3 tips for effective leadership during company downsizing

Written by Alissa Parr, Director, Talent Solutions

What was a theme for many companies in 2023 regardless of size or industry? They have made the difficult decision to cut back their workforce through downsizing. Several organizations have gone through company downsizing amid concerns about economic uncertainty as well as the desire of companies to right size their business following the pandemic. According to research by LHH, 77% of organizations are considering or undertaking layoffs, leaving many employees with the possibility of facing that reality.

Downsizing is an event that leaders hope to never navigate. However, with today’s volatile economy, it’s more likely that a leader will have to manage their employees through company downsizing. It is also well known that downsizing can have a direct impact on employee morale and productivity from the ‘survivors.’

Leadership IQ, a research and leadership training company, recently surveyed 4,172 workers who remained employed following a corporate layoff. They found that 74% of these employees admitted that their productivity declined since the layoff. Additionally, 69% said that the quality of their company’s product or service declined. This puts even more burden on leaders to navigate company downsizing judiciously to avoid these negative impacts.

What is the key to a successful downsizing effort?

Company downsizing calls for leaders to act courageously. Leaders need to have a steady presence, embrace change, and be empathetic through this sensitive event where their employees are feeling a range of nerves and uncertainty. It is not easy being a leader during a company downsizing, but here are three tips to help leaders overcome this setback.

1. Have timely and transparent communication

   As a leader, it is imperative that you share as much information as you are able. Leaders will not have all the information from the beginning of a downsizing. However, your team will appreciate your honesty and openness with whatever you can share. A simple message detailing what you know, what you don’t know, and when you hope to get more information can go a long way.

   Keep them apprised of information as you receive it. In addition to expressing the facts, help them understand the why behind the change. Managing organizational change is difficult, and one of the best tips for getting through change events like company downsizing successfully is communicating the rationale for the change and being as positive about the future as possible. Share with your employees the new objectives and how they are intimately connected to those objectives.

2. Demonstrate empathy and compassion
   All survivors of a downsizing company are going to feel a sense of uncertainty, anxiety, and apprehension. The thought “will I be next?” will be racing through their minds. Leaders who demonstrate emotional intelligence, compassion, and empathy will ease these negative feelings in their team. It is important for leaders to recognize that these negative feelings exist and to allow their team opportunities to share and process their feelings.

   Additionally, allow them the opportunity to ask questions. By creating an environment of psychological safety, employees will feel more comfortable doing this. This will in turn allow them to focus on moving forward. And, just as important, demonstrating this compassion for the team will create a sense of inclusion and belonging. This shared connection will help everyone to work together to achieve the company’s objectives.

3. Turn attention toward the future
   After communicating the company downsizing and helping your team to process the message, it is time to inspire them toward the future vision while acknowledging the current reality of a downsizing business empathetically. Make the connection of how they are part of the vision. This helps them to understand their value and how they are making an impact on the company’s future success.

   The team will continue to have questions and doubts moving forward. Make sure that you prioritize their well-being and have consistent check-ins with them. They may continue to feel a sense of uncertainty, but a leader’s role is to help the team realize how they can demonstrate their worth by working toward and achieving the company’s goals, thereby making them indispensable.

How to lead employees through downsizing

Company downsizing, while sometimes a necessary part of business, can create unintentional negative impacts on the remaining workforce. Leaders are challenged to ease concerns and reinvigorate the survivors in order to boost morale and stay productive. By following the three tips above, leaders will be able to make the best of a difficult situation and hopefully come away with a team that feels a greater sense of belonging and motivation.