Introduction and overview of the article topic
A study by Roderick D. Iverson and Christopher D. Zatzick culminated into an article titled, The Effects of Downsizing on Labor Productivity: The Value of Showing Consideration for Employees’ Morale and Welfare in High-Performance Work Systems. This article was published in January-February 2011 online in Wiley Online Library (Wileyonlinelibrary.com). According to Iverson and Zatzick (2011), the aim of their study was to examine whether organizations that showed greater consideration for their employee’s morale and welfare during the downsizing process increased labor productivity. Their study was also aimed at showing that the consideration of the morale and welfare of the employees will be mainly essential for high-performance work systems (HPWS) that depend on human capital for competitive advantage.
Downsizing affects the attitudes and well-being of survivors negatively especially where the employees perceive the process of downsizing to be unfair (Iverson& Zatzick 2011). According to the authors, declines in performance after downsizing may be partly due to related decline in employee morale. While drawing on a past study related to their topic of study, Iverson and Zatzick (2011) observed that expressing consideration for employees’ morale and welfare (i.e., increasing communication, providing counseling for survivors, preserving dignity, and developing marketability of skills) had greater post-downsizing cash margins. It is the intention to extend this finding and the prediction that the benefits of showing consideration for employees will be greater for organizations with more extensive HPWS that form the foundation of the study by Iverson and Zatzick (2011). To test their prediction, they used an original data set that consisted of organization-level data on HPWS and the downsizing process. They also used objective performance data from a secondary source.
How the topic relates to Human Relations
Because downsizing involves reduction of the workforce, anything that touches on the human capital touches on human relations. The process of downsizing is a delicate process that calls for proper human relation strategy that will ensure that survivors do not feel insecure or perceive the process as unfair.
Key points of the article
- The attitudes and well-being of survivors are negatively affected by many downsizing processes. This is particularly true for employees who perceive the downsizing process to be unfair.
- Reduction in the performance of employees after downsizing is partly due to related decrease in employee morale.
- Maintaining workforce commitment during downsizing is mostly vital for organizations that depend on human capital for competitive advantage.
- High-performance work systems (HPWS) in which organizations invest and develop human capital while creating a mutual exchange relationship with employees are likely to benefit the most if the organization treats employees well during downsizing.
- Downsizing can increase exodus of employees and harm the employee-organization relationship. Consequently, it endangers the human capital and discretionary effort necessary to obtain the productivity benefits of HPWS.
- HPWS focus clearly on building a highly -skilled, engaged, and committed workforce that generates greater productivity for the organization.
- HPWS comprise of detached but interconnected HR practices designed to enhance employees’ competencies, commitment, and discretionary effort.
- The ability of HPWS to generate value from human capital requires an exchange relationship that motivates employees to use their enhanced skills and knowledge to achieve organizational goals.
- HPWS align employee goals with the organization’s goals and values, while increasing discretionary effort.
- Employees perceive HPWS as rewards that revert to the organization in the form of enhanced attitudes and behaviors.
- Because downsizing sends a contradictory message to employees about their relative worth to the organization, it can have negative effects on the organization’s ability to maintain a productive workforce.
- Downsizing reduces the organization’s human capital by dismissing employees in which the organization has previously invested. It may also lead to increased voluntary turnover because employees are motivated to withdraw from the negative work environment.
- Assisting the employees to improve marketable skills and abilities can increase the employment security of employees within an organization. Therefore, although a job within the organization may not be guaranteed, employees feel secure because the organization emphasizes developing the skills of surviving employees. This makes the surviving workforce to focus on maintaining work effort rather than worrying about layoffs.
Research Methodologies, Findings, and Conclusions
According to Iverson and Zatzick (2011), the initial sample was generated from Dun & Bradstreet’s (D&B) Canadian Million Dollar Database, which stores information about Canadian businesses. The researchers sent questionnaires (with a postage paid return envelope) to 6,000 organizations randomly selected from the D&B database. The response rate was approximately 10%. They further requested that the survey be completed by the HR manager. Only sixty-three percent of the responding organizations complied with this request and, predictably, these were, for the most part, larger organizations (t =3.94; p <.01).
Consequently, initial sample of 128 downsizing organizations was selected. After eliminating organizations with missing data on the key variables (i.e., productivity), the final analyses consisted of 115 organizations that reported downsizing in the prior two years. Labor productivity was measured as the logarithm of sales per employee. Consideration for employees’ morale and welfare was measured using a six items, 5-point Likert scale (1 = strongly disagree; 5 =strongly agree).
To test their hypotheses, the authors used hierarchical regression analyses. Control variables were entered first, followed by the key independent variables of HPWS and consideration for employees’ morale and welfare. The third step involved entering the interaction between HPWS and consideration for employees. Statistical significance in terms of the change in adjusted R-squared, as well as practical significance (dollar value change in labor productivity) associated with increase in HPWS at high and low levels of consideration for employees was reported. Finally, Cameron and Trivedi’s information matrix test were used to conduct post-estimation tests of key regression assumptions: heteroscedasticity (χ2 (111) = 114.77; p >.10); skewness (χ2 (14) = 20; p >.10); and kurtosis (χ2 (1) = 0.99; p >.10).
Each was non-significant, as was the overall model (χ2 (126) =135.82; p >.10), indicating that the final model did not violate these assumptions. HPWS was significantly and positively correlated with consideration for employees’ morale and welfare (r =.30; p <.05) and with organization size (r =.36; p <.05). In addition, consideration for employees’ morale and welfare was positively associated with the use of voluntary layoffs (r =.27; p <.05) and a restructuring focus (r =.18; p <.05). In the hierarchical regression, after entering the control variables, HPWS was found to have a negative and non-significant relationship with labor productivity (β = −.150; p >.05), while consideration for morale and welfare was positively related to labor productivity (β =.205; p <.05). The adjusted R-squared increased by 2.4% when adding the two variables in the model. HPWS and consideration for employees’ morale and welfare was entered into the model and was found to be positive and significant (β =.221; p <.05). The increase in adjusted R-squared from entering the interaction term was 2.8%.
Iverson and Zatzick (2011) concluded that their study contributed important insights to the HPWS and downsizing literature. Specifically, they observed that organizations showing greater consideration for employees’ morale and welfare were more productive. Moreover, this relationship is critical for organizations with more extensive HPWS. While downsizing has become a common management practice, a better understanding of the consequences for employees (e.g., survivor syndrome) and organizations is warranted. They also concluded that their study findings were a first step in relating the downsizing process to labor productivity.
Lessons learnt from the article
One lesson learnt is that reduction in the performance of employees after downsizing is partly due to related decrease in employee morale. Secondly, maintaining workforce commitment during downsizing is mostly vital for organizations that depend on human capital for competitive advantage. Thirdly, helping employees to develop marketable skills and abilities can increase the employment security of employees within an organization (Iverson & Zatzick 2011).
How learnt information has broadened my understanding in Human relations
The article was an eye opener as it highlighted the need of fair treatment, involvement, and communication during and after layoffs. The way a downsizing process is implemented affects the remaining employees.
One thing learnt that can be used in personal or work place settings
Communication is a powerful tool both at a personal level and even at work. Open communication can be used to explain why certain things need to change. If used well, communication improves trust and also support of the change process from those involved.
Iverson, R. D. & Zatzick, C.D. (2011). The Effects of Downsizing on Labor Productivity: The Value of Showing Consideration for Employees’ Morale and Welfare in High-Performance Work Systems. Web.
Sitlington, H. (2012). Knowledge sharing: implications for downsizing and restructuring outcomes in Australian organizations. Web.
Ngirande, H. & Nel, A. (2012). The psychological impact of downsizing on employee survivors in the manufacturing industry. Web.
Rehman, W. & Naeem, H. (2012). The impact of downsizing on the performance of survived employees: A case study of Pakistan. Web.