Redundancy Survivorsby Rus Slater
When downsizing backfires
If you, as an employer, have downsized, you did it for a purpose, and that purpose will have been greater than simply to make some short-term cost savings from your budget.
You will have done it for the longer-term benefit of the organisation and this means that your customers and clients must continue to receive the same level of service and your shareholders will continue to expect a reasonable return on investment.
Financial effects of downsizing
The overall picture of the financial effects of downsizing is negative. Although a few organisations have reported financial savings, the majority have failed to report increased levels of longer-term efficiency, effectiveness, productivity and profitability, as reported in the findings of Cascio in 1993, Macky in 2004 and Gandolfi in 2008.
Health effects of downsizing
Røed and Fevang’s 2007 study found that a 20 per cent reduction in workforce leads to 6 per cent increase in the sickness absence (of 15 days) hazard rate and to a 13 per cent decrease in the return to work rate. The estimated downsizing effects seem to be somewhat larger in a large study by Vahtera and others in 2004, with major downsizing (a workforce reduction of 18 per cent or more) being associated with about a 22 per cent increase in the frequency of medically-certified absence spells among permanent employees.
The following conclusions can be made:
- Most firms adopting downsizing strategies do not reap the hoped-for economic and organisational benefits
- Non-downsized firms financially outperform downsized firms in the short, medium and long terms
- Some firms have reported positive financial indicators in the short term, yet the long-term financial consequences of downsizing have been shown to be consistently negative
- In an increasingly litigious society, organisations need to be very wary of policies that could lead to a flood of compensation claims for workplace stress.
Employers could be exposed to stress-related claims if they fail to properly manage the ‘survivors’ of redundancy
Only if you achieve the longer-term benefits as well as short-term cost savings will you have achieved success in your strategy.
Your survivors are the key to success
For the strategy to be successful, survivors need to provide those longer-term levels of service and those desirable levels of return. To do that, they need help to overcome the loss of trust and commitment engendered by the redundancies; they also need to have their confidence in their future boosted. They need clear-cut job descriptions and good performance management to cope with the restructuring and extra workloads. After all, the remaining employees are the only ones who can turn the company around to survive and thrive in years ahead.
A European firm reported an increase of 40 per cent in recruitment costs and a 30 per cent increase in training and development costs for new employees to replace survivors following its downsizing.