Handle with Care: Ensuring That Downsizing Decisions are Made for the Right Reasons (IO Psychology)

Topic(s): decision making, evidence based management
Publication: Journal of Managerial Psychology
Article: The Role of Social Cognitions in Downsizing Decisions
Authors: Dale J. Dwyer & Morgan Arbelo
Reviewed by: Thaddeus Rada

Among the many personnel-related processes that organizations engage in, downsizing is undoubtedly one of the most dreaded by everyone involved. The employees themselves who lose their jobs often face financial hardships, while the employees who remain employed by the organization may face an increased workload and pressure from management during the transition. Although it is clear that downsizing is an important process that can have major impacts on many people, research in I-O psychology has generally neglected to study the way in which downsizing decisions are actually made (i.e. how it is determined which employees will stay and which will be let go). However, a new study by Dale Dwyer and Morgan Arbelo has begun to shed some light on this area.

Using a mixed sample of both MBA students and human resource professionals, the authors instructed participants to read 25 hypothetical employee profiles, and then asked each participant to choose the 5 employees that they would select to lay off. Participants were also asked why they would choose to lay off the employees they selected. The authors were interested in the criteria that participants would use to make their downsizing decisions; would they choose employees based on objective, job-relevant criteria, such as performance ratings and absenteeism records, or would they base their choices on personal characteristics, such as the gender or race of the employee?

In general, the authors found that demographic characteristics were quite influential in making downsizing decisions. Specifically, older and minority employees were more likely to be laid off than younger or non-minority employees; in addition, participant demographic characteristics (e.g. age, sex, and race of the research participant) had an influence on downsizing decisions. Unfortunately, downsizing decisions did not appear to be impacted by performance ratings at all; lower-performing employees were no more likely to be laid off than high-performing employees.

In all, the findings of this study suggest that there may be substantial opportunities for I-O practitioners to influence the way in which downsizing decisions are made. Specifically, practitioners might emphasize that individuals in organizations who are making downsizing decisions should focus on job-relevant criteria, to avoid both poor downsizing decisions and possible legal challenges.