Most professional communicators are aware of the downsides of downsizing. The employees who leave are usually disgruntled and those who remain are often unproductive. Dealing with low staff morale is a major issue for management and the PR staff.
Unfortunately, research shows that many retrenchment (‘reform’) programs aren’t successful. Companies speak of the need to reduce costs, but many find that cutting costs through layoffs is a fruitless strategy as the organisation loses many good people arbitrarily, and over the next 2-3 years the costs often return to the previous level.
Now recent research shows that layoffs often produce a double whammy – after layoffs have been implemented, many demoralized people left behind want to quit their job. This creates unforeseen labor shortages, which can reduce efficiency. Management then try to fill jobs – with a subsequent cost increase from recruitment and training of new staff.
A study by the University of Wisconsin reviewed two years worth of data and found a positive relationship across many industries between retrenchments and later voluntary departures. The researchers believed that retrenchments raise people’s awareness of external opportunities.
Bigger numbers of retrenchments generally produced higher numbers of subsequent departures, but even small numbers of layoffs caused survivors to look elsewhere for jobs. The researchers found that layoffs of 1% of the workforce led to an amazing 31% increase in staff turnover on average. Thus the mere idea of downsizing sends employees to look for a new job somewhere else.
The positive news is that the proportion of departures was comparatively smaller in cases where employees perceived the employer to be fair and just, and where significant employee loyalty already existed.
The lesson for PR people is that good internal communication is needed not only to support the handling of layoffs but to nurture those left behind, preferably before the layoffs occur. Otherwise, employers get hit with the double whammy, which creates a very difficult communication climate for PR people.
Adapted from “Halting the exodus after a layoff,” Harvard Business Review, May 2008.