When organizations cut costs, decision makers often assume that the parts of the organizations that remain after the cuts can continue to produce at pre-reduction levels. They rarely do. For example, downsizing the Purchasing function can have ripple effects throughout the organization. And canceling one project can actually affect other projects even if they don't depend on the canceled project.
Fundamentally, organizations are systems. Moreover, they don't "factorize" easily — their parts are interconnected in ways that are outside our awareness. These interconnections sometimes propagate the effects of cost cutting. We tend not to notice these channels, in part, because they don't correspond to connections in the org chart or line items in the Chart of Accounts.
Unexpected propagation happens because the effects of cost cutting tend to travel not only along formal lines, but also along personal lines — that is, the relationships between people, and the perceptions and emotions of everyone in the organization, including the people who we believe ought to be "unaffected" by the changes.
Here are some examples of how the effects of cost cutting propagate. If your job entails estimating how much time or effort tasks require, and if your organization is in the midst of reductions, you'll do a little better if you take these effects into account.
- Personal network disruption
- Waves of reductions in force tend to disrupt the networks people use to find out how to do things — how to prepare requisitions, which procedures to follow, or where to find the answers to burning questions. Relocations and site consolidations have similar effects.
- Change-driven chaos
- The effects of cost cutting
tend to propagate along
personal lines — perceptions,
emotions and the relationships
- The entire organization can descend into change-driven chaos. People become distracted and performance degrades, especially when procedures and job responsibilities change rapidly. Many begin working for new supervisors, with whom they must establish new relationships. Some find themselves working for supervisors with whom they might have unpleasant history.
- Termination-induced grief
- When groups of friends are separated because some have been terminated, the survivors enter a period of grieving, sometimes called "survivor's guilt." Their productivity can degrade significantly.
- Voluntary turnover
- When things get sour, people begin to fear they will be targeted next. Those with alternatives elsewhere (usually the most talented) start job searches preemptively. Vesting schedules for stock options, profit sharing, and pension plans lose their ability to hold people, because of skepticism about the value of the underlying benefit.
- The what's-the-point effect
- People who notice ways to reduce costs, and people who would otherwise either contribute innovations or prevent catastrophes, start to ask, "What's the point?" They begin to feel that they won't be rewarded for their trouble, or that they might be terminated before being rewarded with the next merit pay increases, which have often been suspended anyway.
If you're weighing a decision to cut costs, estimating the full impact of these effects might improve the quality of your decision. And remember that personal network disruption, chaos, survivor's guilt, and the rest, might affect you, too. When that happens, it can degrade your ability to notice these effects. Is it already happening? Top Next Issue
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More articles on Organizational Change:
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- Understanding Power, Authority, and Influence depends on familiarity with the kinds of authority found
in organizations. Here's Part II of a little catalog of authority, emphasizing informal authority.
- When Change Is Hard: I
- Sometimes changing organizations goes smoothly. More often, it doesn't. Whatever methodology we use
— and there are many methodologies available — difficulties can arise. When change is hard,
what's happening? What makes change hard?
- Patching Up the Cracks
- When things repeatedly "fall through the cracks," we're not doing the best we can. How can
we deal with the problem of repeatedly failing to do what we need to do? How can we patch up the cracks?
- Changing Blaming Cultures
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difficulties. Here are three reasons why.
- Way Over Their Heads
- For organizations in crisis, some but not all their people understand the situation. Toxic conflict
can erupt between those who grasp the problem's severity and those who don't. Trying to resolve the
conflict by educating one's opponents rarely works. There are alternatives.
Forthcoming issues of Point Lookout
- Coming November 30: Avoiding Speed Bumps: II
- Many of the difficulties we encounter when working together don't create long-term harm, but they do cause delays, confusion, and frustration. Here's Part II of a little catalog of tactics for avoiding speed bumps. Available here and by RSS on November 30.
- And on December 7: Reaching Agreements in Technological Contexts
- Reaching consensus in technological contexts presents special challenges. Problems can arise from interactions between the technological elements of the issue at hand, and the social dynamics of the group addressing that issue. Here are three examples. Available here and by RSS on December 7.
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