Be prepared: Handling downsizing

Reducing a workforce is a difficult measure for any organisation. Experts explain that downsizing should be done as a last option, but that HR should pave the way to boost employee confidence when the worst is over

It is known by many names: downsizing, layoffs, delayering, redundancy and more. But whichever the term, ultimately it means that a person is being let go from their company.

Downsizing an organisation is undoubtedly a bleak period for both employees and the employer. In 2011, many MNCs around the world were going through the pain; HSBC laid off 5,000 of its workforce and is planning to reduce another 25,000 more. Former book retail giant, Borders axed over 10,000 employees from its 400 stores when it declared bankruptcy, and Merck & Co. also laid off 13,000 employees.

Experts say that organisations should consider other options carefully before introducing workforce reduction measures. These could include cost cutting measures, pay freezes, and mandatory holidays. Only when other options do not work out, should companies consider downsizing.

However, how can companies ensure downsizing goes smoothly? Employers and experts say that HR has a big role to play, from keeping communication lines open to ensuring that staff that are being let go are treated in a dignified manner. Moreover, HR is needed to tackle challenges after the downsizing period, most importantly to boost the morale of remaining employees and retaining key talent.

Are there other options?

Reducing the workforce should always be the last option in a company. With a smaller headcount, an organisation may improve earnings for a while but might not be able to sustain those gains over the long-term, experts say. In the research paper, Upside Downsizing: A New Role for the Human Resources Manager, it was revealed that from over 500 downsized companies considered, almost two-thirds of the companies were unable to realise any long-term gains in shareholder value from the staff reductions. Those companies that downsized only reduced labour costs by a meagre 1.1%, even though an average 7.7% of employees were laid off.

Employers say that a strategic hiring process might also help keep an organisation from having to cut its workforce. Brent Tignor, Regional Human Resources Manager - Asia-Pacific, Stepan Company, says that a good staffing strategy is essential for companies. Stepan Company, which has been established in the US for decades, has been in Singapore for two years.

He says that Stepan Company is a lean organisation; it does not become overstaffed during a good business period. “We tend to take a conservative approach when it comes to adding headcount. If we are unsure that a new position is needed, we usually hire an employee on a contract basis,” he says. “A good staffing strategy is essential; companies should staff organisations to be flexible, especially for changes in uncertain times.”

HR should take charge

However, when all options fail, employers say that reducing headcount is a viable option. For employees and employers there are many concerns, and HR can help mitigate the difficulties faced by both parties during this stormy period.

Experts say that many companies make the mistake of not practicing clear communication during this uncertain time. So, instead of keeping information on a “need to know basis”, HR should ensure that employees get a clear idea of what is happening in the organisation.

Tignor says that he has first-hand knowledge from being involved in a downsizing process in his previous company. “Communication is very important. Companies should be open about their vision, (and) their plans. They should give people time and let them know how the company is adjusting to downsizing,” he says.

Also, he says that being open and honest is critical during an upheaval, especially to retain good employees. “Not communicating the plan and vision of where the company is going will lead to uncertainty, increasing the chances that high performers, who would otherwise be retained beyond the downsizing period, will leave voluntarily because they do not feel their employment is secure,” he says.

David Wee, Managing Director, Lee Hecht Harrison / DBM, agrees, saying that in downsizing, HR needs to note that they need to address concerns from two groups of people – not just those that have been affected but also ‘the survivors’. It would also help if HR and management first communicate the general downsizing message through either town hall meetings, or at divisional and departmental levels before notifying the individual affected employee. This helps to prepare the affected employee when receiving the notification of a job loss.

He says that HR should keep open and frequent communication with employees, especially with those who are leaving. “Take the time to talk to the employees till they leave and you can gain an insight and able to give additional assistance wherever possible. Some employees might react with bitterness at first but give them time to adjust to the situation and show them that the company still care. Find out what their fears are and try to address them,” advises Wee.

Moreover, preparation can be done to handle this delicate matter. He says that ample training can be given to line managers as well as HR in order to help them notify employees the correct way. “If line managers and HR do not know how to manage the notification task, it could become counter-productive for the organisation. Managers therefore have a moral and legal obligation to protect the company.”

He highlights other points that HR should consider for the retrenchment day itself. Wee says that they should ensure that everything from security to medical help should be available on the day. Moreover, HR can work with outplacement partners who can be on-site to help with leaving employees with additional information and advice.

“Lee Hecht Harrison / DBM has worked with many clients during downsizing for outplacement services. Over 90% of employees who after completing an outplacement program eventually express gratitude to the company for providing this service. They understand that they are being let go for business reasons but are grateful for the help given,” says Wee.

Tignor says that with regard to policies, HR should ensure the redundancy packages are consistent with local country and cultural norms, and that they are delivered in a way that leaves the employee feeling like they were treated with respect during this difficult time. “From a HR perspective, besides utilising best practices and policies, there is not much that can be done except prepare. There is only so much you can do as it is more about the execution.”

Re-building the foundation

Picking up the pieces after a retrenchment exercise is not an easy feat, especially since HR and management need to build morale and confidence amongst the employees. The study, Survivor Syndrome: Key Considerations and Practical Steps, by the UK Institute of Employment Studies, noted that employees who survive downsizing can often suffer from a ‘survivor syndrome’. This is characterised by impaired productivity, lack of trust and organisational commitment, and negative attitudes.

Moreover, research shows that employees that remain are likely to judge the company’s concern and commitment for terminated employees as a reflection of what they may experience when they are let go.

Experts and employers state that building trust and confidence can be done through various means. HR practitioners like Tignor from Stepan Company agree saying that people are going to be on edge for a long time after a downsizing period, and HR needs to make sure that people understand that the worst is behind them and move on.

Also, ‘investing’ in your remaining employees and streamlining processes to make the business more efficient is critical. The research paper, From Both Sides Now Organizational Downsizing: What Is the Role of the Practitioner?, published by the US Society for Industrial and Organizational Psychology, discusses some of the underlying issues HR practitioners and management can tackle before and after reducing the workforce.

Some of the key points highlighted include providing training, cross-training, and retraining in advance of downsizing, in order to help individuals adapt to downsizing rather than relying merely on post hoc on-the-job training. This also serves to map and analyse all processes in organisation and eliminate inefficiencies.

Wee says that when his organisation, Lee Hecht Harrison recently merged with DBM, they had acquired some additional first-hand experience. It was a difficult period as different corporate cultures and processes had to be merged and some positions were made redundant. The leaders needed to lead the integration between the two teams and handle the challenges.

He says that after the downsizing, the remaining employees need to be engaged and recognised in order to maintain productivity. “Get employees involved, especially high-potentials, in the interests that they identify with. The organisation can also provide high-potentials with coaching to show that the company is willing to invest in them and this could be an effective retention strategy in the long-term,” says Wee.

Tignor affirms this by saying that an organisations need to focus on employee development as this will help to keep staff engaged. “Putting extra work into employee development and utilising a robust succession planning process for employees is critical, especially after an upheaval. It gives them the idea that the company wants them around for the long-term.”

Also, he says that when a person is let go, the company does not free itself of the responsibilities that person had and a lot of work needs to be taken on by the others that remain in the company. “You need to be able to convince employees that they will continue to receive the same pay but need to do more work. Incorporate a sweetener, such as a higher than normal annual increases, to reaffirm a positive view of the company and to invest in these key people you need to keep to help return the company to more prosperous times,” he concludes.

 

Is your company proactive or reactive?

In the paper, Organizational Downsizing: Strategies, interventions and research implications, the authors differentiated the distinct approaches that companies take with regards to downsizing – as either proactive or reactive.

Proactive downsizing is seen to be planned in advance as well as integrated with a wider set of business objectives. Reactive downsizing, however, is defined as last resort cost cutting exercises largely from long-term lack of attention to key business issues.

 

Where’s your empathy?

Letting go of employees is not an easy decision to make, but experts say that the process should be dignified in order to cause as little worry as possible. Several companies have made headlines for the way they have treated their employees when they have been made redundant.

Recently, a Toyota plant in Australia let go more than 300 workers and made few friends in the process. Reports stated overbearing security and employees that have been “left in limbo” after redundancies were talked about in January. Though the Toyota spokesperson stated that it treated its employees with respect and with one-on-one meetings, Workplace Relations Minister Bill Shorten said he had concerns over the way the workers were sacked.

David Wee, Managing Director, Lee Hecht Harrison / DBM, says that companies sometimes do not realise the negative implications if they let go employees and do not manage the separation process. “It will tarnish the reputation of the company and make it highly unattractive when it comes to rehiring. Employees who are not leaving will also judge the way the company treats the employees who are being let go and that in turn, may lead to additional retention issues.”

Brent Tignor, Regional Human Resources Manager - Asia-Pacific, Stepan Company, says that many organisations act coldly during a downsizing process, and with no empathy. However, he recalls that in his previous company, there were counsellors to talk to retrenched employees. Also, employees were given time to pick up their things and say goodbye to their co-workers.

“Too many managers and HR professionals do not treat those being downsized in the way they would want to be treated if the roles were reversed,” he says.

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