaders will recognize that most employees contribute more than what they are paid for– and often go beyond what’s expected in their jobs to keep the organization running well. Authentic leaders will engage employees in discussions and decisions about how to both cut costs and improve service , so that the organization remains strong even as the economy weakens.

3. Instead of thinking that layoffs demonstrate a leader’s toughness and his willingness to "make the hard choices," authentic leaders will be out in front generating ideas for cost-cutting and process improvements that can be shared across the organization. They will show real strength by advocating for options that protect employees and protect the organization. And, where workers are seen as unique participants in the organization, employees can be a resource for cost-cutting/ effectiveness-expanding ideas. Employees can be engaged as real organizational members in discussions about alternatives.

4. Instead of seizing on a ‘top-down’ approach to cost -cutting, authentic leaders will share the pain. They will offer to take pay cuts, shorten their work weeks, forgo bonuses, and cut their travel budgets. But even more, authentic leaders will share in the work of sustaining the organization’s strength by demonstrating its values in their own behavior. I’ve argued before that for many organizations, laying off employees usually isn’t an authentic response to economic woes because layoffs often contradict the organization’s stated values and identity.

Do you agree that One Truth and Three Lies are in the way of considering real alternative to layoffs? Add your comments, below.

More posts on Authentic Organizations about Layoffs:

Authentic Responses to Recession? Try alternatives to layoffs

What if Stephen Colbert were the CEO of Zappos? Explaining a layoff to your employees

For further reading:

Leap Before You Layoff: Look For Creative Alternatives, G. von Krogh and M. Kameny European Management Journal , V 20, (6), December 2002, Pages 664-670

A sociocognitive interpretation of organizational downsizing William McKinley; Jun Zhao; Kathleen Garrett Rust The Academy of Management Review ; Jan 2000; 25, 1

Responsible Restructuring:Seeing employees as assets, not costs Wayne F. Cascio, Ivey Business Publishing, Reprint # 9B03TF06

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