Thriving in economic uncertainty

The state of the world’s economy is always unpredictable. Recent spikes in global inflation have only proven this point, pushing numerous organisations to downsize.

Laying off staff is tough, and it happens due to factors that force management to refocus on efficiency. The challenge, however, is to keep these pressures from eclipsing the importance of maintaining healthy, aligned, and efficient teams.

The impact of downsizing#

The repercussions of organisational downsizing are twofold. Firstly, our teams are now smaller, further stretching resources. Secondly, and perhaps more concerning, is the psychosocial impact on the remaining employees. The turbulence created by downsizing often leaves these employees concerned for their future and mourning for colleagues lost.

Research corroborates this concern, demonstrating that people consumed by fear or loss have reduced cognitive function 1 2 3 4 . Employees operating under this cloud of uncertainty cannot perform at their full potential, leading to decreased productivity and innovation. In this climate, maintaining efficiency and meeting project deadlines becomes even more formidable.

Finding a happier path#

Software Engineering teams are immutable, particularly if the team is norming or performing. Adding or removing any member of the team essentially creates a new team, setting the remaining members back in the stages of group development. When you consider that even a 1% downsize can lead to “a 31% increase in post-downsizing voluntary turnover rates” 5 , the returns from re-affirming and motivating those who remain are vast.

Practice Candor#

After layoffs, employees will be working through a range of emotions but, importantly, they will be scared for the future. This is where transparency can be your friend.

When management is honest and forthcoming about the reasons for layoffs, it can help to build trust. Employees will understand the difficult decisions were not made on a whim but out of business necessity. This trust can increase employee comfort in management’s ability to make future decisions effectively.

Downsizing can also be a time of ambiguity for managers. While they want to avoid causing panic, offering staff unfounded securities (e.g. no more layoffs) will backfire if further tightening is required. Showing a little candour and having the fortitude in being authentic will make it more likely that employees will themselves feel comfortable being vulnerable, bringing people together.

Even if you have reason to keep details private, the biggest mistake I’ve seen is leaving an absence of information. People who don’t understand decisions fill the void by telling themselves a story. Allow employees to ask questions and express their concerns. This can help clarify misunderstandings and provide reassurance. It also conveys that the management values their input and feelings, thus reducing the feeling of helplessness.

While discussing layoffs, present a clear plan for the future. This could include plans for organisational restructuring, initiatives for cost-saving, or strategies to regain financial stability. Knowing there’s a plan can alleviate fears about the organisation’s survival, but back it up with regular progress updates. Even if there is no new development, letting employees know that the situation is being actively managed can ease tension and uncertainty.

Support professional development#

In these challenging times, it might seem logical to cut costs where possible, often starting with professional development budgets. This is counterproductive and leads to further deterioration of team morale and productivity. Professional development is not a luxury; it is necessary to rekindle team members’ unity and rebuild trust. The urgency to invest in your team is amplified during difficult times.

While it can be challenging to obtain a budget during downsizing, the cost of these services is negligible compared to the high price of underperforming, especially given the considerable expenses of hiring software engineers. This investment can be the difference between surviving and thriving during an economic downturn.

Some people are surprised to hear that I’ve enrolled in a workshop on leading engineering teams with Blackmill Consulting. While I have many years of experience managing teams, leadership needs to adapt to the conditions of the moment. The practices that supported me in previous years will differ from those needed for the current macroeconomic conditions. While the COVID-19 pandemic required a refocus on culture, the psychosocial specifics of downsizing are quite different from those of a health crisis. From a return on investment standpoint, this workshop costs less than 1% of my employment cost, yet the upsides to energising struggling teams are many times greater. Employee commitment drops over 13% after layoffs 6 , which offers many opportunities for return on that 1% cost.

After layoffs, it is natural for staff to be concerned with career progression.

Culture Amp’s research team has found that a lack of career growth was cited as a self-identified reason for leaving the company for one out of three employees. Employees were also found to be 46% points more engaged when they could develop skills that were relevant to their interests.

You may be unable to offer monetary promotions, but this doesn’t mean career development needs to halt. Software engineers spend years — decades even — attempting to master their craft. Most of us thrive on continual growth and the thirst for knowledge. As a manager, it can be hard to focus on development plans when workloads are increasing due to staff reduction, but neglecting the growth of your people is a false economy. A 2013 study found that, for someone on a $50,000 salary, the average increase in output for employees with a goal-setting intervention is $9,200, or over 18% of the base salary. Given that the primary role of a manager is to unblock and motivate their team, these numbers are hard to ignore.

It’s all about culture#

Supporting both of the above recommendations is culture. It’s implicit in honest communication and staff development. However, I’ve given culture its own section because culture should be your North Star. Given the differences between organisations, it’s vital to build a strategy that meets the needs of your circumstances. The common denominator, however, will be psychosocial hazards leading to reduced engagement.

Employees who don’t feel they can trust an organisation become de-motivated and more likely to quit. Paradoxically, downsizing is when you need your staff most. Those who remain will have more significant pressure placed upon them, and their experience and domain knowledge will allow you to sail through the storm.

Ultimately, it’s not about doing more with less but about doing better with what we have. Investing in our teams — in their development, alignment, and efficiency — can lead to increased productivity, better results, and a happier work environment, even in the face of economic challenges.

Great organisations galvanise through crisis.