The Impact of Layoffs: 4 Ways to Ensure Psychological Safety and Good Team Performance

It seems that the recent wave of layoffs at tech companies has not yet reached its end. Google, Amazon, and many tech startups have announced layoffs, brought on by continued post-pandemic economic uncertainty and the rise of artificial intelligence.

Employees are becoming more aware of their employers embracing new technologies to streamline operations and cut costs, which contributes to general unease and a morale drop in the workplace – something that had already significantly deepened during the pandemic.

Numerous studies show that this can have a brutal impact on a business’s bottom line. A 2002 study by researchers at Stockholm University and the University of Canterbury found that the survivors of a layoff experienced a 20% decline in job performance.

Researchers at Harvard Business School conducted a study on a Fortune 500 tech firm, revealing that after cutting its staff by 15%, the company observed a 24% reduction in the number of new inventions it produced.

The World Health Organization (WHO) confirms that layoffs contribute to increased stress levels and a rise in mental health issues among employees, accelerating rates of burnout.

So, what really lies at the core of these negative consequences? Broken trust.

Trust is what drives teams and organisations, and moves them towards success. It brings individuals together and shapes team dynamics to create an environment where ideas and innovation can flourish.

89% of respondents rated ‘Job loss’ as their top concern in Edelman’s 2022 Trust Barometer.

So, what do you need to keep in mind when leading a team through layoffs, in order to maintain team dynamics and trust levels?

Being open-minded and acknowledging reality:

Organisations need to look at this process in a holistic way and with an open mind. Avoiding or downplaying big-picture issues like reduced employee trust is a very easy thing to do, especially when we get busy with day-to-day tasks.  But data shows that while 79% of business executives say employee trust is high, only 65% of their own employees say they agree with that statement. Stay grounded and take your team's insights on board.

Focusing on improving resilience and adaptability:

Teams that demonstrate resilience and adaptability can navigate through layoffs more effectively. Facilitated group work with an external psychological safety expert can help to develop a collective ability to adjust to changes and find new ways of working together. In addition, making time for the team to talk about challenges, alongside team-building activities, can help to build a sense of belonging and trust among team members.

Communication, transparency and the new status quo:

Clear and transparent communication is crucial after layoffs. Teams will benefit from open discussions about the reasons behind the layoffs and by sharing how they experience the post-layoff environment. Only then can you work out how to effectively move forward, as a team. When defining new team goals and role distribution – including new responsibilities – after layoffs, make sure you take insights from the team into consideration, to increase your chances of the team’s success and its ability to meet targets.

Team Cohesion and Leadership

Layoffs can either help or hinder team cohesion. Shared challenges could bring the team closer as members support each other, share workloads, and collaborate to maintain productivity. But for that to happen, you need strong leadership that is focused on guidance, empathy and positivity to guarantee a smooth transition and to foster team resilience. In these situations, the support of a psychological safety expert can be incredibly beneficial for leaders.

These four aspects form the basis of psychological safety in a post-layoff environment, and they are crucial for a successful transition. The look and feel of your team can change a lot after layoffs, but through honest conversations, improved resilience, transparent communication and effective leadership, you will turn a potentially difficult situation into a positive one.