Impact on Employee Morale during Company Restructuring The worldwide economic crisis has caused too many companies to restructure their corporate setting in order to survive and meet their financial challenges. If you turn on the TV or browse internet these days, it is almost impossible to avoid the bad news of more and more massive layoffs in United States as well as the rest of the world. As this financial crisis deepens, one can’t help asking “Is downsizing or more job cuts our only way out? What is the long term effect of these massive job cuts to our corporation employees? Will we need even longer time to recover from this emotional and morale crisis if the downsizing wasn’t done right?” In this paper, impacts of corporate restructuring on employees’ morale have been explored by reviewing several research papers. Figures were illustrated, strategies were suggested. It is not the question why companies have to downsize or cut jobs, it is how they should do it strategically right to reach the expected goal of benefit and continue to retain the trust and loyalty of the surviving workers. “Trust is one of the most valuable yet brittle assets in any enterprise. So over the long term, it’s far better for companies to downsize in a humane way.” - Robert Reich (Mishra and Spreizer, 1998) During the economic recession, many companies started to restructure their legal, ownership or operation structure in order to be more profitable, competitive and efficient. One common management strategy for restructuring is to downsize. As part of corporate life, downsizing began in late 1970s. Companies were trying to cut costs and improve productivities. In Mishra and Spreizer’s article (1998) preserving employee morale during downsizing, it was found that more than 3 million jobs eliminated each year since 1989, for a total loss of 43 million jobs since 1979. Nowadays, downsizing has become part of American corporate culture which seems to be a natural choice for companies that are facing financial challenges. 67 percent companies even carry out a second round a short time after the first (Mishra et al., 1998). The initial intent for downsizing was to cut cost, boost productivity and position the company for the long term which often not being met after the downsizing is conducted suggested by many researchers. When facing great financial pressures, some companies have to carry out personnel reductions in order to see immediate effect on their balance book. However, if planned strategically with a thorough consideration of the future position of the company, the outcome can be adjusted to other alternatives including re-skilling, job sharing and redeployment instead of “layoffs” which will likely result in loss of skills, costly rehire and survivor trauma (Band and Tustin, 1995). When deciding to restructure, whether to downsize to a leaner corporate setting and redeploy employees to other functions in order to reserve the talents, or to reduce the personnel headcount in order to achieve the immediate goal of saving, management has to first analyze their company’s competitive position and the most appropriate structure for the desired outcome. Once the structure is defined, the process of implementing the change from the current structure form to the new one has to be carefully thought out (Band et al., 1995). As Imberman states, “… unless the starting point of this [downsizing] journey is identified with great precision, and unless things are being done right today, using a five-year plan as a map to the Promised Land will lead only to limbo” (Imberman, 1989). Once the strategies for downsizing have been defined, if layoffs become unavoidable, the careful planning for the human resource management during the layoff process becomes crucial to business. If this process is not planned well, the damage to the employee morale can last for a long time (Richey, 1992). In 1992, Richey studies the effects of layoffs on workers by surveying the employees of Air Defense Systems Division of General Dynamics Corporation which eliminated approximately 2,300 of its 8000 employees at facilities in Pomona and Rancho Cusamonga, California. Richey started the study with an extensive research of the relevant articles. The focus of the surveys was then defined based upon the literature analysis. Among three category of employees who received survey questionnaires: employees who had been laid off, employees who received 60 day layoff notification but still working and employees who were survivors, response rate was 35 percent, 23 percent and 60 percent respectively. Significant findings on the effect of job performance in such layoff climate include 44 percent of total respondents say their job performance decreased or decreased significantly, of these, 29 percent of survivors indicated decreased job performance. Even thought the study result show 19 percent of the survivors indicated increased job performance, this initial upsurge is more likely to be temporally in the attempt to keep their jobs. When comes to the question of how their morale being affected by layoffs, 78 percent of total respondents indicated either decreased or decreased significantly. Especially among the survivors, 87 percent indicated decreased morale, and the rest stay unaffected (Richey, 1992). In another study conducted by Chadwick, Hunter and Walston (2004) on a sample of hospitals that undertook downsizing, more evidences were found to support the impact of employee morale during and after downsizing process. Four types of downsizing practices were compared: process that has an emphasis on employee morale and welfare; practice that include advance notice of layoffs to employees; one provide great economic benefits to laid-off workers; and the model of work redesign to support downsizing. By using the data collected through a widely distributed survey to hospital executive officers and other upper managers, followed by a more focus survey distributed to only hospital HR managers who responded to the first one, this study clearly draw a positive association between consideration of employee morale and perceived success of the downsizing initiative (Chadwick, et al., 2004). When speaking of morale, many managers show the attitude to their employees that they should be grateful for just having a job in this difficult time. In the contrast, many researchers believe it is actually more crucial now than ever during this financial crisis to maintain or even boost your employee’s morale in order to retain the productivity and customer base when budget and resource become limited and workload become heavier. Denka (2009) in his article suggested six key areas for managers to focus when considering boost employee’s morale. The first and most important area is communication. Effective communication plays a critical role in the process of managing laid-off workers and survivors, even more crucial to the later. Be transparent on the issues company is facing and the strategies management has thought out. Open for suggestions and value employee’s input. “Keep in mind that communication isn’t limited to the words you say. Your actions also play a big role in the message your team receives.” (Denka, 2009). Another interesting suggestion found in this article is delegating. Delegate more project work or power to make decision to your team members will enhance their sense of empowerment and accomplishment. It has been considered as a morale-enhancing experience which will lead to a more productive team (Denka, 2009). When budget is tightened, many managers will start to cut the training budget first thinking that training is luxury and it may make their employees more marketable, therefore, leave the company for better jobs. However, it is proven to be beneficial to companies in a long term when they continue to invest in employee training. By receiving training and education opportunity, employees feel appreciated and valued. It is also a morale booster as training helps people become more multidimensional and stimulates loyalty (Denka, 2009). Continue personal development indicates to employees that their company not only focuses on company’s profit or cost saving, it also pays attention to their people. With better job satisfaction, skilled employees will likely to stay and help the company to recover (Denka, 2009). During downsizing process, one other strategy used to maintain morale of both survivors and victims that found to be effective is to allow voluntary separation (Mishra et al., 1998). Voluntary separation normally includes buyouts, early retirement and voluntary redundant. It surely felt more depressing when being forced out of the door instead of choosing to leave by oneself. If the downsizing can be accomplished largely by voluntarily redundancy rather than forced layoffs, the survivors will feel more secure as their employer show care for its people and gave them choices. Company’s future success is set on those who survived downsizing. During and after the downsizing process, company ought to pay extra attention on how to manage the survivors. Survivors to layoffs often suffer severe morale problems with guilt, stress with heavier workload, displeasure over loss of friends or anxiety (Myers, 1993). Survivors try to regain their confidence in their employer by perceiving how the layoffs were justified and how it was implemented (Mishra et al., 1998). Were the employees of displacement treated fairly and with respect? Did company manage it in a humane way? It is absolutely crucial for companies to reduce the negative effects of layoffs on survivors in order to retain their morale and keep or even increase job performance. Brockner (1992) suggested in his article, managing the effects of layoffs on survivors, an open communication on full information is necessary and much appreciated by all employees especially survivors. Management has to commit to a long recovery period once layoff is over. Job enrichment, team building and new opportunities can become motivators to survivors and boost their morale (Bockner, 1992). In conclusion, many studies have shown that downsizing, especially the one involved personnel reduction, will cause huge impact on employee morale. To avoid unnecessary downsizing, companies have to learn how to stay lean and maintain a rightsizing strategy during the good time (Band et al., 1995). If layoffs become unavoidable, it is crucial to well thought out the process at the beginning and carefully implement the strategies with consideration of impact on employee morale (Chadwick et al., 2004). Encourage open and transparent communication at all levels, provide employee assistance by making managers more accessible, and provide re-employment counseling and outplacement services (Myers, 1993). As morale boosters to survivors, empower them in their new work environment, recognize people’s achievement appropriately, and provide employees with training and career growth opportunities. Money is not the only effective motivator to employees. People retain their morale and loyalty when they felt being treated with respect and dignity, recognized for their accomplishment and contribution, and praised with more opportunity to grow (Bates, 2009). It is the people who kept the corporate engine running, it is the people who can help the corporate to survive and come back even stronger.
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