Downsizings have become sadly commonplace in recent months. Some companies have managed their layoffs with genuine consideration for the affected employees; others have not. As COVID-19 continues to drag down the economy, how can companies conduct their layoffs in a more humane, people-focused manner?
People Matters asked Kim Cameron, Professor Emeritus of Management and Organizations from the Michigan Ross School of Business, for his thoughts on the practices and approaches that could make layoffs less painful for the people affected. Professor Cameron has done extensive research on organizational virtuousness and positive leadership, with his work published in more than 130 academic articles and 15 scholarly books, and he is recognized as among the top ten organizational scholars in the world whose work has been most frequently downloaded on Google. Here's what he shared.
It seems that practically every day for the last few months, there's been news of one or another formerly successful company laying off employees in order to survive. In the current economic situation, are there any better alternatives to layoffs?
The highest performing organizations in my studies adopted an approach to downsizing that took a long-term view. Just as wise firms plan for downturns by creating financial reserves, wise firms also create a strategy for a potential need to downsize. This means that the culture of the firm prioritizes efficiency, eliminating hidden costs, holding everyone responsible for cost reduction, providing incentives for innovations that eliminate waste, and approaching the topic of downsizing as a motivation to continuously improve. Many firms have avoided major job-cutting by preparing in advance for such an eventuality.
When faced with the need to lay off employees, the strategy adopted by several extraordinary companies in my studies has been to give employee jobs the highest priority in the firm. These firms indicated a willingness to sacrifice revenues and profitability in the short run to keep people secure in their jobs. Their rationale was that this strategy creates loyalty, trust, collaboration, and a sense of ownership in the organization for employees. These outcomes pay off over the long run in significantly higher firm performance than merely cutting headcount.
Layoffs are typically a decision of the financial bottom line. But with corporate citizenship taking on increasing importance, and given the community impact of COVID-19, should we be viewing employment from other perspectives than the purely financial?
Abundant empirical evidence demonstrates the positive financial impact of engaged employees who feel valued and psychologically safe. These firms often exceed the financial performance of the industry average by a factor of four or more. One way to prioritize human resources in such conditions is to look for and eliminate hidden costs first. In one interview, a senior executive said something that really struck a chord for me:
The most cost savings in our organization can be generated by improving coordination, collaboration, trust, communication, and information sharing. Most of our costs reside in these soft factors. Yet, these costs are not systematically measured. We really have no process for keeping track of, or for managing, our actual costs. We don’t even really know what our true costs are given these soft factors. Unless we take a very different approach than we have in the past, our downsizing efforts will again be misplaced and will never really be effective.
Eliminating such hidden costs first—which sometimes account for a very large chunk of the budget—can help prioritize employees who might be eliminated otherwise.
If layoffs become inevitable, what should organizations prioritize on the people front?
When eliminating jobs is unavoidable, it is important to ensure a ‘soft landing’ for the employees that will lose their positions. This means providing re-training opportunities, personal coaching, assistance with resumes, job fairs, family support, and even emotional counseling.
The point is to treat people like human resources rather than as human liabilities. We invest in and nurture our valued resources.
After a layoff has been done, there would certainly continue to be negative impacts for some time. How might an organization address these to bring things back to normal?
My research, as well as that of many others, highlights the fact that downsizing results in a deterioration in performance in most organizations. Productivity, quality, trust, information sharing, collaboration, morale, and leadership all deteriorate, and this deterioration leads to financial decline.
Whereas, a few—maybe 10 to 15 percent—thrived after downsizing. They were better off than before. The difference was that those that flourished instituted what I refer to as virtuous practices. That is, they had significantly higher scores in these dimensions within their organizations:
- Gratitude and appreciation (employees frequently experienced appreciation)
- Dignity and respect (everyone maintained dignity in a respectful environment)
- Compassion and support (employees experienced compassion in difficult times)
- Caring and concern (everyone felt valued and cared for)
- Meaningfulness and purpose (a higher purpose of the work was clear)
- Inspiration and positive energy (everyone was uplifted and inspired by the work)
- Forgiveness and understanding (mistakes were reinterpreted as learning experiences)
- Trust and integrity (honesty and openness were universal)
Organizations that embedded virtuousness into their cultures exceeded previous performance levels by a wide margin.
The news has carried various accounts of companies that managed their layoffs compassionately and with genuine care for the affected employees. Do you think these best practices have emerged because of the current economic situation, or has the corporate approach to layoffs in general become more caring/generous over time?
These best practices are becoming more common in organizations as leaders learn about them and become convinced that people really are their most important assets. Of course, when times are good, it is easy for leaders to espouse that “we care about our employees.” The test occurs, however, when things go south, when profits are at risk, or when shareholders put the heat on for higher margins. Most leaders succumb to those pressures by prioritizing the financial bottom line at the expense of employees.
The empirical evidence is clear, however, that firms which have sacrificed for employees, have stayed firm on their core values, and have not given up virtuous practices because it is inconvenient when times are tough have flourished in the long-run with very few exceptions.
The challenge is to maintain consistency in these commitments regardless of the environmental conditions.
Could these best practices be propagated even after COVID-19 is past? What might be some of the systemic changes needed to make that happen?
The best practices that account for extraordinarily successful performance do not change with the nature of the environment. What produces success in good times is very much the same as what produces success in trying times. Here are five positive practices that have proven to be highly effective in threatening as well as benevolent times.
1. Capitalize on the heliotropic effect. This effect is defined as the tendency in all living systems toward that which gives and enhances life (positive energy) and away from that which detracts from or endangers life (negative energy). Everything alive – from single-cell organisms to complex human systems – has an inclination toward light, positive energy, and that which is life-giving. Organizations that flourish in trying times constantly engender positive energy among their employees.
2. Manage downturns virtuously. A study involving a large number of downsizing firms across 16 different industries found statistically significant relationships between virtuous practices and outcomes. Organizations that implemented virtuous practices performed significantly higher on objective outcomes such as profitability, productivity, and quality as well as on subjective outcomes such as morale, customer loyalty, and employee engagement compared to firms that did not engage in such practices.
3. Focus on Abundance Gaps. Picture a continuum anchored on the left side by negatives or problems, the middle by normal performance, and on the right side by spectacular performance. Between the left side and the middle point is a deficit gap where the focus is on solving problems and addressing deficits. Between the middle point and the right side is an abundance gap where the focus is on moving from a normal, healthy, successful performance to extraordinary, remarkable, outstanding performance. In trying times, deficit gaps monopolize leaders’ attention. Problem-solving overshadows almost all other activities. My research has found that leaders who focus at least as much attention on abundance gaps as on deficit gaps produce far higher levels of performance.
4. Create Positive Energy. Our recent research has found that individuals can be identified as positive energizers or negative energizers, and the difference has important implications in trying times. Positive energizers create and support vitality in others. They uplift and boost people. Interacting with positive energizers leaves others feeling lively, inspired, and motivated. Negative energizers exhaust people and leave them depleted. Positively energizing leaders are four times more likely to produce positive results than others, and the best performing organizations have significantly more positive energizing leaders than normal firms.
5. Implement positive practices even in industries that don’t value them. Financial firms, for example, are notorious for focusing almost exclusively on short-term monetary returns, and in their dog-eat-dog, win-at-all-costs world, human concerns and virtues may be regarded as luxuries that few can afford. The military is another institution where a command-and-control culture, rigid hierarchies, and doctrines of strict obedience would appear to be antithetical to the generous spirit of abundance, virtuousness, and positivity. The research I have conducted involving both of these sectors, however, yields findings consistent with those of other kinds of organizations. Positive leadership and virtuous practices predict higher outcomes even in these unlikely industries.