Staff reductions: How to deal with them?

Staff reductions are sometimes unavoidable - How to deal with them as a manager?

Geopolitical turmoil, disrupted supply chains, mergers, fast-moving digitalization, cost increases and sales declines are among the factors leading to economic challenges for companies. In order to remain competitive, some companies are forced to cut staff during this crisis. The technology sector is particularly affected: Microsoft and Airbnb have already made this difficult decision (1).

Staff reductions not only bring organizational changes, but also present new challenges for managers. How do you communicate this bad news correctly? How do you ensure that the company's image remains intact and how do you retain and motivate the remaining employees during this uncertain time?

In this blog article, we look at why downsizing may be necessary, the exact challenges leaders face during this process, and how coaching can help them successfully overcome these changes.

A contribution by Lina Maring & Johannes Darrmann

"Great is the art of beginning, but greater is the art of ending." - Henry Wadsworth Longfellow

Why may staff reductions be necessary?

Staff reduction, or redundancy, means the reduction of the number of employees in a department or a complete company. Staff is made redundant for several reasons, e.g. when the order situation deteriorates, staff becomes redundant due to digitalization and technologization or when a merger is imminent (2). Downsizing reduces personnel costs, leaving companies with room to realign resources for a stable future. Downsizing therefore potentially makes companies more profitable again, which in some situations may be necessary for the survival of a company and thus the saving of many jobs. 

The decision to reduce staff may be necessary for the survival of the company, but for the people affected it is sometimes a major crisis. Having to say goodbye to colleagues you have grown fond of and having to work with the fear of being the next one has an unpleasant aftertaste: the remaining staff may experience a loss in employee loyalty, unproductivity, insecurity and much more. There is therefore a risk that the situation may deteriorate emotionally and economically after the staff reduction (3, 4) - this should be prevented at all costs.

Managers are the link between management and employees and have a very important role during this process. They are at the forefront of conducting the redundancy discussions in an appreciative manner with those affected and also managing and accompanying the entire process for the remaining employees and achieving the reduction targets.

What should leaders look for in the process?

The most important task of managers during staff redundancies is, on the one hand, to conduct the discussions with the affected persons in a professional manner and, on the other hand, to maintain the motivation and loyalty of the existing staff. The following aspects are important for this:

Conduct difficult conversations

Managers should be able to have difficult conversations. For one thing, part of the job is to deliver the bad news professionally and discuss the end of the employment contract - the bad news should not be made worse than it is. Downsizing requires clear and honest communication (3). The manager's goal should be that the laid-off personnel would accept a new employment contract with the company after the business situation improves. How this is possible? That brings us to the next point: through transparency.

Transparency

For trust and credibility, information about the staff reduction and the future should be shared transparently by management, e.g., the reason by when the process is expected to be completed, how much staff will be reduced, and also that humanity should not be ignored. Managers may share that it is not easy for you to lay off the staff (4,5,6). This is the only way to ensure that employees understand the decisions - as difficult as it may be - remain loyal and motivated, and also want to come back.

Promoting employee loyalty

Due to the loss of colleagues, remaining employees become distrustful. They are afraid of losing their own jobs and experience the whole process as unfair. For this reason, the expectations and obligations set forth in the psychological contract between the employees and the organization must be met. Since violation of this leads to lower loyalty and education, managers should take measures to retain employees (4). These could be, for example, increased individual conversations, special appreciation through personal feedback, or offering goal-oriented and appreciative development opportunities.

Dealing with emotions

However, the tasks of a manager do not only include the transmission of bad news, but also dealing with the emotions of the remaining and leaving employees. Downsizing often means that (long-time) colleagues have to leave the company. Managers should support employees in saying goodbye to colleagues they hold dear and take other emotions seriously, such as feelings of guilt, fear, anger and rage. During such a stressful time, they must be prepared for increased irritability and blame and decreased trust (6). Managers are expected to show empathy and an appropriate response. But even for them, downsizing can lead to uncertainty, doubt and a variety of emotions - quite challenging for managers!

Dealing with this crisis provides the basis for the company's new beginning - managers have a challenging and so important role during downsizing. They can't always do it alone. Therefore, dear HR, now managers especially need support.

Coaching can help managers

Yes, studies have proven that! More specifically, coaching helps leaders manage emotions, communicate with employees, manage change, and reflect (7).

Downsizing can also be emotional for managers. Support from a professional coach helps them manage these emotions, better understand fears and uncertainties, and deal with difficult situations and frustrations. A coach can help reflect on one's own attitudes, process emotions and keep a clear head. So coaching allows a space to better deal with employees' emotions and also to have an appreciative effect. In addition, a coach helps with communication skills, such as listening empathically and showing understanding (7).

But that's not all! Resilience, or resilience, is strengthened through coaching (Want to learn more about resilience? This way). Resilience enables leaders to better manage the challenges of downsizing. At the same time, coaching allows leaders to learn more about themselves during downsizing and work on their self-development. By reflecting on their own behavior during the process, they can improve leadership skills (7).

You would like to support your managers in a difficult phase with a coaching program? Then feel free to contact us. We will be happy to support you in a confidential consultation during the exploratory phase.

Sources:

1. https://www.faz.net/aktuell/wirtschaft/unternehmen/microsoft-streicht-10-000-stellen-groesster-stellenabbau-seit-2014-18611766.html

2. Cascio, W. F., & Montealegre, R. (2016). How technology is changing work and organizations. Annual Review of Organizational Psychology and Organizational Behavior, 3(1), 349-375. doi:10.1146/annurev-orgpsych-041015-062352.

3. https://www.umsetzungsberatung.de/turnaround/personalabbau.php

4. Sverke, M., Hellgren, J., & Näswall, K. (2019). The individual consequences of job insecurity: A systematic review of the evidence. Journal of Occupational and Organizational Psychology, 92(3), 559-586.

5. Vanderberg, R. J., & Bentein, K. (2018). Downsizing and organizational trust: Toward a research agenda. Human Resource Management Review, 28(3), 263-276.

6. Cameron, K. S., & Freeman, S. J. (2017). The effect of downsizing on organizational trust. Journal of Management, 43(4), 1338-1364.

7. De Haan, E., Culpin, V., & Curd, J. (2019). A qualitative exploration of the value of coaching in a downsizing context. International Coaching Psychology Review, 14(1), 61-79.