The Analysis: The Upside of Downsizing

Southwest Airlines handled call-center cuts in an economically and procedurally fair manner that other companies should emulate

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Southwest Airlines provides us with a textbook example of effective organizational downsizing. Of course, CEO James Parker and his team had a few things going for them. The company had already established a culture of trust between employees and management. In addition, the downsizing was prompted by a growth in online bookings, meaning it was a technological event outside management's control that spurred the need for layoffs.

Still, Southwest managed the change with notable effectiveness. First, it focused on both the survivors and the victims and was concerned about retaining the motivation and commitment of the people who remained. Second, there was a shared sense of urgency. Parker didn't act until all employees—and not just management—could see that there was a real need for the layoffs. And third, the airline handled the cuts in a way that was both economically and procedurally fair. It offered severance pay and gave employees the choice of moving to a different call center or taking a severance package and leaving the company.

It's important to recognize that what Southwest went through was necessary, in terms of both the downsizing itself and the way it handled the process. Because so much trust had been built among employees at all levels in the organization, management had to proceed in such a way to keep that trust intact.

Learning from Southwest's Approach

Southwest's approach was quite a bit different from the way downsizings are usually handled, which typically involves informing employees they are going to be downsized, escorting them to the door, and shipping their personal belongings to their home address. There's often no notice, no time to process the information, and no choice given to the employees. That approach, which is driven by management and forced upon employees, doesn't involve any form of employee participation.

And unlike the case with Southwest, the reason many organizations have to downsize is strategic missteps or poor executive decision-making. That naturally causes a divide between employees and top management and can create an adversarial relationship.

However, I believe all organizations can learn from the Southwest case. First, even if the downsizing is spurred by something internal, management can build trust with the survivors. Companies can find ways of creating urgency and getting employees on board with the need for change before it becomes absolutely essential. Managers can do that by sharing information about performance and how it must improve to maintain competitiveness. They can make sure severance pay is at least industry-standard and share information about job leads.

Of course, things such as allowing employees to say goodbye to co-workers rather than escorting them out the door can go a long way. Give people advance notice, treat them with dignity and respect, and provide them with a reason for the downsizing.

Batia Wiesenfeld is an associate professor of management at the Stern School of Business at New York University. Her research interests include layoffs, restructurings, and organizational change.