The Impact of Downsizing on Corporate Culture

by Tracy Gibbons, Ph.D. and Randi S. Brenowitz

This article appeared in Data Center Management, July/August 2001.

Only the luckiest businesses in any industry will survive their entire lifecycles without experiencing the wrath of what is euphemistically called corporate downsizing. Historically, the pre-, present and post-downsizing environment are never envied, and emotions run high. Regardless of the rung to which one has aspired, there's really no safe zone during a corporate downsize of any kind.

Although senior management may be able to elude some layoffs, they are the ones responsible for carrying out the process, thereby terminating people who may have dedicated many years to the company. Clearly an undesirable task. From another perspective, we must consider the employee being laid off - the victim who is about to face the psychological and emotional hurdles that come with this experience. Finally, there are the survivors who are typically not considered at all.

In the aftermath of downsizing, the math is simple: fewer people are left to do the same or increased amount of work. The organization, once designed for and built around a greater number of people, is now left in a state of imbalance. While survivors usually move from denial to acceptance, with varying degrees of success, they often struggle to get there. Since the data center is often considered the heartbeat of most organizations, it must get back on track quickly after a downsizing. The ongoing flow of information is critical during downsizing and the data center holds the key to much of it. Taking the necessary time in advance of layoffs, to plan cautiously and communicate proactively, can increase a company's likelihood for a successful outcome.

Organizational Downsizing: The Data Center Manager

Over the past five years, data centers have grown in both size and complexity. Managing various hardware platforms, multiple operating systems, numerous applications and a constant stream of information is challenging, even when organizations are fully staffed. For this reason, data center managers must approach the decision to downsize the organization with caution and prudence. The department they oversee is responsible for with the flow and control of vital information. Staff in the data center work closely with virtually all systems, and companies are ill advised to ignore their significance during a time when changes in this flow are imminent.

Marilyn Blair, editor of The Organization Development Practitioner (Journal for National Organization Development Network), says we're currently experiencing the second major wave of downsizing in corporate America. "We have a lot more information available this time about the ramifications of downsizing," Blair says. "Readying the people who will be staying is as important as any piece of the process." She notes that whether this is done in advance of layoffs or as a linear process isn't nearly as important as just making sure it is addressed.

Preliminary Considerations

The resistance felt during most layoffs results largely from changing all that was familiar to a company's employees, as well as from the fear that they could be next. Few are motivated by such immediate and unanticipated change, which presents management with a huge, yet opportunistic challenge: operating the company using smarter, less labor-intensive tactics. Meeting these challenges begins and ends with the practice of open and honest communications. This is essential for organizations to continue functioning during layoffs.

Proactive Communications

While no corporate downsizing can be made comfortable and easy, the layoff process is not without its available options for easing the tension. For example, practicing consistent, proactive communications. Managers who are respectful of their employees make it a habit to communicate the status of the company's operation at regular intervals. They don't wait for the need to downsize before they look at policies and how to implement them.

In organizations that hit employees with layoffs unexpectedly, the true impact is felt and the real costs begin to accumulate the morning after D-day. It comes from not only those laid off, but those who live day after day wondering when their numbers will come up. Internal sabotage comes in many shapes and sizes, but it is never so rampant as it is after a layoff, with data centers running the highest risk. Computer operators know those machines unlike any others. They know the passwords, and they know how to spread the effects of a chain reaction from one end of the system to the other. In data centers specifically, proactive communications triggers the mutual respect necessary to assure data integrity and uninterrupted access to certain files.

One computer programmer, who worked on the payroll system for a large, regional financial institution, was desperately seeking management's support to modify the system as it had a weak user interface. Ultimately the day came where his department was blamed by other computer division managers for the growing inefficiencies. The morning that he walked in and found that half of his department had been laid off, he and a cohort planted a logic bomb in the system. With access to all the right passwords, they were able to enter the payroll program and write a new section that would instruct the program to delete it the very next time it operated. The result of the chain effect and the time necessary to fix it was an overwhelming and costly task.

The Survivors: A Lost Sense of Purpose

The job of downsizing is brutal to those responsible for the actual task of termination. Perhaps this is because, under normal circumstances, all the pre-downsizing efforts are focused on who will be leaving, rather than on those who will be needed to keep it all together.

Many of the survivors of a downsized company initially act out through rebellious silence, which tends to evolve into interpersonal conflict. Suddenly strangers are expected to work side-by-side, as though they could pick up where old-timers and former colleagues left off. Blair points out that the tendency of data departments is to increase their staff during the good times, which causes the whole organization to rely more heavily on their output. "Once there's a downsizing, there is anger, in general, toward the data center," Blair says. "And data center workers must not take on this anger… they need to understand it, but they must not take it on as guilt."

Rarely do survivors feel inspired about the task at hand, and those who do seldom have a sense of direction or a set of guidelines from which they can make decisions. In short, they lost the strong sense of purpose and accomplishment they were enjoying only a few days before. Production, quality control and customer service screech to a halt as the organization reconfigures.

Managing the Survivors

One of the toughest jobs during a post-layoff is managing the survivors. It's the reason companies spend millions of dollars each year hiring specialists, consultants and/or psychologists to help motivate the survivors and offer them a renewed sense of purpose.

At a time when they're feeling the lowest, middle management must perform their best. Although the company appears to be in a state of chaos, managers must seem calm, confident and in control. It's their job to begin allocating tasks, confirming work objectives, making sure people stay focused on appropriate tasks, and pulling together a new team. Clearly this is a time when employees need specific directions and the resources to implement them. Having this guidance lessens a survivor's typical focus on loss of job security and begins the process of rebuilding their sense of purpose and worth.

Organization Design

What many companies may not realize is that the design of an organization cannot withstand such turbulence without some degree of consequence. Senior management cannot assume to rebalance the company's design by moving around a few boxes on the organizational chart. The fact is that organization design goes beyond the company structure. It addresses issues more systemic than the lines, boxes and arrangement of people and functions.

It includes such factors as information and reward systems, management and decision making processes; mission, vision and values; business strategy and people. It requires that these elements be considered and weighed in relationship to each other, that trade-offs be made and balanced, and that the best fit of all the elements are determined. It acknowledges that the infrastructure of an organization is a source of competitive advantage and that the failure to attend to designing and sustaining an infrastructure that best supports the business and human needs of the organization contributes significantly to its dysfunction and decline.

When a company establishes its primary strategy and purpose, it lays the foundation for other elements such as structure, processes, people and rewards. Post-downsizing efforts must include a revision of this company strategy, answering the numerous questions that will begin to restore order to an otherwise chaotic situation.

Questions to Ask During Post-Downsizing

The answers to these key questions often provide guidance and next steps for organizations that need to re-build after a corporate downsizing.

  • How will downsizing affect the reason the organization exists and its overarching objective?
  • How will downsizing change the organization's vision?
  • What is the desired future state of the organization and what will be different as a result of this reduction in workforce?
  • Where are we headed now and how will the journey change from what was familiar previously?
  • How will allocation of resources change based on new targets or goals?
  • Is the organization still equipped with strong core competencies?

The "Re-balancing" Act

Typically, after downsizing, senior management must make significant changes to the organization's purpose, outcomes, and/or functionality. What is called for is a major, comprehensive redesign process. Each design element must be modified as necessary to ensure the organization will still operate in light of these new developments. Who is responsible for redesigning the data center? Will employees report to different supervisors? Will the reward system stay in tact? Has the company vision changed?

Systems are interdependent by nature, which is why changes in one part of a system create corresponding effects in other parts. Sometimes these secondary changes go undetected until they have caused unanticipated and often adverse consequences, which is exactly what must be avoided in a post-downsized environment.

Making the Effort

As downsizing continues to become an increasingly normal business practice, managers need to find ways to improve their ability to manage the change. This includes motivating traumatized employees and getting operations back on track. It means addressing the drama of the situation, not denying it. Can-do attitudes are badly needed and understandable goals must be spelled out. Yet, nothing promises post-downsizing success like the practice of open, honest communications.


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