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The legacy of downsizing: putting the pieces back together.

Although the pace of downsizing has slowed considerably, its consequences are still being felt in organizations today. The obvious victims-those who have lost their jobs-have been given considerable attention in the popular press. But the other victims-those who are left behind to cope with a more complex and demanding workplace-are often missed by the media spotlights.

Survivors who still hold their jobs after a series of cutbacks should feel lucky. But they don't. They feel threatened, abandoned, burdened with more work, and subject to greater job stress. Even if they do subside with the passage of time, these feelings are rekindled whenever a public announcement of more downsizing is made. These individuals suffer from what I call a Post-Downsizing Stress Syndrome (PDSS).

Post-Downsizing Stress Syndrome

Post-Downsizing Stress Syndrome is a psychological response that may surface after a series of layoffs. The syndrome increases anxiety about work-related issues and eventually affects employees' health, personal life, and attitudes toward work. Those afflicted feel a sense of hopelessness about their situation. Many do not complain, but an alarming number, suggested by the outcome of the study reported here, are affected.

The stress that develops in a downsized environment is different from traditional job stress for several reasons: a downsized environment is often beyond the immediate control of management; stress affects a wider percentage of the workforce in the organization than it would under more traditional circumstances; and it is long lasting and may recur with increasing intensity as job cuts both within the survivor's company and at other companies occur.

To explore how downsizing affects those who remain, I conducted a study of 80 professionals employed in a variety of organizations that ranged from health care to manufacturing and financial services. Many individuals were interviewed, and all completed a questionnaire. Sixty-six percent worked for companies that employ more than 200 people, and 16 percent worked for companies that employ fewer than 50.

When a Post-Downsizing Stress Syndrome occurs it can involve the following factors [ILLUSTRATION FOR FIGURE ONE OMITTED]:

* A series of downsizings

* Little if any employee involvement in the process

* Duplicitous signals from management

* Denial by the organization that a stress syndrome is occurring

* Deterioration in morale

* Psychological and physiological responses

* Failure to meet productivity goals

* Deterioration in human resource base

A firm that has downsized several times has set the stage for PDSS; when one or more such events has occurred in the recent past, employees expect the ax to fall again. An extensive study conducted by the American Management Association (AMA) concludes that the best indication of whether a company will downsize in the near future is whether it has downsized in the past.(1) Expectations also seem to be tied to this fact. The study reported that 84 percent of those who had suffered the results of downsizing in the last year expected it to occur again within the next year. Even 60 percent of those who had not been affected in the last year expected downsizing to occur within the next year. This suggests that employees' expectations are indeed tied to the past. They are sensitive to repetitive patterns and suffer from high levels of anxiety as they wait for what their intuition assures them is the next round of cuts.

Management is often under considerable pressure to respond directly and decisively to the threat of increased competition, shrinking market share, or eroding profits. When action is required, those at the top develop a plan, and those below are compelled to act. But this arms-length process extracts its price.

Under considerable pressure from its stockholders, IBM promised Wall Street that it would cut costs by $3 billion in 1994. Essential to achieving this goal was a restructuring plan that would leave 35,000 jobless. But, the decision made at the top was difficult to execute at the bottom. By mid-1994, only 3,000 jobs had been cut. According to THE WALL STREET JOURNAL, the chief of human resources "quit under pressure because he wasn't making fast enough progress in cutting the work force."(2)

Downsizing Managed at a Distance

As suggested by the IBM example, downsizing is conceived and administered at the top; employees are considered part of the problem - not part of the solution. Consequently, there is little employee involvement in the process. In most cases, any downsizing plans are a well-guarded secret, and the rumor mill is left to do its damage. Downsizing is seen as top management's responsibility, and the organization is "protected" by keeping employees at arm's length from the process.

Responding to the competitive environment, managers often emphasize the role of team-building, learning, and innovation. They implement programs such as total quality management (TQM), self-managing teams, reengineering, and empowerment. But, the emphasis on responsibility, learning, and innovation often conflicts with the realities of a downsized organization. On the one hand, management espouses a cooperative and innovative environment. But, on the other hand, employees observe a very different situation. They feel the stress from more work, fewer people to share the workload, the threat of losing their job, and a management team that largely ignores their "psychological" workload.

Caught in the middle, employees are confused. They hear a plea for cooperation, involvement, and empowerment, but suffer the reality of needing to protect their jobs, look out for themselves, cope with job stress, and brace themselves emotionally and economically for the "inevitable" pink slip.(3)

Denial That a Problem Exists

Conflicting signals may be impossible to avoid. In the short run, management may have to downsize and, at the same time, support TQM and self-managing teams. But-and here is the dilemma-it may also be "very difficult" for managers to acknowledge the fact that employees are receiving mixed signals. To do so might place them in a vulnerable position just when intuition suggests that it is time to be tough. For many managers, it is preferable to deny the confusion their staff is suffering and focus on the more concrete problem of completing projects in less time with fewer people.

Denial, as the study suggests, is the dominant response. When asked whether the company addresses problems caused by downsizing directly or ignores them, 60 percent responded that the company ignores the issue. Only 40 percent claimed that it was addressed directly.

Frank, a manufacturing employee, expressed his concern this way: "The survivors here are stressed out. Our management has been in denial of its existence to us. The managers in our plant blatantly refuse to admit that there is a problem. That way, they do not have to deal with it."

When a company fails to address problems directly, employee morale suffers. It is not surprising to find that 85 percent of those surveyed reported that morale was worse after downsizing occurred. Eight percent claimed that morale was the same, and seven percent said it was better. Clearly, a downsized environment has a very negative effect on morale. In the words of a nurse, "Everyone is uncertain about their future at the hospital. No one seems to trust anyone for fear of reprisal. This used to be a wonderful place to work-one big family-not any more."

Health Impacts

Many individuals succumb to PDSS after their employer has downsized several times with little employee involvement, given duplicitous signals, and denied that the psychological work load has increased.

At the center of this syndrome are psychological and physical health problems. The interface between job stressors and health has been the target of many studies, and there is "certainly suggestive evidence linking those stressors to health outcomes."(4)

When some employees are terminated, those left behind are shocked into a high level of PDSS. They experience long periods of rage toward the company and paranoia that they may be next. Many become passive aggressive. They passively accept what the company needs to do, even publicly supporting the company's action and denying their own pain and that of their colleagues. But this passivity eventually leads to aggressive behavior. Absenteeism may increase, enthusiasm for the job may erode, loyalty may disappear, and morale may deteriorate. Bill, an engineer for a major electronics manufacturer, said it this way, "Not all of us work more because of downsizing. I take more time to be with my family. If the company doesn't care about me, why should I care about it?"

The human emotions of anxiety, fear, mistrust, and paranoia are all involved in a downsizing syndrome. In the short run, these emotions may not lead to physical and mental health problems. But, in the long run, as the syndrome continues, concrete symptoms begin to surface. They might include sleep disturbance, overeating or undereating, headaches, increase in blood pressure, digestive problems, and a general feeling of anxiety, fatigue, and muscular tension. Here, the results of the study are very dramatic. Of the people who have experienced downsizing in the past and expect more in the next year, 92 percent reported symptoms in one or more of these categories. In contrast, only 42 percent of those who do not expect any downsizing activity to occur in the next year reported health problems in one or more of these categories. Indeed, a long-term health problem may indeed result from downsizing activities, and the effects are even worse when there is an expectation that downsizing will continue.

The most frequent complaint reported was sleep disturbance. Forty-two percent of those surveyed suffered from this condition. Next was a feeling of fatigue, reported by 34 percent. Headaches and general anxiety were reported by 28 and 27 percent, respectively.

Job stress was linked by many respondents to the increase in the amount of work they had to do. Eighty-two percent said they had been required to increase the amount of work they do, and they attributed this increase directly to downsizing. It was not just more work; 80 percent reported that the variety of tasks also had increased.

"Presently, management is attempting to get more work out of us - no raises this year. We are not getting any recognition for increasing our work load and helping out. If we are not at work, we are being harassed by phone calls to come to work! We are on a sinking ship with no life rafts or life preservers in sight," commented one nurse, emphasizing the consequences of an increased work load.

Stress on the job has been related to the degree of control one has over the amount of work and methods used to perform the task.(5) Not unexpected is the loss of control workers report in a downsized organization. When asked, "How much say do you believe you have in deciding the amount of work you should do on your job?" respondents reported a significant shift toward decreasing control over work output.

But when asked if they experienced a change in the degree of control over the methods they used to get the job done, they reported an increase. Perhaps, this is a response to a flattening of the management structure, self-managing teams, and the empowerment of individuals to choose their own methods.

It is useful to distinguish between physical control over one's work environment and psychological control. Perhaps, the loss in physical control over work quantity-especially if accompanied by an increase in control of how work is done-may not be as significant as the loss in psychological control. In such an instance, when the physical work load has increased somewhat, the psychological work load, suggested by somatic disorders, has increased substantially. Individuals become confused. They are given more control over work methods, but required to do more work.

What effect does downsizing have on families? The study found that 60 percent of the respondents had a more difficult time meeting responsibilities at home. A surprising 55 percent reported an increase in marital tension. In terms of their relationship with family members, 48 percent spent less time with the family, and 44 percent had become more irritable when dealing with family members. Clearly, downsizing has a significant effect on family relationships.

The goal of downsizing is to improve productivity by eliminating some jobs and combining others. But, from the employees' perspective, this has been an elusive goal. When asked if productivity goals have been met, 78 percent of those who expect further downsizing action to occur in the next year responded that productivity had not increased. Although these employees may not have had access to hard objective data, it is significant that they see themselves as part of a painful process that is missing its target. Even from the perspective of the company, downsizing has not been an overwhelming success. THE WALL STREET JOURNAL cites several studies that suggest that "corporate downsizings have failed to produce what was expected."(6)

Does downsizing threaten the quality of an organization's human resource base? With morale at low levels, the potential exists for the exodus of the best performers. As better jobs become available, these people leave. The study showed that 58 percent of those who faced further downsizing in the next year would accept another job that offered equal pay and benefits. In the words of one employee, "High performance people are leaving when they can."

At the same time that some of the most valuable people are leaving, cuts are targeting high cost positions - the ones usually filled by those with the most experience. Together, these factors erode the organization's human resource base. As one head nurse at a hospital stated, "The change in skill mix-RN/LPN/CNA-is a grave concern."

Company Response

Many organizations are well aware of the psychological consequences associated with a downsized firm. Often, voluntary stress-counseling programs are established to help employees through difficult times. Of those who expect downsizing to occur in the next year, 71 percent would not participate in a voluntary program. One employee, who suffers from several stress-related conditions, commented, "They already have a program, but I haven't participated." An interesting outcome is that the percentage of people unwilling to participate in a voluntary program is no different in companies that have not experienced downsizing recently from those that have.

Why don't they participate? Several explanations are possible. In some organizations, it is presumed that the "weak" are singled out as candidates for downsizing. In this study, 14 percent of the respondents claimed that they did not participate because they were concerned about being labeled as complainers or weak employees. Another explanation is that some individuals deny their suffering. Sixty-seven percent of the respondents believed it was unnecessary for them to participate in a voluntary counseling program, yet most reported stress-related symptoms. Another explanation is resignation. Eighteen percent in the study believed that it would not help. One can only imagine that, after suffering from a PDSS for months or years, recovery to a productive and satisfying work life may seem beyond reach.

What Can Be Done?

Management has a choice. If the response to competitive pressures is approached as a cost control challenge, and human resources are neglected, the long-term consequences may jeopardize the organization's human resources. Instead, a balance must be struck between the financial and human resource sides of the issue. Rather than being hard on the problem and hard on the people, it might be appropriate to be hard on the problem and soft on the people. Here are some suggestions.

Listen and Take Responsibility.

It is commonplace to encourage worker involvement in teams or TQM, but worker involvement is conspicuously absent in the downsizing process. For many managers, it would be too risky to discuss layoffs or even speak to those affected by an approaching layoff.

William H. Peace, formerly an executive with Westinghouse and United Technologies, relates a story in the Harvard Business Review about his dilemma in facing a proposed layoff of 15 people at Westinghouse. After careful consideration, he decided to call a meeting and listen to these people. When he announced their fate, they were stunned. Some cried. He went on to explain the firm's problem in more detail and why they were selected. Then he withstood a barrage of questions, especially about the criteria used to identify who would be terminated. He listened sympathetically, but firmly. The bottom line was that the layoffs were necessary, and he was unable to change the situation.

Peace not only accepted responsibility; he treated those to be laid off with dignity. It also became clear to him that his support and caring for those who were terminated affected the surviving employees. They "seemed to have a renewed determination to hold the business together." By being soft on the people, he won everyone's respect - those laid off and those who survived. As he looked back at that meeting, he became "convinced that the 'success' of that meeting was also due, in part, to the fact that it made me vulnerable to criticism, disapproval, and the anger of the people we were laying off."(7)

Address the Problem Directly.

People want to face the source of their anxieties. To the extent that these anxieties are ignored, individuals suffer psychological and physiological harm. Even if it involves the pain of a layoff, increased work pressures, or an uncertain job future, dealing with employees directly is a major step toward reducing anxieties. If an employee complains about too much work, managers need to understand that it is more productive to talk about it directly with that person than to ignore the problem.

Take Action at the Right Moment.

Waiting for people to volunteer for a counseling group may help management feel better, but it won't necessarily make the victims feel better. The study suggests that people are unwilling to go. Even mandatory counseling sessions or workshops fail to have the desired impact. It may be more effective to encourage managers, supervisors, and team leaders to discuss downsizing when the issue arises. During a team meeting, for example, a team leader might notice anxiety over the ability to complete next week's work load. This becomes the perfect time to discuss the sense of being overworked. When done "in the moment," there is a greater chance that anxiety will be released, paving the way to handle these problems in a more productive way.

Reengineer to Maintain Psychological Control.

When work methods remain unchanged, but the volume of work increases, morale deteriorates. Researchers writing in the European Management Journal state, "Downsizing that does not address rightsizing is likely to be an exercise in futility." They emphasize the need to reorganize work methods and focus on the effective deployment of human resources rather than wages and costs. Tough decisions, they contend, have to be made. Functions may have to be eliminated, departments merged, bureaucratic layers reduced, products cut, and the steps necessary to perform a task completely redesigned.(8)

But, the results of this study suggest that reengineering is neglected. Respondents are responsible not only for a greater variety, but also a greater number, of tasks. Most (80 percent) of the individuals are doing more work now than before. Often, this occurs because they must take over the tasks performed by individuals who have been terminated. With new responsibilities and increasing pressure to perform, there is little time left to reengineer.

Reengineering should be seriously considered as a weapon to control the damage caused by downsizing. Without it, the burden placed on survivors may make the work load not just heavier, but psychologically unbearable. Reengineering doesn't merely simplify work methods; it can be used to send a message to survivors that management cares as much about those who do the work as it does about the work itself. Reengineering, if used effectively, can help employees regain psychological control.

Treat All Employees Fairly.

What becomes apparent from the interviews in this study is that when a company maintains silence around the criteria used to select those to be laid off, employees are more likely to assume that layoffs are politically motivated. This situation dramatically increases paranoia. Survivors will be convinced that they will be singled out unfairly for something they did or didn't do in the past and that they will be next. One researcher found that the reaction of survivors was related to the fairness perceived in the layoff process and the workplace changes (reengineering) that were instituted in response to the downsizing.(9)

To treat everyone fairly means that the criteria for identifying those to be laid off must be made clear. The consequence of being forthright is that it opens management up to criticism. Indeed, many victims and survivors will find reason to argue with any explanation. But a policy of being direct and fair will pave the way for a faster recovery. It shows concern, directness, and respect. This concept appears to be central to a plan by Kaiser Permanente for a forthcoming employee layoff in its Southern California health care region. Kaiser's 1996-1998 business plan is said to prepare workers for layoffs by educating managers about the adverse effects of downsizing and providing coaching and counseling skills, publicly explaining the criteria that will be used to determine who will be laid off, and addressing the effect on worker morale that layoffs could have.(10)

Consider the Long-Term Implications and Alternatives.

There are many alternatives to downsizing. Overtime can be eliminated. Individuals can be retrained or transferred. Full-time employees can be placed on part-time status. New markets can be developed. Cost-effective processes can be designed. But, these responses require a long range perspective-a proactive strategy-and the incremental changes may be difficult to achieve. If they don't work, there may be no other choice than to downsize. Downsizing, however, need not mean the downsizing of morale and employee commitment.

The Psychological Toll

Organizations that have a recent history of downsizing-especially those in which downsizing pressures or threats still remain-need to look closely at the psychological toll these actions may have taken. From the employees' point of view, stress may be at the breaking point, health problems may be surfacing, marital problems may have eliminated the psychological cushion found at home, anger may be producing passive-aggressive behavior, and paranoia may have convinced them that they are next. Contributing to the problem is the fact that the signals they receive from management are confusing. On the one hand, employees are threatened by downsizing; on the other, the company emphasizes teamwork, empowerment, and cooperation.

Meanwhile, the organization's leaders may be in denial. They may acknowledge the competitive dilemma, but ignore the human resource crisis. When they do acknowledge the human problem, many offer voluntary programs. But employees may not feel safe participating in them.

As suggested by this study, the price the organization must pay is steep. Low morale, unrealized increases in productivity, and potential loss of their best talent threaten the foundation upon which a learning and innovative organization evolves. Organizations must take several steps to contain the damage. Managers must be willing to take responsibility for their role in this process. The consequences of downsizing and job stress must be addressed directly. The appropriate time to address the problem is not in workshops but when the problem occurs. Employees must be encouraged to reengineer their jobs and make them more manageable. All employees must be treated fairly. Managers must explain the criteria for job cuts. Whenever possible, long-term strategies must be encouraged and the costs of downsizing avoided.

1 Greenberg, E.R., "The Latest AMA Survey on Downsizing," Personnel, 66 (10), October 1989, 38-44.

2 Hays, Laurie, "IBM Aide Quits Under Pressure, Executives Say," THE WALL STREET JOURNAL, April 28, 1994, A3.

3 Cameron, K.S., Freeman, S.J. and Mishra, A.K., "Best Practices in White Collar Downsizing: Managing Contradictions," Academy of Management Executives, 1991, 5 (3), 57-73.

4 Ironson, Gail, "Work Job Stress and Health," in Work Families and Organizations, edited by Sheldon Zedeck, Jossey-Bass Publishers, San Francisco, 1992, 33-69.

5 Ibid.

6 Rose, Fredrick, "Job-Cutting Medicine Fails to Remedy Productivity Ills at Many Companies," THE WALL STREET JOURNAL, June 27, 1994, A2.

7 Peace, William H., "The Hard Work of Being a Soft Manager," Harvard Business Review, November-December 1991, 40-47.

8 Vollmann, Thomas, and Mark Brazas, "Downsizing," European Management Journal, 11(1), March 1993, 18-28.

9 Brockner, J., "Managing the Effects of Layoffs on Survivors," California Management Review, Winter 1992, 9-28.

10 Diamond, Michael, "Kaiser Health Plan Sees Layoffs," The Sun, July 30, 1996, B8.

BARRY SHORE, Ph.D., is a professor and the chair of decision sciences at the Whittemore School of Business and Economics, University of New Hampshire, Durham, NH. He has written four books published by McGraw-Hill and Holt Rinehart and Winston, Inc. He is the author of numerous articles and most recently addressed the role of human factors in the management and transfer of information technology. In addition, Professor Shore is a consultant to business and a workshop leader.
COPYRIGHT 1996 California State University, Los Angeles
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Copyright 1996 Gale, Cengage Learning. All rights reserved.

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Date:Jun 22, 1996
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