layoffs

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:

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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