Psychological Impacts of Downsizing Trauma

Psychological Impacts of Downsizing Trauma

Jozef Simuth (City University of Seattle, USA)
DOI: 10.4018/978-1-5225-2021-4.ch005
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The chapter summarizes research studies as well as case studies from companies worldwide that show how organizational changes followed by downsizing create a traumatic experience for all organization members. The author's focus is on the psychological perspective on traumatic experience by all employees (victims and survivors) and managers whose task is to organize and implement changes in the organization. Based on the literature review, the chapter describes symptoms and psychological effects of organizational change trauma on individuals and the ways to minimize the traumatic effects. The author believes that outplacement and therapeutic approach are effective tools for overcoming the layoff trauma and also send positive signals to employees and to general public.
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This chapter is based on a thorough summary and critical analysis of relevant available research and non-research literature with the aim of summarizing the valid findings about the traumatic impacts of downsizing on members of organizations. The author used the traditional literature review of Google Scholar, Business Source Complete and Psych Web databases. The main research task was to find relevant research studies describing the traumatic impacts of downsizing on all organization members. Only studies with relevant research and reliable sources were selected for the chapter. The main goal of the selection process was to bring the reader up-to-date with available and reliable literature on the traumatic effects of organizational restructuring resulting in downsizing. This serves as the basis for practical proposals of procedures to minimize the traumatic effects of downsizing. The proposals are intended to be useful for practitioners such as managers, consultants, psychologists.

Trauma in organization is a consequence of a situation which causes traumatic experiences to individuals within the organization. Before the symptoms of organizational trauma and ways to cure or prevent them are discussed, the reasons that lead to such situations need to be revealed. Traumatic events are quite often results of rational business decisions to optimize business efficiency. One of the frequent strategies is a restructuring the company that is accompanied by downsizing. As the definition states: downsizing is a deliberate organizational design which reduces the manpower and is planned to improve organizational performance. It is an approach that influences the workforce size, operational costs and work processes (Appelbaum, Patton, & Shapiro, 2003). Fisher & White (2000) say that like “rightsizing” and “reengineering”, downsizing is a class of management tools for attaining desired change. The decision to downsize a company is among the toughest managerial decisions. It is a legitimate managerial approach to solving critical problems in an organization. Among the main reasons for downsizing are, for example, declining profits, increased pressure from competitors, a merger, the introduction of new technology, the desire to decrease levels of management, and getting rid of unproductive employees.

There are various approaches to this process. Companies follow a structured and planned procedure or they run this process in a haphazard manner, in which layoffs are happening without planning or prior warning. In this case, employees even do not realize what is happening or why. It is obvious that the first-case scenario has much less impact on the members of the organization. However, even in such a process there are negative impacts on the victims – people who are laid off as well as on survivors – people who remain in the company, including employees and managers. Unfortunately, there is no indication that downsizing in organizations, despite its negative effects, is declining.

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