I was interviewed by Carol Hymowitz at the Wall Street Journal for a story called, "Though Now Routine, Bosses Still Stumble During the Layoff Process," about a month ago. Talking with Carol inspired me to go back and review some of the old and new research on organizational decline for a series of posts that I did on layoffs for Harvard Business Online (See 1, 2, and 3). I spent a lot of time thinking about these challenges at one point, as my earliest stream of research was on organizational decline and death (My dissertation was on the process of organizational death), and in 1988 Kim Cameron, Dave Whetten, and I published a (now out of print) collection of readings on organizational decline (It is pictured to the right). I also published quite a few academic articles on the topic, including (with Stan Harris) what might still be the only study of funerals for dying organizations.
After talking to Carol, I was inspired to go back and read some of the more recent research on downsizing and and organizational decline. There is more evidence now, but the basic pattern of the findings haven’t changed that much in the last 20 years or so (although there are some interesting new twists… for example, doing layoffs in organizations that have historically "empowered" employees does more damage to performance than layoffs in more traditional companies because it undermines the "psychological contract" that empowered employees thought they had with the company).
In these three posts, I talk about this body of research evidence,including the general findings that layoffs are often associated with further decline and often don’t lead to the cost savings initially imagined. In my my view, however, the most important of these posts is the second: It is based on a huge body of psychological research about the conditions under which a source of stress will do more or less damage to people — and what can be done to reduce the harm done to people and profits during downsizing as a result. We review this research in The Knowing-Doing Gap as well, and apply it to downsizing decisions, but I think it is worth "reprinting" what I wrote a Harvard Business Online here, as I believe this set of principles are crucial to an leader who implementing any change that employees will find disconcerting. The four key principles are prediction, understanding, control, and compassion; to quote my Harvard Business Online Post
1. Prediction: Give people as much information as you can about what will happen — to them as individuals, to their workgroups, and to the organization as a whole — and when it will happen. This makes the layoff real for people and helps them prepare for the future.
2. Understanding: Explain why you believe the
change is necessary. Human beings have consistently negative reactions
to unexplained events. This effect is so strong that it is better to
give an explanation that people dislike than no explanation at all —
so long as the explanation is credible.
3. Control: Giving people influence over what will
happen is often impossible, but giving them influence over how it
happens and when it happens is often possible.
4. Compassion: Senior executives should express
human compassion, and when appropriate, sorrow, for the consequences of
their business decisions.
Carol Hymowitz’s article
uses the two rounds of layoffs at Martha Stewart Living Omnimedia to
show how a company can use these four principles to protect employees’
mental and physical health and to sustain loyalty during a difficult
time. I learned a similar lesson a few years back when I did a workshop
with the senior management of Procter & Gamble on our book The Knowing-Doing Gap.
When I mentioned prediction, understanding, control, and compassion,
they explained how these principles reflected what they had learned
about plant closings. John E. Pepper Jr.,
who was then P&G’s chairman, explained that they had learned plant
closings do far less damage, in terms of lost productivity, retention
of employees who are offered jobs elsewhere in the company, and lost
sales in the city where the closing is done, when:
1. They explain how the plant closing will unfold in detail to both
employees and members of the affected community. In particular, they
announce the closing date and specific milestones well in advance.
2. They explain the business case for closing the plant in detail to both employees and the community.
3. They give affected employees choices over how they experience the
closing, in particular giving them options about when and in what ways
they find a job inside the company, along with other options such as
help with finding a new job (or new career) outside the company.
4. They express human concern — both in public and private — to affected employees and community officials.
In other words, P&G executives learned that plant closings go
better when they use prediction, understanding, control, and compassion
as guidelines as they implement distressing — and perhaps unavoidable
— organizational change.
As always, I appreciate your comments. Have you used principles like these to implement tough decisions? Can they help your organization? Have they helped your organization? Or is this just some pretty academic theory that doesn’t really work?
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