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MGMT4001winter2012Chapter10DownsizingandRestructuring

Chapter10DownsizingandRestructuring
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Chapter10DownsizingandRestructuring
Downsizingstrategystrategytoimproveanorganizationsefficiencybyreducingtheworkforce,
redesigningthework,orchangingthesystemsoftheorganization
Survivorsemployeesremainingwithanorganizationafteradownsizing
Downsizingactivitiesundertakentoimproveorganizationalefficiency,productivity,and/orcompetitiveness
thataffectthesizeofthefirm'sworkforce,it'scosts,andit'sworkprocesses.
KimCameron's3typesofdownsizingstrategies:
1.WorforceReductionsshorttermstrategytocutthenumberofemployeesthroughattrition,earlyretirement
orvoluntaryseverancepackages,andlayoffsortermination.
2.WorkRedesignmediumtermstrategyinwhichorganizationsfocusonworkprocessesandassesswhether
specificfunctions,productsand/orservicesshouldbeeliminated.
3.SystematicChangelongtermstrategythatchangestheorganization'scultureandattitudes,and
employees'values,withthegoalsofreducingcostsandenhancingquality.
Merelycuttingstaffisusuallyinsufficienttoachieveorganizationalobjectivesandtherefore,organizations
looktorestructure.Thereare3typesofrestructuring:
1.portfoliorestructuringinvolveschangestothebusinessportfolio
2.financialrestructuringfinancialchangessuchasreducingcashfloworincreasinglevelsofdebt
3.organizationalrestructuringanymajorreconfigurationofinternaladministrativestructurethatisassociated
withanintentionalmanagementchangeprogram.
WhydoOrganizationsDownsize?
Decliningprofit
Businessdownturnorincreasedpressurefromcompetitors
Mergingwithanotherorganization,resultinginduplicationofefforts
Introductionofnewtechnology
Theneedtoreduceoperatingcosts
Thedesiretodecreaselevelsofmanagement
Gettingridofemployee"deadwood"
Managersperceivethatcuttingpeoplewillresultinreducedcostsandimprovedfinancialperformance.
Studieshaveshownthatmostdownsizingsarenotwellplannedandfrequentlyignorethelinkagebetween
downsizingandthestrategicdirectionoftheorganization,andunderestimatetheimpactofdownsizingonthe
organizationanditshumanresources.
AlternativestoDownsizing:
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Hiringfreeze
Mandatoryvacation
Reducingtheworkweek
Reducingovertime
Reducingsalaries(andextendingifnecessary)
Shorttermfacilityshutdowns
Obtainingcostreductionideasfromemployees
Voluntarysabbaticals

Lendingemployees
Exitincentives
Outplacement>providingaprogramofcounselingandjobsearchassistanceforworkerswhohavebeen
terminated
Inplacement>reabsorbingexcessorinappropriatelyplacedworkersintoarestructuredorganization
PlanningforDownsizing
Ifanorganizationhasdecidedtoembarkonadownsizingstrategy,planningisessential.Herearesomekey
issues:
Determininghowmanypeoplewilllosetheirjobs
Determiningwhowillbeletgoandonwhatbasis(seniority,performance,orpotential)

Determininghowthereductionwillbecarriedoutwhichmethodswillbeused(attrition,earlyretirement,
severance,layoffsortermination)

Determiningthelegalconsequenceswilltherebeviolations(wrongfuldismissal,employmentstandards,
collectiveagreementorhumanrights)
Designingcurrentandfutureworkplans(Representsakeychallengefortheorganizationandisfrequently
neglected)
Implementingthedecision
Performingfollowupevaluationandassessmentofthedownsizingefforts(Thisstepiscrucial,butisoften
ignored)
Downsizingandrestructurehasahugeimpactonthoseemployeesleft.HumanResourcesandtheperception
employeeshave.PersonallyIhadtodownsizeseveralemployeesin2011andtheimpactonHRwasvery
negitive.ThoughmostemployeesunderstanditmayberequireditstillhasanegitiveimpactontheHR
departmentandhowotherseeyou.
AdjustingtoJobLoss
Thefollowingorganizationalinterventionsandpracticeshavebeenidentifiedashelpingpreviouslyemployed
workersadjusttojoblossandsecurenewemployment:
Advancenotificationoflayoffs,whichgivesemployeestimetodealwiththerealityofjoblossandseek
futureemployment
Severancepayandextendedbenefits,whichprovideaneconomicsafetynet
Educationandretrainingprograms,whichgiveindividualstimetoacquiremarketableskills
Outplacementassistancetoinformemployeesofnewjobopportunitiesandtoimprovetheirabilityto
"market"themselves
Clear,direct,andempatheticannouncementoflayoffdecisions
ConsiderationofHRplanningpracticesthatrepresentalternativestolargescalelayoffs
PerceptionsofJustice
Whenunderstandinghowsurvivorsofadownsizingreacttotheexperience,perceptionsoffairnessandequity
playakeyrole.
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Proceduraljusticetheprocedures(or"decisionrules")usedtodeterminewhichemployeeswillleave
orremainwiththeorganization
Interactionaljusticethetypeofinterpersoanltreatmentemployeesreceiveduringtheimplementation
ofthedownsizingdecision
Distributivejusticethefairnessofthedownsizingdecision.Ex:responsesfromemployeesmay
includefeelingsofguiltafterseeingcoworkerslosttheirjobs,supportforthedownsizingdecisionas
necessaryforthefirm,orfeelingsofunfairnessandconcernthatfurtherlayoffsmayplacethierownjob
in
SurvivorReactions:
Thereisconsiderableevidencethatdownsizingmayproduceanumberofdysfunctionalbehavioursamongthe
TryWikispacesClassroomnow.(https://www.wikispaces.com/t/y/classroomswitch/banner/0/)BrandnewfromWikispaces.
employeeswhoremainwiththeorganization,suchas:
Negativeattitudesandbehaviours
Reducedperformancecapabilities
Lowerorganizationalproductivity
Astudyhasalsofoundthatahigherlevelofjobinsecuritywasassociatedwith:
Lessefforttoensurethatthequalityoftheindividual'sworkwashigherthanhisorherpeers
Alowerscoreon"organizationalcitizenshipbehaviour"(whichinvolvesengaginginactivitiessuchas
volunteeringforthingsnotrequiredbytheorganizationorhelpingoutnewemployees)
Lowerorganizationalloyalty(commitmenttotheorganization)
Higherlevelsofcareerloyalty(afocusontheindividual'scareer)
Morejobsearchbehaviour(seekingalternativeemployment)
BestPracticesofDownsizing
1.Downsizingshouldbeinitiatedfromthetop
2.Workforcereductionmustbeselectiveinapplicationandlongterminemphasis
3.Specialattentionshouldbepaidtoboththosewholosetheirjobsandtothesurvivorswhoremaininthe
organization
4.Decisionmakersshouldidentifywhereinefficienciesandcostexist
5.Shouldresultintheformationofsmallsemiautonomousorganizationswithinthebroaderorganization
6.Mustbeproactivestrategyfocusedonincreasingperformance
Itisimportanttoattendtorumours,providesurvivorstheavailableinformationonthedownsizing,ensurethe
survivorsareawareoftheneworganizationalgoals,makeexpectationsclear,tellthesurvivorsthattheyare
valued,andallowtimeforgrieving.
.
DownsizingFinancialAftermath
Thereareconflictingresultsonwhetherbusinesseswhohavedownsizedperformancebetter.Whileinvestors
mayinitiallyrespondnegativelytoaworkforcereduction,someanalystsbelievethatstockvaluesmay
increaseaftertheinitialturbulentperiod.Whileotheranalystsbelievethatthereisnofinancialimprovement
fromacutbackonemployeesbecauseofthenegativeimpactoftheconsequencesofdownsizing.
http://www.iveybusinessjournal.com/topics/strategy/downsizingisn%E2%80%99twhatit%E2%80%99s
crackeduptobe
Downsizingand"HighInvolvement"HRM
HighInvolvementHumanResourceManagementacommitmenttohumanresourcemanagementpractices
thattreatpeopleasassets.
Humanresourcesexpertshaveaconsiderableroletoplayindownsizingandrestructuring:
Advisingonrestructuringtheorganizationtomaximizeproductivityandretainqualityperformers.
DevelopskillinventoriesandplanningchartstoevaluatetheimpactofdownsizingonHRneedsand
projectedcapabilities.
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Communicatingthedownsizingdecisioneffectively.
Evaluatingthedownsizingprogramaftercompletion.Includestheassessmentofwholeftthe
organizationandwhoremains.Keyissuesincludejobdesignandredesign,workeradjustmentto
change,theneedforemployeecounselling,organizationalcommunicationandareviewofthe
appropriatenessofHRMpoliciesandprograms.
HumanCostsofDownsizing:AsCasciosuggests,mostreductionprogramsfailtomeettheirobjectives:
"Studyafterstudyshowsthatfollowingadownsizing,survivingemployeesbecomenarrowminded,self
absorbed,andriskaverse.Moralesinks,productivitydrops,andsurvivorsdistrustmanagement."
Therearesomebenefitsoflosingajob:
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Timetoreflect
Grownewideas,directionandcareerplan
Getoutofajobthatwassubstandard
Spendmoretimewithfamilyandhobbies

http://humanresources.about.com/od/layoffsdownsizing/a/downsizing.htm Thisarticletouchesonthe
legalities,humansideandtheemotionssurroundingdownsizing.

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