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MBAs Guide

The dangers of 'dumbsizing' when downsizing


Downsizing a workforce causes dramatic changes with employees often taking on new tasks both within and outside the company.

When this happens, those left usually have to make extra efforts to compensate for HR cuts. These quantitative problems go hand in hand with qualitative problems linked to downsizing mistakes. Sometimes known as ‘dumbsizing’, these mistakes may result in the loss of key knowledge and personnel. When this occurs, the very process designed to increase efficiency has just the opposite effect.

What this shows is that employee downsizing is far more complex than simply reducing numbers. Organisations are made up of people who bring a competitive advantage. Losing an employee through downsizing carries the risk that the valuable information held in that employee’s memory will be lost if it is not retained elsewhere. So, how to downsize without losing key knowledge?

One important choice is who to lay-off. Some managers implement across-the-board percentage cuts in a bid to appear fair and transparent but often only succeed in producing a short-sighted, badly managed quick-fix solution. What must be taken into account to avoid falling into a dumbsizing trap is the notion of an organisation’s social network.

First, this network must be understood. Gauging knowledge flows between individuals allows executives to look beyond formal organisational charts and become aware of underlying relationships. In this way, managers can identify critical internal and external relationships while also identifying those individuals who form a unique link between otherwise unconnected networks. Keeping these employees on during downsizing prevents a breakdown in networks between organisational units.

Where networks are concerned, managers should also ask themselves how they reward and foster cooperation. This is vital as cooperation stimulates successful knowledge retention through exchange based on dense networks. Limited teamwork, inter-unit competition and a focus on performance outcome create a fertile soil for dumbsizing.

Another facet of most successful downsizing actions is the way key leaders within an organisation are involved from early on. Preserving trusted leaders ensures managerial support throughout the company and fosters emotional stability for employees. At the same time, managers need to identify those whose actions can undermine such a positive spirit as downsizing can help rid a firm of the harmful habits that block the creation of new knowledge.

All these methods should bear fruit, but can risk backfiring. A lack of concerning downsizing will not only trigger low morale and employee involvement, but also impede the knowledge retention needed to boost productivity. Managers should therefore be fair during their lay-off procedures, following and constantly communicating the overall goals.

If, ‘knowledge is power,’ then the firm which can keep its memory intact will steal a lead on its rivals. Companies that retain precious knowledge without sacrificing downsizing flexibility are more likely to face the future with success. Those that only succeed in dumbsizing will find things much tougher.

Achim Schmitt is a faculty member at Audencia Nantes School of Management, and Gilbert Probst is a professor at HEC University of Geneva, and the World Economic Forum