Chapter 10 Downsizing and Restructuring 1 Learning Objectives

Chapter 10 Downsizing and Restructuring 1

Learning Objectives 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 2

Learning Objectives 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 3

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 4

Survivor 5 Survivor – an employee remaining with an organization after a downsizing

Three Types of Downsizing Strategies Cameron identifies three types of downsizing strategies: 1. Workforce reduction 2. Work redesign 3. Systematic change 6

Definitions 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 7

Process Maps 8

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 9

Why do Organizations Downsize? Declining profits Business downturn or increased pressure from competitors Merging with another organization, resulting in duplication of efforts 10 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 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. ” 11

Ethical Considerations 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 12

Downsizing Alternatives 1. 2. 3. 13 Cutting nonpersonnel costs Cutting personnel costs Providing incentives for voluntary resignation or early retirement

Downsizing Alternatives (Gandolfi, 2008) Short-term Hiring freeze Mandatory vacation Reduce workweek Reduce overtime Reduce salaries Facility shutdowns Employee input for alternatives to cutbacks 14

Downsizing Alternatives (Gandolfi, 2008) Medium-term Extending reductions in salaries Voluntary sabbaticals Lending employees Exit incentives 15

Inplacement and Outplacement Issues Outplacement providing a program of counselling and jobsearch assistance for workers who have been terminated 16 Inplacement reabsorbing excess or inappropriately placed workers into a restructured organization

Planning for Downsizing 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 17

Adjusting to Job Loss Advance notification of layoffs Severance pay and extended benefits Education and retraining programs Outplacement assistance 18 Clear, direct, and empathetic announcement of layoff decisions Consideration of HR planning practices that represent alternatives to large-scale layoffs

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 19

The “Survivors” of Downsizing 20 Job insecurity feelings of concern about the continuing existence of a job

Perceptions of Justice Three types of justice warrant consideration: 1. 2. 3. 21 Procedural justice Interactional justice Distributive justice

Perceptions of Justice 22 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 23 Negative attitudes and behaviours Reduced performance capabilities Lower organizational productivity Emotions: anger, anxiety, cynicism, resentment, retribution, hope

Financial Performance and Downsizing 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 24

Effective Downsizing Strategy Increased communication Increased employee participation Systematic analysis of tasks and personnel requirements Visibility of senior management 25 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 1. 2. 3. 26 Downsizing should be initiated from the top Workforce reduction must be selective in application and long-term in emphasis 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 4. Decision-makers should identify where inefficiencies and costs exist 5. Should result in the formation of small, semiautonomous organizations within the broader organization 6. Must be a proactive strategy focused on increasing performance 27

HRM Issues 28 Managing the Changing Psychological Contract The “New Deal” in Employment Altering the Psychological Contract Downsizing and “High. Involvement” HRM Labour Relations Issues

New Terminology 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 29