Orchestration of downsizing is a delicate and crucial task for management. Employee reactions to layoff have been found to vary considerably depending on how the employees felt about management conduct. Given the speed with which a downsizing event typically unfolds, management often communicates poorly and not pro-actively, something that has been linked to lowered morale and decreased perceived fairness among the surviving employees (Brockner et al., 1987, 1990). There is a natural tendency, when deciding who to retain and who to let go when a firm downsizes, to mostly look at the knowledge and capabilities that an individual holds (Mishra et al., 1998; Mishra and Spreitzer, 1998). Without connections to others in the firm, however, even if the knowledge someone holds is relevant, it will not be used and developed further. A crucial ingredient of downsizing is for the management to use its understanding of the existing formal and informal networks so it can rewire connections between employees, keeping our suggestions in mind. Given the importance of work , both economically and socially, to most people, managerial care and thought on how downsizing activities affect the formal and informal social networks present in their firm may, in addition to preventing loss of innovative potential to the firm, even be presumed to counter negative employee reactions such as perceived breach of psychological contract between employer and employee (Du Gay, 1996). Without attention to properly retaining some wires and rewiring other social contacts, particularly the ones that nourish innovation, downsizing becomes self-defeating.
More on this: Aalbers, H.L. & W. Dolfsma. Innovation despite Reorganization. Journal of Business Strategy, 35 (3) 18-25.