Many organisations like to claim that “people are their greatest asset”. However, perhaps the ultimate test of this mantra is when tough times hit, and organisations start to seek ways to cut costs. Usually this includes labour costs and ways to trim the wage bill.
Employment downsizing – defined as permanent workforce reductions to cut costs – is a common response to periods of economic turbulence, as demonstrated by the layoffs following the emergence of the 2008 global financial crisis, and the 2020 public health crisis, though UK government’s Coronavirus Job Retention Scheme intervention undoubtedly helped to save jobs during the recent pandemic.
The negative consequences of downsizing for all involved are well known. Numerous research studies confirm that, as well as having a negative impact on those who lose their jobs, downsizing is harmful for the ‘survivors’, and also takes a toll on managers charged with its implementation. Research also confirms organisations that are quick to downsize in times of trouble also fare worse in the long-term than their competitors who delay job cuts.
With continued political turmoil and economic uncertainty around the world, the UK slipping into recession in the last quarter of 2023, and major employers announcing job cuts – including John Lewis, EY, Barclays, Abrdn, Nationwide, Sainsbury’s and Morrisons – it’s worth revisiting the alternatives to downsizing in challenging times.
These include measures to cut costs, including freezing or cutting pay, reducing working time, freezing recruitment and promotion, unpaid leave, and removing agency and contract staff. Other measures might be more concerned with keeping workers busy during a time of reduced demand including redistributing work, reallocating workers, insourcing, or loaning workers. Spare time might also be allocated to training and development activity or business improvement projects.
Some of these adjustments, especially those aimed at saving payroll costs, could be viewed as complementary measures which can be deployed in parallel with workforce reductions to maximise short-term cost savings. However, they can also be seen as part of a series of responses, with compulsory redundancies a last resort, to be implemented only when all other measures have been exhausted. In other words, while a downturn means some difficult decisions might have to be made, organisations usually have a choice regarding exactly how to respond.
Much depends on the context and situation. Does the downturn present an immediate and significant threat to organisational survival such that the cost savings associated with mass layoffs are deemed to be worth the damage normally associated with such traumatic measures? Is the organisation encountering terminal decline meaning permanent headcount reductions are considered both necessary and appropriate? Or are the challenges viewed as temporary, therefore presenting the need for a longer-term strategy which ensures the organisation is well-positioned for subsequent economic and market recovery? This might be especially important in knowledge intensive or high skill settings or tight labour markets, but equally relevant in any organisation which claims its ‘people are its most important assets’.
In such situations alternative HR measures might be preferred to mitigate compulsory redundancies. This approach, which takes a longer-term view and seeks to minimise the negative consequences of downsizing, is often referred to as ‘responsible restructuring’. This does not necessarily mean that job security is guaranteed, but rather an emphasis upon avoiding ‘knee-jerk’ redundancies, minimising mass layoffs, and ensuring that any redundancy processes are fair, and that redundant workers are appropriately supported.
Responsible restructuring approaches are thought to be most common in continental European nations such as Germany, where traditions of social partnership and dialogue encourage labour management cooperation. Yet evidence from the UK suggests that – and contrary to the view that more lightly regulated nations downsize at the first sign of trouble – in times of distress many British firms implement a combination of employment adjustments and are well aware of the importance of communication and employee engagement in uncertain times.
With the current economic outlook continuing to be challenging, organisational decision makers and HR leaders are urged to consider – and crucially to work together with employee representatives to devise – creative and innovative HR strategies and consider alternatives to downsizing in times of crisis.
This article draws upon recent research published in the Human Resource Management Journal. Johnstone, S. (2024) Human resource management in recession: Restructuring and alternatives to downsizing in times of crisis. Human Resource Management Journal, 34(1) (Open Access).
Dr Stewart Johnstone is Reader in Human Resource Management and Employment Relations in the Department of Work, Employment and Organisation at the University of Strathclyde, Glasgow. His research expertise includes employee voice and participation, and employment restructuring. He is currently leading a UKRI study on employee voice as part of the ESRC Transforming Working Lives research programme. He can be contacted at [email protected]