Insider's Guide to Downsizing: How to Cut Costs Without Chaos
When the term "downsizing" comes up, it often conjures images of tense meetings, uncertainty, and gloomy office vibes. But it doesn’t have to be that way. As someone who has navigated multiple waves of downsizing across industries, I can tell you there's a way to manage it that maintains the integrity of your organization and the morale of your team.
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Assessing the Need for Downsizing
First things first, let’s talk about whether you really need to downsize. Often, leaders jump to this conclusion as a quick fix for financial troubles – which is understandable since headcount is typically one of the largest expenses. However, it's crucial to take a step back and evaluate the overall financial health of your organization and assess alternatives. For example, are sales declining due to external factors? Is there a seasonal dip that you can anticipate and manage through other means? Can you renegotiate vendor contracts or reduce discretionary spending?
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It’s essential to consider the long-term effects of downsizing. I once worked with a company that laid off 40% of its workforce to cut costs. While this provided immediate financial relief, the company struggled with productivity and morale issues for years, which eventually impacted their market position. Downsizing can lead to a loss of institutional knowledge and decrease employee morale, affecting long-term performance and company culture.
Strategic Planning for Downsizing
Establishing Clear Objectives
Once you’ve determined that downsizing is unavoidable, set clear objectives. Are you aiming to cut costs by a certain percentage? Do you need to streamline operations to focus on core products or services? Aligning downsizing with your business strategy ensures you’re not just making arbitrary cuts but rather making thoughtful decisions that will benefit the company in the long run. Making these decisions early on will help build a thoughtful communication strategy, align your decision-making process for those affected, and help relieve fear and confusion for those who stay with the company.
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Involving Key Stakeholders
Involve key stakeholders early in the planning process. This includes not only top executives, Human Resources, and Legal but also department heads. Their input can provide valuable insights into which roles are critical and where cuts can be made with minimal impact. While it should go without saying, you must express the sensitivity and confidentiality of the situation. Some companies even go as far as having their planning team sign project-specific non-disclosure agreements.​
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Selecting Roles for Downsizing
Decide on roles to cut based on business needs, not personal biases. I’ll repeat this again - Decide on roles to cut based on business needs, not personal biases. As a Chief People Officer this was always a huge pain point during layoffs. Use objective criteria such as performance metrics and future role relevance. Hold yourself accountable to your criteria and don’t make exceptions. This not only reduces risk, but it shows the remaining team that you were thoughtful and objective in your process.
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Creating a Timeline and Action Plan
Create a detailed action plan with timelines. Break down the process into manageable steps, such as deciding which roles to cut, developing communication strategies, and setting dates for when layoffs will occur. Ensure you have milestones to review the process and make adjustments as needed. Each task should have one person who is primarily responsible for its success. If you are moving quickly, there should be daily standups to review the project plan and report on progress. This structured approach helps reduce confusion and anxiety among employees and ensures the downsizing is executed efficiently.
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Documenting the Process
Document every step of the downsizing process. This includes the rationale for layoffs, communications with employees, and support provided. Thorough documentation helps protect against potential legal issues and provides a clear record of the process for future reference. I remember working with a client who faced a lawsuit due to inadequate documentation, which underscored the importance of keeping detailed records.​
Ethical and Legal Considerations
Downsizing comes with a web of legal requirements. In the U.S., for instance, the WARN Act mandates that companies give a 60-day notice before mass layoffs. There are also considerations surrounding disparate treatment that must be taken into account. For example, is a group representing similar ages, sexes, etc. unintentionally affected more than others? If so, there may be a case for discrimination.
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You also must ensure affected employees are fully aware of their rights and benefits. This includes severance packages, unemployment benefits, and COBRA options for continued healthcare coverage. Providing comprehensive information and support can help ease the transition for those who are laid off.
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It’s crucial to consult with counsel to navigate these requirements and ensure compliance.
Communication Strategies
Crafting the Message
Crafting the right message is crucial. Deliver the news with empathy and clarity, and be prepared to answer tough questions. Avoid corporate jargon, be honest about the situation, and always try to humanize the decision. If possible, try to incorporate previous comms into the messaging. For example, “In the beginning of June, we informed you that external market conditions were greatly impacting our ability to fundraise.” This will reduce employees feeling like they were blindsided and show that there was work being done in the background.
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Modes of Communication
Choose the right mode of communication for your audience. For employees, face-to-face meetings or town halls are ideal. For remote workers, consider video calls, the smaller the better. It allows the messaging to be more personal and it will likely prevent you from making headlines for firing mass quantities at once.
Ensure you have a plan for informing all stakeholders, including investors and media, about the downsizing. You should also prepare your leaders and key stakeholders with speaking points and hold a Q&A session to make them feel more empowered when they are asked questions by their teams.
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Managing Rumors and Speculation
Rumors and misinformation can spread like wildfire during times of uncertainty and stories will be made up when there’s a lack of information. Keep communication channels open and address rumors quickly to maintain trust. By addressing these concerns head-on and providing regular updates, you can quell the panic and maintain a more stable work environment.
Supporting Employees Through Transition
Those Who Were Affected
Providing robust employee assistance programs (EAPs) can help those affected by layoffs. These can include counseling services, career transition support, and financial advice.
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Offer outplacement services to help employees find new jobs. This can include resume writing workshops, job search support, and networking opportunities. A recent trend is allowing employees to opt-in to a public database that will allow them to be searchable by recruiters.
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Maintaining Morale Among Remaining Employees
It’s also as important to focus on the morale of the employees who remain. They may be experiencing what’s known as “survivor syndrome,” feeling guilty or anxious about their job security. To combat this, communicate openly about the company’s future and involve them in the rebuilding process. Companies may also choose to incentivize remaining employees with retention bonuses, stock options, etc.
Post-Downsizing Strategies
Evaluating the Impact
After the downsizing, take time to evaluate its impact. Review financial metrics and gather feedback from employees to understand the effects on morale and productivity. eNPS is great measure of overall morale.
Rebuilding Team Cohesion
Focus on rebuilding team cohesion and trust. Plan team-building activities and encourage open communication to help employees feel valued and engaged. Create feedback loops to make employees feel valued and engaged by submitting recommendations. When a recommendation is implemented, make it clear to the company that this came from the staff.
Monitoring and Adjusting Strategies
Continue to monitor the company’s performance and adjust your strategies as needed. The business environment is constantly changing, and your approach to managing your workforce should be flexible and adaptable. Regular check-ins and updates can help you stay on track and address any issues that arise promptly.​​
Conclusion
Downsizing is never an easy task and no company has ever won an award for being the best at laying people off. Though, with the right approach, it can be managed in a way that balances cost-cutting with compassion. By carefully assessing the need, planning strategically, and supporting employees through the transition, you can minimize chaos and maintain the integrity of your organization. Remember, it’s not just about cutting costs—it’s about ensuring the long-term health and success of your company while treating your employees with the respect and dignity they deserve.​