Retaining employees – A success factor in the restructuring process

At the height of the pandemic, a whole wave of restructuring was expected to happen in Germany that failed to materialise at the time. One reason for this may have been the temporary suspension of the mandatory declaration of insolvency and the fact that many companies received government subsidies. But it was also due to companies being able to draw on their successes from before the coronavirus outbreak, or business models that were more resilient than expected, thus dispensing with the need for radical restructuring processes.

In the wake of the pandemic, companies are now struggling with many crises at once: the ongoing war in Ukraine, the energy crisis, the geopolitical tension between the USA and China and the escalating conflict in the Middle East. In conjunction with inflation and the increase in interest rates, these crises – some of which are mutually reinforcing – present companies and their employees with major challenges.

In many sectors, restructuring is the answer to the current overall economic climate. Recent instances of restructuring at companies such as the Signa Group, ASM Osram, Union Investment and Diebels clearly show that no sector can afford to sit back and relax.

Restructuring as a complex communications task

From a communications perspective, restructuring is always a mammoth task. With a large number of internal and external stakeholders, each with their specific demands and needs, a limiting legal framework, and in many cases, a heightened state of emotion, it is a complex situation with many factors to consider.

To a large extent, the success of a restructuring process depends on the internal stakeholders, meaning the employees and the managers. The objective of any restructuring process is to make the company profitable (again). This may be preventive, to pre-empt the effects of possible negative developments in the future, or it may be in response to a crisis that has already occurred. However, it is particularly when restructuring goes hand in hand with job cuts that the resulting uncertainty among the workforce and the perceived discrepancy between the actual state of the organisation and the state it is aiming for pose a massive threat to its success.

Focus on internal stakeholders

For this reason, the company needs employees who are prepared to support the restructuring measures and keep the business running. And it needs talented people who will implement the optimistic vision of the future once the restructuring is complete. But how can companies meet these needs when leaders and employees “quietly quit” – and in the worst case, even quit entirely? Studies show that a workforce reduction of just 1% leads to a 30% increase in staff leaving of their own volition in the following year. This scenario, which is not uncommon in an employee market, can be devastating; it ultimately causes many companies to fail, even after restructuring has taken place.

Communication helps

When internal communications activities are used during the restructuring process, the emphasis is predominantly on the affected employees – those whose jobs are to be cut. However, it is often underestimated how strongly the restructuring measures also affect employees who are not directly affected. There are many reasons why employees lose their commitment to their employer:

• Insecurity: Employees ask themselves whether this affects them and their own jobs.
• Survivor syndrome: If their co-workers are made redundant, employees develop a guilty conscience and feel that they don’t deserve their jobs either.
• Doubts about the company: Employees start to question the future viability and attractiveness of their employer.

In addition, leaders are often affected by excessive demands: On top of the day-to-day business and project work involved in restructuring, the emotional strain of overseeing redundancies often leads to extreme pressure.

Communications must provide high potential people with answers to the question of why they should stay (motivated) in a company that has already run into difficulties or is about to do so.

Three things have to happen here:

Offer an attractive vision of the future

Given the clearly defined KPIs that convert the principle of “reduce costs – increase performance” into specific measures, communications around restructuring can quickly get technocratic and overly fixated on describing the problem. The more important questions should be “What happens afterwards?”, “What does the ‘afterwards’ have to offer employees?”, and “What are the long-term benefits?” Buzzword bingo should be avoided at all costs, as “flexibility”, “competitiveness” and the like are notoriously clichéd concepts that may arouse suspicion. Instead, specific benefits are what need to be communicated: offshoring may bring international career prospects, reorganisation helps to overcome silos, digitalisation accompanying the restructuring process improves efficiency and makes work easier, and so on.

Penetrate the “paralysis level”

With a credible, specific, and cliché-free vision of the future in place, the company can then start to individually empower leaders at all levels. In this context, “individually” means that this should not, under any circumstances, rely on the autonomous functioning of the organisational cascade. While the first tier of management often keeps their finger on the pulse of the strategic manoeuvre and are able to respond quickly, at the levels below them the situation starts to deteriorate. The result is what has often been called the “paralysis level”, the middle and lower management, who lack sufficient information and consequently slow down change processes or even cause them to fail. In fact, these leaders on the “frontline” are particularly important. They are the employees’ first point of contact for questions, concerns, and fears. They know how the business is going and are familiar with any skeletons in the closet. Communications and empowerment measures should be tailored to this management level. This includes providing them with advance information and preparing them emotionally and conceptually for discussions and questions. It is essential to raise awareness of the risk of a brain drain. If the leaders are visible and accessible, they can also credibly advocate for the future of the company, and address employees’ concerns and requests. This empowerment costs time and money. All the more reason not to wait until the target structure is in place before considering appropriate measures.

Help employees overcome the feeling of powerlessness

Those employees who remain must continue to do their jobs – with smaller teams, and often with reduced resources. Strictly top-down attempts to enforce necessary changes to organisation and processes are seldom successful. Giving employees the opportunity to have an active part in building new processes and structures is much more rewarding. This can help counteract employees’ perceptions of powerlessness in the face of restructuring. In this case, communications must encourage the employees to engage with the questions raised by the process of restructuring. And they must offer them platforms that serve as a forum for discussing these issues. The scope of employee participation must be considered in specific terms – for example, by involving representatives of the workforce during the analysis phase, when the measures are being implemented, or when the target operating model is being designed.

Addressing employees’ fears and needs – so that they can work towards making the restructuring process successful – is an essential task of internal communications around restructuring. Regular internal communications about the progress of the restructuring process, as well as highlighting personal career prospects and opportunities for active involvement and contribution, are crucial to retaining (motivated) talent. Neglecting this aspect will eventually backfire when it seems as if the sacrifices and difficulties of restructuring have long since been overcome.

The article was published in German in Restructuring Business, issue 04_2023.