Part One

Companies continue to use downsizing as a strategy even with the potential for negative outcomes based on the belief that with the decrease in employee payroll, an increase in production and performance will take place due to getting leaner. When looked at over the short-term, or over the long-term, downsizing has been shown to be ineffective and has created conflict that extends beyond the internal workplace to impact customer attitudes, and community psychology. Even with extensive data that demonstrates the negative implications of this strategy, organizations continue to implement downsizing as ‘the’ response to lost business.

There are three possible ways that company downsizing impacts customers and potentially sets the stage for increased conflict, they include the transference of emotions, positive or negative to the customer via the employee, described as “emotional contagion.” Secondly, the loss of labor force, and therefore the increased workload assumed by the remaining employees, at any level, technical, manufacturing, or most importantly at the service level, has a direct impact on customer relations due to reduction of quality engagement. Lastly, organizational contagion, and subpar employee performance can combine to create situations that exaggerate the stress and strain caused by downsizing, and transfer this issue onto relationships between company personnel and their customers resulting in worsening relationships or even total disengagement or “customer defection”.

Stressed and strained workers create dysfunctional conflict, defined by Bobot, (2011) as those actions that limit accessibility, create obstacles, and damage relationships. This conflict is actually transferred from and initiated by the employee to the customer due to the employee’s own lack of trust with their own organization due to having survived the reduction in personnel and yet still fearful of what might happen in the future. The customer, sensing the strain of the employee, and potentially receiving poorer service due to the strain, also can lose trust in their relationship, thus each party has lost confidence in the other creating a foundation for emotional reactions, and conflict. Work overload, emotional exhaustion, and interpersonal conflict encountered by employees that have been through downsizing can combine to cause chaos, and conflict with important external stakeholders such as customers, not the sort of outcome that leads to sustainable performance.

Downsizing leaves a negative imprint on the social community and the company is seen by the community as breaking a social contract, an unethical act in the eyes of potential and past customers and employees.  The external community that lives nearby the company, has relatives at the organization, or knows someone that does business with them can then become an area of conflict between the organization and the public.

Regardless of the financial responsibility and possible savings as a result of downsizing, the long-term damage to the reputation of the organization can cost the company more than they saved by reducing labor, and their now tarnished reputation can end up negatively influencing the firm’s ability to attract and retain talent, a significant factor, if the firm is to remain competitive.

Mike Watson

Bobot, L. (2011). Functional and dysfunctional conflicts in retailer-supplier relationships. International Journal of Retail & Distribution Management, 39(1), 25-50. doi:10.1108/09590551111104468

Future Post: Part Two- Managing the Conflict Downsizing Creates

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