How does downsizing affect survivors? Insights from the Literature

Abstract:     
Downsizing of workforce has become a continuous phenomenon in the organizations world over. Downsizing has various effects on the employees and the organizations. The positive effects expected by organizations are lower overhead, less bureaucracy, faster decision making, smoother communications, greater entrepreneurship, increase in productivity and thus increase organizational effectiveness. Although organizations reduce workforce to reap the benefits, it has to face the negative consequences too. The negative consequences are creation of climate of distrust, insecurity and demotivation, low employee satisfaction, morale, commitment, increased absenteeism, emotional trauma, break down of psychological contract, high level of stress, adverse social effects, increased conflicts, skill drain, break down of communication and loss of creativity.

Research reveals that the majority of the organization did not even achieve the financial gains from downsizing as expected. One of the reasons for the failure is ineffective handling of the people left after downsizing (survivors). The paper carries an in-depth study of the literature to understand the effect of downsizing on survivors. It highlights that emotional, psychological stress, mental trauma and job insecurity, decrease of trust, loyalty, commitment, morale and job involvement; breakdown of communication, greater intention of leaving, and, reduced performance and organizational effectiveness are the major effects of downsizing on survivors.

The paper also analyses the strategies for successfully handling the survivors. Some of the successful strategies for handling survivors used by the organizations are active communication, developing trust among employees regarding fairness, honesty, and commitment of managers towards organization and its employees, appropriate compensation, post downsizing support to survivors and victims and active exploration of other alternatives to workforce reduction by managers. At the end, it draws a framework for the effects of downsizing on survivors and strategies for handling the survivors.

The paper concludes that if the organizations want to reap the fruits of downsizing it should take care of the survivors. Organizations should ensure that the process of downsizing is fair and justified. They also need to effectively handle the anxieties of the survivors and help them in every aspect to adjust to the new situation. Organizations need to actively communicate their future plans to the survivors and give every possible support, sometimes by hiring external experts in psychological aspects.

Keywords: Survivors, Downsizing, Workforce Reduction, Victims, and Strategies

JEL Classifications: J21,J26,J63

Working Paper Series