Many HR teams will be facing difficult decisions about redundancy in the coming months as inflation hikes the cost of doing business. How can they balance the needs of the organisation with the moral issues of treating employees fairly and with empathy? Gary Ashton and Julie Brophy look at both sides.
The Bank of England recently warned that the UK is “facing its longest recession since records began”.
During a recession, as the economy struggles and companies make fewer sales, organisations often look to optimise costs in order to survive. One way to achieve this is through a reduction in staff – it has an immediate impact as people can represent the highest percentage of a company’s overheads.
However, if not done in a considered way, the cuts may cause long lasting damage. This can raise moral issues with redundancy for HR as they need to address the requirements of both the organisation and the employees, but these needs may be in conflict.
In addition, HR has a requirement to balance two things with respect to any cost optimisation activities – firstly, cuts are done for sustainable value that will ensure the company is well-positioned for the future, and secondly that the people who leave the organisation, as well as those that remain, believe they have been treated fairly.
How can HR inform how an organisation achieves cost efficiencies without impacting engagement?
Avoid knee-jerk reactions
If an organisation feels under financial pressure, there can be a knee-jerk reaction to make sweeping staff reductions.
We’ve seen this recently at Twitter and Meta, with tech giants pushing to “remove the bloat”. However, Elon Musk’s recent firing frenzy at Twitter was such a quick response after his takeover it can’t have left sufficient time to really think through the future needs of the business.
Among those employees who have been let go or resigned, there will inevitably be people whose skills and experience are needed to support the business in the medium and long term.
In today’s knowledge economy, employee know-how is a company’s most valuable asset and not simply a cost to be trimmed.
Whilst there is an argument for moving swiftly and decisively, there are ways in which organisations can still ensure a considered, people-centric approach.
And as holders of the people strategy, it is HR’s moral responsibility to support and facilitate an effective process.
Conduct a review
The pre-redundancy consultation period required by UK law offers most organisations the chance to conduct a focused review of the current organisation. During this period, HR could support leaders to look at:
- Removing duplication – most organisations as they grow organically are likely to develop duplication of effort or activities across functions. By removing this duplication organisations will find FTE savings.
- Centralising activities that are replicated across the organisation if there isn’t a strong business reason for a decentralised approach. Examples might include business line-specific marketing, or local project management, procurement or business insight teams.
- Conducting process improvement reviews to identify and remove non-value adding activities and make tasks more streamlined which will reduce the resource requirement.
- Removing non-value-adding management layers, often by increasing spans of control. When done carefully, this can flatten an organisation’s hierarchy and make decision-making more effective.
Ensure the process is fair
When an organisation decides to reduce the number of staff, there are two key employee populations to consider: those who will be leaving the business and those that are staying – the ‘survivors’.
HR has a critical role to play in ensuring the organisation carries out any staff reduction in a way that leads to those exiting becoming positive alumni and supports those staying with the organisation.
These two groups are equally important. Organisational change author Dexter Dunphy suggests that both the leavers and the survivors suffer psychological consequences – they are all victims of downsizing.
This is where the moral dilemma for HR lies. As employees they are answerable to the organisation and deliver the cost-savings achieved through a reduction in staff numbers as quickly as possible. But at the same time they need to ensure a fair, comprehensive, supportive process which may take a little more time and resources than the business would like.
The first thing HR can do is look at the business strategy and identify the key skills and capabilities that will be required to not only survive the current financial issues but also position it for future growth. This should then be communicated to leaders as a support tool in their decision making around the roles that will be lost.
In any redundancy process, fairness has a huge impact on those that are directly affected. If done fairly, studies such as those by Levine and Koonce show that employees leaving the organisation will continue to support and trust the organisation.
In any redundancy process, fairness has a huge impact on those that are directly affected.
This creates a powerful alumni group who will be more positive on social media and platforms such as Glassdoor. Fairness covers a number of things including equality and clear communication/information about the process.
This fairness should also be seen by employees who are remaining, as redundancy is often seen as a break in the psychological contract. Studies show that it is not the downsizing per se that causes the issue, but the way it is done.
The psychological contract needs to be rebuilt with the employees who remain suffering from “survivor’s guilt”. Again, communication is a vital tool especially regarding their role in the new structure, their value to the organisation, extra work demands and what opportunities may be available in future.
It’s clear that employers face major economic pressures and so cost optimisation is one lever they can use to ensure their short-term survival.
But by designing, supporting and advising on a downsizing approach that focuses on both the sustainable value and a fair process, HR will play a pivotal role in realising the required savings whilst at the same time helping position the organisation well for the long-term future.