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Chapter 10

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Downsizing and Restructuring

Learning Objectives

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After reading this chapter, you should be able to:   Appreciate the importance of defining “downsizing”   Be familiar with the complexity of the downsizing

decision   Recognize the need to address concerns of both the

victims and survivors of downsizing

Learning Objectives

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After reading this chapter, you should be able to:

  Be aware of the ethical issues and consequences of downsizing

  Understand what downsizing strategies are effective in enhancing organizational performance

  Comprehend the concept of the “psychological contract”

  Develop an awareness of the importance of HRM in managing the downsizing process

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The Downsizing Strategy

  Downsizing - strategies to improve an organization’s efficiency by reducing the workforce, redesigning the work, or changing the systems of the organization

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Survivor

  Survivor – an employee remaining with an organization after a downsizing

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Three Types of Downsizing Strategies

Cameron identifies three types of downsizing strategies:

1.  Workforce reduction 2.  Work redesign 3.  Systematic change

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Definitions

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  Workforce reduction - a short-term strategy to cut the number of employees through attrition, early retirement or voluntary severance packages, and layoffs or terminations

  Work redesign - a medium-term strategy in which organizations focus on work processes and assess whether specific functions, products, and/or services should be changed or eliminated

Process Maps

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Definitions

  Systematic change - a long-term strategy that changes the organization’s culture, attitudes, and employees’ values with the goal of reducing costs and enhancing quality

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Why do Organizations Downsize?

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  Declining profits   Business downturn or

increased pressure from competitors

  Merging with another organization, resulting in duplication of efforts

  Introduction of new technology

  The need to reduce operating costs

  The desire to decrease levels of management

  Getting rid of employee “deadwood”

Human Costs of Downsizing

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  As Cascio suggests, most workforce reduction programs fail to meet their objectives:

  “Study after study shows that following a downsizing, surviving employees become narrow-minded, self-absorbed, and risk averse. Morale sinks, productivity drops, and survivors distrust management.”

Ethical Considerations

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  Downsizing may infringe on principles of distributive, procedural and interactional justice

  Communication during a downsizing may be mismanaged

  Managers may use and abuse information as a source of power

  Managers may choose to conceal or distort information regarding the financial status of the business

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Downsizing Alternatives

1.  Cutting nonpersonnel costs

2.  Cutting personnel costs

3.  Providing incentives for voluntary resignation or early retirement

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Downsizing Alternatives (Gandolfi, 2008)

Short-term   Hiring freeze   Mandatory vacation   Reduce workweek   Reduce overtime   Reduce salaries   Facility shutdowns   Employee input for

alternatives to cutbacks

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Downsizing Alternatives (Gandolfi, 2008)

Medium-term   Extending reductions in salaries   Voluntary sabbaticals   Lending employees   Exit incentives

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Inplacement and Outplacement Issues

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  Outplacement - providing a program of counselling and job-search assistance for workers who have been terminated

  Inplacement - reabsorbing excess or inappropriately placed workers into a restructured organization

Planning for Downsizing

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  Determining how many people will lose their jobs

  Who will be let go   How the reduction will be carried out   Determine the legal consequences   Designing current and future work plans   Implementing the decision   Performing follow-up evaluation and assessment

of the downsizing efforts

Adjusting to Job Loss

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  Advance notification of layoffs

  Severance pay and extended benefits

  Education and retraining programs

  Outplacement assistance

  Clear, direct, and empathetic announcement of layoff decisions

  Consideration of HR planning practices that represent alternatives to large-scale layoffs

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Can Losing a Job Be a Good Thing?

There are some benefits of losing a job:

  Time to reflect   Grow new ideas, direction

and career plan   Get out of a job that was

substandard   Spend more time with

family and hobbies

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The “Survivors” of Downsizing

  Job insecurity - feelings of concern about the continuing existence of a job

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Perceptions of Justice

Three types of justice warrant consideration:

1.  Procedural justice 2.  Interactional justice 3.  Distributive justice

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Perceptions of Justice

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  Procedural justice – procedures or rules used to determine which employees will be down-sized

  Interactional justice – the interpersonal treatment employees receive during the implementation of the downsizing decision

  Distributive justice – the fairness of the downsizing decision

Survivor Reactions

  Negative attitudes and behaviours

  Reduced performance capabilities

  Lower organizational productivity

  Emotions: anger, anxiety, cynicism, resentment, retribution, hope

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Financial Performance and Downsizing

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  A downsizing strategy is typically implemented to improve the bottom line

  Evidence suggests that some companies improve profits while others do not

  Investors usually respond negatively to downsizing if it is financially motivated

  Companies that offer incentives for voluntary resignations are viewed more favourably

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Effective Downsizing Strategy

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  Increased communication   Increased employee

participation

  Systematic analysis of tasks and personnel requirements

  Visibility of senior management

  Focus on rightsizing   Establish a sense of ownership   Active role for HR department   Monitor downsizing and link to

organizational strategy

  Train management with downsizing techniques

Best Practices of Downsizing

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1.  Downsizing should be initiated from the top 2.  Workforce reduction must be selective in application

and long-term in emphasis 3.  Special attention should be paid to both those who

lose their jobs and to the survivors who remain in the organization

Best Practices of Downsizing

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4. Decision-makers should identify where inefficiencies and costs exist

5. Should result in the formation of small, semi-autonomous organizations within the broader organization

6. Must be a proactive strategy focused on increasing performance

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HRM Issues

  Managing the Changing Psychological Contract

  The “New Deal” in Employment

  Altering the Psychological Contract

  Downsizing and “High-Involvement” HRM

  Labour Relations Issues

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New Terminology

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  Psychological contract – an unwritten commitment between employers and their employees that historically guaranteed job security and rewards for loyal service

  High involvement HRM – a commitment to HRM practices that treat people as assets

Downsized the Web Series Episode 1