Downsizing and Organizational Culture
By Joe Gonzalez
Dr. Mario Reda
Table of Contents
Organizational Culture Defined………………………………………………………………2
Connecting the Literature……………………………………………………………………….7
Organizational Level Analysis…………………………………………………………………7
Organizational/ Individual Level Analysis………………………………………………10
Downsizings Impact on Culture……………………………………………………………12
Downsizing And Organizational Culture
A noted scholar recently assessed downsizing as “probably the most pervasive yet understudied phenomenon in the business world” 1. While we have become numbed by the near daily accounts of new layoffs, a New York Times national survey finding is perhaps more telling: since 1980, a family member in one-third of all U.S. households has been laid off 2. By some measures, downsizing has failed abjectly as a tool to achieve the main raison detre, reduced costs. According to a Wyatt Company survey covering the period between 1985 and 1990, 89 percent of organizations which engaged in downsizing reported expense reduction as their primary goal, while only 42 percent actually reduced expenses. Downsizing for the sake of cost reduction alone has been castigated intellectually as short-sighted and neglectful of what resources will be needed to increase the revenue stream of the future 3.
A truer and fuller understanding of the forces shaping and thrusting downsizing forward today comes from an appreciation of increased global competition; changing technologies, which in turn are profoundly impacting the nature of work; increasing availability of a contingent work force 4; and shifting balance of power among organizational constituents away from rank and file employees and in the direction of shareholders and the chief executives who serve as their proxy. When we conceptualize downsizing within these broader frameworks, it becomes clear that we are speaking of downsizing both as a response to and as a catalyst of organizational culture change.
This article will later provide a formal definition of “organizational culture”. For the moment, it is suggested that culture is to an organization what personality is to an individual. As with personality, change takes time and may be hard to discern, especially for persons inside the organization. This article will argue that, ultimately, the most prominent effects of downsizing will be in relation to culture change, not in relation to saved costs or short-term productivity gains. Key drivers of organizational culture will tend to shape an organizations approach to downsizing. For whose benefit does the organization exist? What are the basic assumptions among people who work in the organization? What are the basic assumptions the organization and the employee make in relation to each other?
Establishing a direct link between downsizing and organizational culture is not an easy matter, however, as the following example will demonstrate. The Chief Executive Officer of Apple Computer recently bought himself more time with disgruntled shareholders by promising to take forceful action on a number of fronts, including downsizing. The executive cited “five crises: lack of cash; declining quality; a failed operating system development project; Apples chaotic culture; and a fragmented strategy” . How do you connect downsizing, which is one of a number of actions being taken, with corporate culture, which is only one of a number of “crises” being solved in a manner and to a level that establishes a positive relationship?
Another reason that it is difficult to draw a specific link between downsizing and organizational culture is that there are many different variations and approaches to downsizing. A distinction has been made between proactive downsizing, which is planned in advance and usually integrated with a larger set of objectives, and reactive downsizing, which would be typified by cost-cutting as a last resort after a prolonged period of inattention to looming problems by management5. Work force reductions can range from forceful in nature, i.e., involuntary reductions, to the milder approaches, such as resignation incentives and job sharing 6. There are different ways of deciding “who stays, who goes” from the outwardly arbitrary to criterion-based 7. There are different modes of planning, ranging from secretive sessions to open discussions and solicitation of ideas from employees. There are different standards of notice of terminations, including relatively harsh same day terminations as well as more generous 90 day or longer notices. There are even differences in intentionality, i.e., reductions can be planned to present employees with as little a break as possible from what they have known in the past or they can be designed to be deliberately disruptive to the status quo 8.
Organizational Culture Defined
It has been observed with respect to the concept of “power” that its omnipresence makes it difficult to usefully apply in specific situations 9. The same may be said of “culture”. If it is everywhere, and pervades every aspect of our existence, then how can it be subject to analysis. Schein (1992) offers at least a partial solution. He divides organizational culture into three levels: 1) at the surface are “artifacts”, those aspects (such as dress) which can be easily discerned, yet are hard to understand; 2) beneath artifacts are “espoused values” which are conscious strategies, goals and philosophies; 3) the core, or essence, of culture is represented by the basic underlying assumptions and values, which are difficult to discern because they exist at a largely unconscious level, yet provide the key to understanding why things happen the way they do. These basic assumptions form around deeper dimensions of human existence such as the nature of humans; human relationships and activity; reality; and truth.
Schein (1992) himself acknowledges that, even with rigorous study, we can only make statements about elements of culture, not culture in its entirety. The approach which Schein recommends for inquiring about culture is an iterative, clinical approach, similar to a therapeutic relationship between a psychologist and a patient. Scheins disciplined approach to culture stands in contrast to the almost flippant way in which culture is referred to in some of the popular management literature.
Like culture, “downsizing” is problematic in its usefulness. Because it is popularly associated with giving people the “axe” in organizations, it is not a term that many management consultants go out of their way to use. On the other side of the spectrum, there are researchers who are concerned that downsizing has become too closely associated with the process of organizational decline and its naturally negative effects. Cameron, for example, defines downsizing as a positive and purposive strategy: “a set of organizational activities undertaken on the part of management of an organization and designed to improve organizational efficiency, productivity, and/or competitiveness” 10. Downsizing thus defined falls into the category of management tools for achieving desired change, much like “rightsizing” and “reengineering”.
Clearly, the Cameron definition is overly expansive. Downsizing may and very likely will impact or impinge on systemic change efforts such as the introduction of “total quality management,” “reengineering,” or “reinventing” initiatives. They are not one and the same, however, as the Cameron definition would imply. This is significant, because Camerons connection of downsizing with a larger, purposive strategy allows him to conclude unabashedly that downsizing is a good and positive thing and that organizations should seek to do it on a regular and continuing basis . This cheery conclusion flies in the face of Camerons own four year study of thirty firms in the automotive industry, data from which revealed that “very few of the organizations in the study implemented downsizing in a way that improved their effectiveness. Most deteriorated in terms of pre-downsizing levels of quality, productivity, effectiveness, and the dirty dozen, e.g., conflict, low morale, loss of trust, rigidity, scapegoating)” 11. Downsizing is defined in this effort simply as a reduction in the size of the work force. This definition provides some analytical clarity, because it does not imply a value, either positive or negative, and encompasses a wide range of possible approaches. Thus defined, downsizing does not necessarily imply a reduction in the assets of the organization; for example, an organization may contract out a function that was previously done by permanent employees. The elimination of the jobs of the employees constitutes downsizing.
Changing an organization is messy, complicated business. A study by Kotter and Heskett (1992) indicated that culture change becomes tougher as organizations become more established and successful. The very bases for a companys earlier success can be hindrances to needed changes under new and different scenarios from those which existed previously.
Prevailing models provide uncertain guideposts. For example, it is standard fare within the leadership literature12 to depict the need for a “vision” of a desired future state of the enterprise. What if elements of a vision clash with each other? What if a leader, for example, decides to embrace a total quality management culture built upon trust among all parties and, at the same time, embarks upon a series of layoffs which are likely to engender distrust among those same parties? The conventional wisdom in response is to acknowledge that there will be sadness and losses and a murky period which goes under the heading of “the neutral zone”; but, in the end, there will be “new beginnings”13. How long does the neutral zone last? Existing research provides no solid answers. How long will a leader with a vision wait for the culture to change in positive ways? Research supports the idea that culture change is a multi-year effort 14.
If we broaden our conceptualization of culture change to include both intended consequences (planned change) and unintended consequences (unplanned change), then it is at least possible to be confident that downsizing is a catalyst for culture change. Organizational theorists from Lewin (1951) forward, including Argyris (1992) have insisted upon the need for a destabilizing element in any change process. The existing status quo is conceptualized as a dynamic in which forces resisting change and forces pushing for change have found a balance. In order to shift the balance (in the favor of change), the situation needs to be “unfrozen”. In other words, people have to be rocked out of their comfortable existence, so they will be alerted to the need for change.
Downsizing qualifies as a destabilizer of status quo ante even under circumstances where departures are voluntary. Hickok (1995), for example, documented symptoms of survivor illness at an Air force installation that had, up to the point of the research, experienced only voluntary departures. The literature is replete with examples of burnout, depression, anger, and betrayal as common responses by survivors of layoffs. Not all responses are negative: there are reports of people getting “charged up”, finding new excitement in their work, being challenged by the prospect of “doing more with less” or saving the organization15 found that “implementers” of layoffs (i.e, those “pulling the strings”) had more positive reactions than did “implementees” (i.e., those who were having the layoffs “done to them”).
In any event, it should be acknowledged that downsizing has altered the rule of the employment “game”. The way these changes have tended to be theoretically euphemized is by indicating that the “psychological contract” between employers and employees has been violated16. No longer can the employer offer job security. The “new” psychological contract being marketed is conditional employment, with the availability of training and development opportunities to help keep employees “employable”, even if not at this particular company17.
From a broader cultural perspective, downsizing can be seen as the embodiment of the “creative destruction” inherent in capitalism. As Schumpeter (1950) wrote about capitalism, downsizing may not be pretty to watch and people will get hurt for sure, but this is the way the market takes care of itself. There is no entitlement to a job any more than there is entitlement for a corporation to exist. People, as well as organizations, need to gear up to compete in the marketplace. Bridges (1994) and others warn anyone within hearing distance that only the foolish will let their fates be decided by those they work for; the wise ones will think and act like entrepreneurs even if they fall under the label “employees”.
The symbolic aspects of culture change associated with downsizing should not be overlooked. The very act of downsizing creates an appearance of leadership that is taking charge. In the instance of the United States government, for example, Clinton-Gore make the claim that by eliminating 272,900 federal jobs they have reduced the cost of government. The symbolism associated with the change may weigh more heavily in peoples minds than the costs, which may include contracting out at a much higher price for services previously provided in-house.
The political aspects of culture change associated with downsizing are also quite dramatic. Downsizing represents a power shift in the direction of top management and shareholders. One way of conceptualizing the change is via expectancy theory 18. The unsaid message is that management is not afraid to decide who “has a future” with this organization and who does not. The message is “if you want to continue to work here, you will have to work harder, be more responsive, be more of a team player, etc.
There are “Theory X” and/or “Theory Y” dynamics19 at work with downsizing as well, depending upon the circumstances. The underlying theme of Theory X thinking is that workers can not be trusted to put forth effort on their own. They need to be externally motivated by the threat of punishment in order to put out their best efforts. Of all the downsizing practices, the one most closely associated with Theory X is the practice of giving people no termination notice. In spite of what would seem the obvious inhumanity of walking people who have worked for an organization for twenty or more years straight to the door, this remains a common corporate downsizing practice. The assumption which would seem to underlie the practice is that people will use notice time to undermine the organization or at least to be unproductive.
From a Theory Y perspective, downsizing may be seen as a way to free up workers to do the good work they care to do. The analysis which precedes downsizing is designed with the intent of reducing unnecessary or low value work, minimizing bureaucratic controls, and eliminating unneeded communications layers. Downsizing intent, from a Theory Y perspective, is to enable workers to be challenged by interesting work and to have the opportunity to produce extraordinary results which are aligned with the organizations mission and goals.
Connecting the Literature
It has been commented that the literature on downsizing is disjointed and uneven 20. Cameron (1994:183) identifies, in particular, a lack of empirical data at the organizational level of analysis. Hickok (1995) has identified important insights to be gained both from literature at the organizational level (i.e., focused on strategy, policy, or decision-making) and at the organizational/individual interface level (i.e., concerned with impact of individual and group-level thoughts, feelings, and behaviors on organizational functioning).
Organizational Level Analysis
The primary thrust of organizational level analysis is to emphasize the need to plan, analyze and implement downsizing carefully and within the framework of organizational purpose 21. Downsizing is framed within the context of improving and streamlining work processes, as exemplified by total quality management and reengineering 22. Key assumptions include a mechanistic notion of organizations, in which the parts are examined to improve fit with the whole. Organizational survival is seen as paramount (e.g., the first order of business is for organizations to thrive and be competitive). Key mental shifts involve development of a “customer first” attitude (stated as part of a total quality management approach) and a realignment of importance among stakeholders, with shareholders coming first (largely unstated).
In one of the key early works on downsizing, Tomasko (1987) identifies corporate cultures based on mistrust as a leading cause of excessive staffing. American corporate culture, he contends, rewards winners, not losers; places control at the top of the agenda; and causes people to believe that it is better to hide mistakes than admit them. In consequence, staff groups (such as planning departments) are formed to serve as watchdogs. Managers respond by attempting to gain control of ever more bloated corporate bureaucracies. Tomaskos solution is a flatter, leaner organization in which a team environment prevails and people trust each other to contribute to common goals.
Cameron et al (1991) conducted the most extensive single study of downsizing to date in terms of number of organizations involved, breadth of investigation, and time span. The authors conducted a four year longitudinal study of 30 organizations in the automotive industry. Their viewpoint was that downsizing is a necessary and affirmative approach to becoming more competitive, and an appropriate response to the disproportionate growth in the white-collar work force over recent decades. The successful companies in their study did not only reduce the work force, but also engaged in organizational redesign and systematic efforts at quality improvement. Successful companies engaged in downsizing as a purposeful and proactive strategy. Interestingly, only a handful of companies in their study were found to have improved organizational performance.
Two studies of change at major U.S. corporations – Xerox 23 and General Electric (GE) 24 deal explicitly with culture change. Tichy and Sherman refer to a revolution at GE; part of that revolution, under Jack Welch, was to eliminate almost 170,000 positions. One of the basic assumptions at GE: “The ultimate test of leadership is enhancing the long-term value of the organization. For leaders of a publicly held corporation, this means long-term shareholder value” (p.367). GE turned against the notion of lifetime employment in favor of a stated goal of providing employees with the best training and development opportunities, but only conditional employment. Xerox also resorted to massive layoffs. Like GE, this downsizing was framed within the larger picture of adopting a total quality management culture. Kearns believed that the number one key to success was shifting focus outward to the customer.
The Kearns and Nadler book and the Tichy and Sherman book lucidly address the process of culture change management, and they explicitly state what many will not: that part of the intentional aspect of downsizing in the midst of culture change is the infliction of pain on at least some to get the attention of all. Tichy and Sherman talk of avoiding the “boiled frog phenomenon” (p.400) in which frogs boil to death while the water slowly changes from cold to boiling. Kearns and Nadler conclude (p.280): “You also have to create dissatisfaction with the status quo. Otherwise, why are people going to work hard to disrupt it? And you can not wait around until everyone feels induced pain from the marketplace, because then its too late. So you need to have induced pain. You need to throw a few punches here and there”.
There are some organizational level analyses which dissent from the litany of praise for downsizing. Handy (1990) argues that an organization does not exist only for profits; that is, profits should be viewed as a means to other desired ends rather than as the sole end. His view is that shareholders have taken over too much of the power. They should, instead, be only one element of a hexagonal ring of stakeholders – which also includes employees, the environment, community, and suppliers. Petruno (1996) reflects the concern that institutional shareholder activists have gotten too greedy and imposed too large a price on the thousands upon thousands of employees who have lost their jobs; performance increases may be at the expense of hollowed out companies. Hamel and Prahalad (1994) do not question the legitimacy of downsizing, but argue that time spent on determining core competencies and relating those competencies to the external marketplace is time much better spent than restructuring and reengineering; the latter may shore up your current position, but does little to prepare you to compete in the future.
Downs (1995) offers an even harsher critique. Downs decries the prevalence and public acceptance of a “culture of narcissism”, in which corporations have only one objective, profit. He contrasts the view of Hewlett-Packards David Packard that the secret to successful management was to keep in balance the triangular interests of shareholders, management, and employees. Part of this narcissism is reflected in the increase of senior executive salaries by 1,000 percent between 1980 and 1995, the same period of time in which record layoffs were amassed. In a Newsweek cover story, Sloan (1996: 44) argues that “Firing people has gotten to be trendy in corporate America, in the same way that building new plants and being considered a good corporate citizen gave you bragging rights 25 years ago. Now you fire workers especially white-collar workers to make your corporate bones”.
Organizational/ Individual Level Analysis
The analysis at the organizational/individual interface is primarily focused on documenting and ameliorating the effects of downsizing on those who remain within the organization. A stream of research, both laboratory and field, has provided documentation of the harmful effects downsizing can have on “survivors”; these effects have been described in terms of lower morale 25, high stress 26, and a “syndrome” marked by anger, envy, and guilt 27. The perceived fairness of the downsizing is considered a key mediating variable28 as is the effectiveness of the communication of information29.
Key underlying assumptions include: 1) the pre-eminence of the organization over the individual, accompanied by a strong argument that the organization cannot reach its full potential without maximizing the effective use of human resources; 2) reliance upon the Lewins three step approach of unfreezing, moving to a new level, and freezing at a new level; as illustrated by the Xerox and GE cases described above, Lewin argued that to “break open the shell of complacency, it is sometimes necessary to bring about a deliberate emotional stir-up” 30; 3) reliance upon psychological transition models, especially as put forward by Bridges (1991); Bridges theorizes three overlapping phases of transition – the ending of what was, a messy “neutral zone”, or limbo, and a new beginning; 4) the end of the old implicit “psychological contract” assuring lifetime job security as long as the employee “keeps his or her nose clean” and does an adequate job and formulation of a new contract in which employees are more autonomous and self-reliant31.
Brockner and colleagues have studied the “fairness” of layoffs from a procedural justice perspective and have shown a link between perceived fairness of the layoffs and survivor commitment to the organization32. Among the fairness factors which Brockner examines is the connection with existing corporate culture. Organizations such as IBM and Digital Equipment which have traditionally had a policy of averting layoffs are likely to be perceived by employees as violating the psychological contract and therefore as more unfair when they do resort to layoffs.
Noer (1993) sees letting go of the old employment contract as tough but necessary. His view is that implicit lifetime employment guarantees are unhealthy both for individuals and organizations. They result in a sort of “organizational codependency” in which individuals invest enormous energy in trying to control the system and at the same time have much of their self-worth tied up in trying to live up to the organizations, not their own, values. In a similar vein, Hecksher (1995) concludes that management loyalty to the organization is no longer needed; what is needed is more professionalism, evidenced by creative contributions to the organization. Bridges (1994) goes even further; he sees a secular trend away from the traditional job, with security, job description, etc. Like Noer, he sees greater possibility for individuals to achieve autonomy and satisfaction by taking responsibility for their own futures.
Work relationships can become much more testy during periods of organizational decline. That can take the form of “backstabbing, placing of blame, and overt failure to cooperate”33. Hickok (1995) analyzed interview responses at two downsizing military bases and found that mentions of increased conflict in the workplace were significantly greater than the more positive mentions of pulling together.
Downsizings Impact on Culture
For organizations, particularly the IBMs and Digital Equipments of the world which long resisted layoffs, it is hard to image that the organizations or their cultures have remained anything close to intact. Getting back to the questions posed earlier:
For whose benefit does the organization exist? It seems clear that organizations exist less today for the well-being of rank-and file employees than they once did. With the Dow shattering all records, it seems clear that the shareholders have the upper hand in making critical corporate decisions. They are partnered with CEOs who received an average pay raise in 1995 of 23% 34. Just look at who is prospering and who is not.
What are the basic assumptions among people about working relationships in the organization? The basic assumptions about working relationships have changed, in ways that can not yet be well assessed. It appears, at least, that relationships tend to be less “familial” and more competitive than in the past. What is the worth of what have traditionally been termed commitment and loyalty? We just do not know? What is the impact of the feeling that the organization is a community – even a family – with relatively stable long-term working relationships? And how will that play out in terms of cooperation given to others as opposed to “backstabbing” in the intense competition for scarce resources? We can only be sure that things have changed, not how.
What are the basic assumptions the organization and the employee make in relation to each other? The basic assumptions by employees and organizations about their employment relationship have changed from long-term and stable, with organizations expected to make accommodations to avoid laying people off to more short-term and contingent. Researchers such as Bridges and Noer forecast a more happy future for those who adapt to the changing times in the new scenario, but that is a difficult forecast to test.
Organizations usually have some degree of flexibility about how they reduce personnel expenses. Decisions to inflict pain upon employees as part of the process may very well reflect an effort to “bust” the existing culture. Decisions to minimize pain may reflect an effort to reinforce the existing culture. Table 1 sorts several downsizing practices by whether they tend to reinforce (or leave alone) existing culture or to intentionally destabilize the culture. For these purposes, methods which are less disruptive and/or give members more of a sense of control are labeled as reinforcing and those practices which are particularly likely to induce pain among members of the work force (particularly those who are asked to leave) are labeled as destabilizing:
It is difficult to write with authority about the relationship of downsizing to organizational culture, in part because these are both subject areas in need of clarification and empirical research. It is intuitively evident, even definitional, that a leaders cultural mind set will have a great deal to do with whether and how downsizing is implemented in an organization. It also seems, beyond question, that downsizing acts as an organizational destabilizer and thus as a catalyst for culture change. Whether resultant cultural change is beneficial to the organization as a whole is open to speculation. Because downsizing is a relatively recent phenomenon at the white-collar level, time will have to differentiate between short-term effects and reactions and the longer-term consequences. Perhaps less bloated bureaucracies will free people to get more work done and to interact more positively. Perhaps a whole generation of management thinkers overstated the value of loyalty and commitment that accrues over a long and stable employment tenure. That, again, will be for time to judge.
This article has noted three observations in relation to the impact of downsizing on organizational culture. First, it clearly appears that power has shifted away from rank-and-file employees in the direction of top management/ownership. Accompanying this change is a shift in emphasis away from the well-being of individuals in the direction of the pre-eminence and predominance of the organization as a whole. Second, it appears working relationships have changed away from being “familial” in the direction of being more competitive. Third, the employer-employee relationship has moved away from long-term and stable in the direction of short-term and contingent.
It was argued in this article that decisions associated with a downsizing action may tend either to be culturally “reinforcing” (i.e., less disruptive, more individual control) or culturally “destabilizing” (i.e., likely to induce pain). Key downsizing practices were categorized by which of these they were more generally associated.
Finally, the author suggested five simple question areas that organizational leaders who are interested in probing the moral and spiritual dimensions of downsizing might usefully consider. These include ensuring the fundamental decency of the approach being considered, engaging in appropriate dialogue, thinking through the consequences for those who may be adversely affected, having ready explanations for multiple constituencies, and offering a realistic opportunity for a better future for the organization and the organizations stakeholders.
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