Downsizing and Restructuring

• From 1990s organizations became obsessed with reducing the workforce and operating in a

‘lean and mean’ fashion. • Before 1990’s the focus was on growth and ‘bigger is

better’ …the syndrome of firms.

questions of concern

• Should ‘cuts’ be targeted or across the board?• Will the firm’s stock price increase or decrease

when the firm announces a major layoff or restructuring?

• Should an employer carry out all the cuts at once or stage them over a period of time?

• Downsizing is a global phenomenon..• Is it mere cost-cutting strategy and confined

to private sector?• In India the PSUs are also sailing in the same

boat..• To improve competitive position and respond

to challenges of global economy it is found to be a feasible option.

• Academics define downsizing as building-down, de-hiring, de-recruitment, reduction in force, resizing, and rightsizing.

• Terminology varies…but the spirit remains the same…argue many thinkers and employee bodies with a critical note of concern.

Strategies of downsizing

Cameron identifies three types of strategies:• Workforce reduction: Short-term strategy aimed at cutting the number of

workers through such programs like attrition, early retirement or Voluntary severance packages, layoffs, terminations etc.

• Work redesign: Medium-term strategy wherein organizations focus

on work processes and assess whether specific functions, products, services should be changed or eliminated.

Elimination of certain functions, redesign of tasks through proper HRP. This leads to categorization of work.

• Competitive advantage of work (core work processes)

• Strategic support work, which assists in completing competitive advantage work

• Essential support work• Non-essential work which does not add value

to the mainline.

• Systematic change: Long-term strategy characterized by changing

the organization’s culture and attitudes and values of employees with ongoing goal of cost reduction and quality promotion.

This leads to process improvements through innovation also.

• Some firms felt that cutting back the no of people in the firm was not sufficient to achieve organization goals and so emphasis be laid on rightsizing or restructuring the workplace.

Types of restructuring

• Portfolio restructuring: involves changes to the business portfolio of the firm.

• Financial restructuring: reducing cash flow or increasing the levels of debt

• Organizational restructuring: reconfiguration of internal administrative structure

Studies reveal that..• around 15% was the workforce reduction.• 35% of the reductions were by attrition, • 25% by voluntary severance or early retirement. • 40% by layoffs.

Most firms lay on voluntary severance rather than layoffs.

Key trends..

• There appears to be a movement away from targeting higher-paid, more senior employees in workforce reduction efforts.

• Firms like to retain senior workers and prefer to lay off new recruitees.

• Most of the times firms go in the way of restructuring and organizational change pattern for downsizing program.. (figure)

What are the actual reasons of downsizing?

• Declining profits• Business downturn or pressure from rivals• Mergers and acquisitions (duplication of

efforts)• Introduction of new technology• Reducing operating costs• Decrease levels of management• Getting rid of employee ‘deadwood’.

Perceived benefits..

• Low over-head costs, • reduced bureaucracy• Better communications• Improved decision-making• Increased innovation• Higher productivityStudies proved that these are only the perceived

ones and hardly find in reality.

Drawing mileage out of displacement..

• People say that displacement (lay-off) is a blessing in disguise…is it true?

• Studies say that it leads to more long-term benefits to employees who fall victims.

• How to draw mileage out of it…prime concern nowadays.

Fate of survivors..

• Survivors became narrow-minded, self-absorbed, and risk-averse.

• Morale sinks, • productivity drops• Distrust of management by employees.Many firms fail in estimating the cost of

downsizing in right perspective.

Any alternatives?

• Cutting non-personnel costs (through energy conservation, planned capital expenditures, leasing of capital equipment, reductions in travel or club memberships)

• Cutting personnel costs (hiring freeze, job sharing, reduction in work hours, reduced benefits, wage concessions)

• Incentives for voluntary resignation or early retirement

• Eg. High Road communications asked the staff to take one week of unpaid leave during summer months.

• Acxicon corporation cut the pay of each employee by 5% and gave them the option to buy company stocks..one for one..

Crucial issues of neglect/concern

• Inplacement: Reabsorbing excess or inappropriately placed

workers into a restructured firm

• Outplacement: Counseling and job-search assistance for

workers who have been terminated.

HRP for downsizing?

• Determining how many people will lose their jobs• Determining who will be let go. Parameters like

seniority, performance, potential.• Determining how the reduction will be carried

out. (use of attrition, early retirement, layoffs, termination etc)

• Determining legal consequences (employment laws, trade union laws, human rights, equal employment law)

• Determining current and future work plans.• Implementing the decisions (severance

payments, outplacement counseling, communication of the termination, timing of the decision, security issues, communication with remaining employees.

• Performing follow-up evaluation and assessment. (ignore many a times)

How to adjust to job loss?

• Advance notification of layoffs, which gives employees time to deal with reality of job loss and to seek future employment.

• Severance pay and extended benefits which provide safety net.

• Education and retraining programs, which give individuals time to acquire marketable skills

• Outplacement assistance through information about new jobs and training them how to market themselves.

Any Psychological Contract?

• To define… it’s kind of unwritten agreement between employer and employees with respect to the job security over a period of time in the firm.

• There is a strong sense of allegation (from certain quarters) that this agreement is being violated often in recent times.

• It amounts to breach of trust rather than psychological contract..argue the other side in this context.

• Judge yourself…