How Organization Can Downsize The Right Way

In weaker economic conditions, downsizing becomes an increased reality for many organizations. Typically aimed at decreasing operational costs, downsizing often has the unintended consequence of also lowering employee productivity and morale.

To harness costs and increase efficiency, an increasing number of organizations are adopting high -performance work systems (HPWS). These are typically defined by several interconnected human resource practices aimed at increasing employee commitment, skills, and productivity. Examples include selective hiring, information sharing, job design, employee participation, and HR planning. HPWS center on encouraging and motivating employees to use their enhanced skills and knowledge to increase individual productivity and thus aid in the accomplishment of organizational goals.


HPWS are often a significantly large resource and cost expense for organizations, leading researchers to investigate HPWS in the context of downsizing. Researchers (Iverson & Zatzick, 2011) report that organizations with HPWS have lower levels of productivity following downsizing, but this relationship is more pronounced for those that give little consideration to employee morale and wellbeing during the process. However, when HPWS organizations demonstrate high levels of consideration for employees’ morale and welfare during downsizing, the same decrease didn’t exist. Thus in times of dwindling budgets and workforces, the cost of failing to show consideration for employees during downsizing is financially noteworthy.


When HPWS organizations consider downsizing, they might want to invest in increased communication, candid communication by management, fair treatment during layoffs, counseling for remaining employees, and enhanced employee involvement. This type of employee-friendly downsizing policy could buffer some of the negative impact that often occur during this tumultuous phase.


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. Human Resource Management, 50(1), 29-44