The Recession Challenges: Retention vs. Downsizing

The Recession Challenges: Retention vs. Downsizing

The New America

My name is Ron Nash, President of The Nash Group, LLC. and The Friend Zone.TV. I’ve been in the business of helping candidates transition for over fifteen years, our dominate focus has always been “Headhunting”, however truth is that we have always worked with candidates and organizations to help with workforce reductions and personal transitions; it’s what a headhunter does. If you think about this, we are the true experts in helping people transition during any economy.

During the past 20 years I’ve witnessed America change, we now live in a “New America”, the America that once was is no longer and as a result, change is inevitable. I was even a part of a merger/acquisition in 1987 when Wells Fargo Bank acquired Croker Bank, the beginning of the deregulation of America. I’ve seen companies outsource many of their functions and reduce workforce for a number of years now and realize that this is not a passing fad, it’s the “New America.”

The Dot.Com era was a very interesting time as well; apparently the downsizing that occurred during the Dot.com era is considered the younger sibling to what we will see over the next several years, post election. The thing that remains consistent through all of the mergers/acquisition and workforce reduction activity is the message the activity sends a message to the workforce, which I can sum up in one word – Uncertainty.

There are six basic human needs that every person on the planet has, and you can probably guess the first one – Certainty. Every one of us wants to know that we have a way to take care of ourselves and our families from day to day and year to year. We all want to know that we have the basic things to sustain life on a regular basis.

Therefore, we take jobs within organizations that we feel will satisfy our needs and when that certainty goes away, so does our confidence. You already know that the stock market is one of the biggest indicators that we have to measure consumer confidence, and according the all of the latest news, consumer confidence is not very high at this time. Check out my blog @ http://www.Thefriendzone.Tv o find out more on the Six Human Needs Psychology.

More Doom and Gloom To Come!

I recently had the privilege of seeing Mr. David Gergen, Commentator, editor, teacher, public servant, best-selling author and adviser to presidents for 30 years. David Gergen is currently a professor of public service at Harvard’s John F. Kennedy School of Government and director of its Center for Public Leadership. He is also editor-at-large for U.S. News & World Report and a Senior Political Analyst for CNN. In earlier years, he served as a White House advisor to Presidents Nixon, Ford, Reagan and Clinton.

He compared these times to those of the era President Roosevelt, the great depression and WWII, he also said that the issues we face are greater than those times of Roosevelt’s era! He told a wonderful story about Roosevelt’s pride in America’s innovative spirit and suggested that the same level of commitment to our country and innovation would be what is needed in these times.

Mr. Gergen said that we have four MAJOR issues that the new regime will face in its first year of governing that will determine our fate as a super power. The four issues are;

1. Getting our own home in order – energy plan, healthcare, Social Security, and Competitiveness.

2. Nuclear Proliferation – Everyone wants a nuclear bomb for some reason.

3. Climate Change – until recently, the current administration has denied this, but now acknowledges it.

4. The Rise of Asia – China, Japan, and India are emerging super powers.


America has been a super power for a short time and has to manage how we will work with the rest of the world. Our triple A credit is on the line and we can’t afford to lose it. We also don’t want to go into the next couple of decades and fall out of our status – a third world war could be brewing. Mr. Gergen isn’t on tour talking about this type of information to sell books, he’s sharing information that he hopes will resonate to on a deeper level with us – the American people.

The Corporate Challenge

The challenge that is presented to us in this New America is that change is inevitable – it’s a must, however, the news reports of the economy only creates what I call, “Massive Uncertainty”. Restructuring, mergers and acquisitions are going to be inevitable to compete in a global marketplace. However, there are a number of effects this has on the workforce and specifically the employees who may work for your company. It promotes uncertainty to the employees directly affected by the reduction and it put a physical and emotional strain on the employees who are still employed.

In a 2001 survey of 759 workers who had survived a layoff, 46 percent of respondents reported that morale had decreased. This unpleasant environment in the workplace causes companies to lose high-potential employees they meant to retain, as disgruntled surviving employees seek new jobs. Makawatsakul and Kleiner (2003) cite a 1995 survey of employees at downsized organizations, in which 50 percent reported decreased company loyalty and 37 percent reported decreased job satisfaction. While the effects of a decrease in morale are not easy to quantify, it is clear that the negative reaction to downsizing affects a company’s bottom line.

According to a Finnish study of downsizing, the sickness absence rate was more than two times as high after major downsizing than after minor downsizing, and the risk of health problems, as indicated by medically certified sickness absence and other indicators, was at least twice as great after major downsizing as after no downsizing. The reaction of surviving employees depends heavily on how fairly they perceive their former coworkers to have been treated—that is, the more unfairly they believe terminated employees have been treated, the greater insecurity they will have about their own jobs.

The reaction of surviving employees depends heavily on how fairly they perceive their former coworkers to have been treated—that is, the more unfairly they believe terminated employees have been treated, the greater insecurity they will have about their own jobs. In an environment of frequent organizational change, job insecurity has become a sizable problem. In a 1991 survey of 909 firms that had been through downsizing, 70 percent of retained employees were afraid of losing their jobs.

Asked if they still trusted their organization after downsizing, 31 percent said they did not. This is because those who have survived a major downsizing feel both relieved and angry at the injustice of the situation. “Survivor’s syndrome” leaves retained employees feeling as stressed as those who were let go—job insecurity, with the added guilt.

The Cost of Reduction and the Effect on Retention

In an environment of frequent organizational change, job insecurity has become a sizable problem. In a 1991 survey of 909 firms that had been through downsizing, 70 percent of retained employees were afraid of losing their jobs. Asked if they still trusted their organization after downsizing, 31 percent said they did not.

This is because those who have survived a major downsizing feel both relieved and angry at the injustice of the situation. “Survivor’s syndrome”. leaves retained employees feeling as stressed as those who were let go—job insecurity, with the added guilt of being spared while some coworkers were not. The potential costs of lower morale and increased stress due to job insecurity and survivor’s syndrome after downsizing are high. According to Tangri (2003), “Stress costs American businesses more than $300 billion annually in lost productivity, absenteeism, accidents, employee turnover, and medical, legal and insurance fees, and workers’ compensation awards. This is more than 15 times the cost of all strikes combined.” However, even this figure does not capture all the indirect costs, such as the effect of employee turnover on stock prices and profitability.

What Can Be Done?

In my recent address to the Society of Human Resource Managers, I suggested several ideas that are easy to implement and to help create a better transition for everyone. There are three areas that have to be managed through the corporate transition in order to have a better outcome.

Communication

According to Dave Kandler of CompanyNewsletters.com, the easiest form of communication is a company newsletter that helps to explain the various aspects of the transition. There is little cost associated with this idea, it can even be a web based newsletter.

Here are five points that can be incorporated in the newsletter:

  1. Devote a special section of your publication or a separate newsletter to the downsizing, merger or acquisition.
  2. When interviewing your company’s executives for articles related to the transition, encourage them to be totally open and honest with employees.
  3. Make sure employees learn about major corporate changes at work before they read about them in the local newspaper.
  4. Run an “Ask the CEO” feature in your newsletter in which employees can anonymously ask questions about the downsizing, merger or acquisition.
  5. Write articles that tell employees how to answer customer questions regarding the downsizing, merger or acquisition.

Retention

According to Wayne L. Strom, Professor of Behavioral Science at Pepperdine University, “Every corporate downsizing event has certain predictable outcomes such as feelings of betrayal, loss of trust, turf battles, and cynicism about the corporation’s future. This typically leads to a widespread lack of commitment throughout the organization.

But downsizing can also bring significant opportunities for creating new energy and enthusiasm which often go unrecognized. If executives expect surviving employees to give their best, the company will need to provide substantial evidence of new beginnings. This can be as simple as a clearly articulated vision of where the company will be in five years and a significant investment in the re-training and upgrading of employee skills.”

Five Points To Consider

  1. One such opportunity is for an organization to re-state its vision of the future.
  2. Establish a revitalized culture which rewards individual and team initiative.
  3. Create new alliances across departments and divisions.
  4. Create a new personal work ethic, “I am responsible for my own future!”
  5. Address the past and bring closure by assuring everyone of the new path.

Each of these opportunities makes unique professional and personal demands on managers. These opportunities also require that an organization consider the human realities of downsizing for those who leave as well as those who stay behind.

Downsizing With Class and Dignity

Corporate America is a Macrocosm of the American family, therefore, when we experience a loss of a loved one in our family, the emotions are felt throughout the family tree. The corporate dynamic has the same human element wired through every aspect of it’s being – the human factor.

Many companies lose site of the human element and make decision that are ‘business’ related, with little thought of the aftermath. The truth is that every person who is laid off due to a reorganization, merger/acquisition, downsize, etc. is really a sales person for your brand. They will either sale your brand with a positive spin or a negative one, based on how they FEEL they were treated.

Five Things You May Want To Consider

  1. Plan for and be ready to implement a job search and career development clinic for displaced employees.
  2. Plan for generous separation packages.
  3. Be ready to deal with the legal and tax implications in a way which is helpful to those leaving the company.
  4. Position communication and coordination people with posted “help line” phone numbers. Plan for psychological counseling and support where needed. Fully inform staff and employees, as much as possible, of the planned events.
  5. Do not walk the halls Friday afternoon passing out pink slips.

High-quality outplacement, on the other hand, presents an all-encompassing approach to the job search that improves clients’ lives from the dangerous costs of a mishandled staff reduction. However, ultimately, the company undergoing restructuring chooses which outplacement provider to use. With an understanding of the possible effects of downsizing, companies have the opportunity not only to recognize, but also to combat the hidden costs of organizational change by doing what is right both fiscally and morally. Investment in the right quality of outplacement services helps returns on profits, human capital, and community relations.

Please visit my website, www.TheFriendZone, There are a ton of very good resources here for anyone who is serious about their career or job search!

Hope to see you in The Friend Zone!

Ron Nash

Master  Career Strategist

References:

John A. Challenger, “Return on Investment of High-Quality Outplacement Services” – Federal Reserve Bank of Chicago article

Professor Wayne L. Strom, “The Human Realities of Corporate Downsizing” – Pepperdine University School of Business and Management Article

David Kandler, Newsletter can help employees cope with a corporate downsizing, merger or acquisition – CompanyNewsletters.com

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