Chapter 10

1. Chapter 10 Downsizing and Restructuring

2. 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

3. 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

4. The Downsizing Strategy • Downsizing - strategies toimprove an organization’s efficiency by reducing the workforce, redesigning the work, or changing the systems of the organization

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

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

7. 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

8. Process Maps

9. 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

10. Why do Organizations Downsize? • 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”

11. 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.”

12. 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

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

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

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

16. Inplacement and Outplacement Issues • 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

17. 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

18. Adjusting to Job Loss • 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

19. 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

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

21. Perceptions of Justice Three types of justice warrant consideration: • Procedural justice • Interactional justice • Distributive justice

22. Perceptions of Justice • 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

23. Survivor Reactions • Negative attitudes and behaviours • Reduced performance capabilities • Lower organizational productivity • Emotions: anger, anxiety, cynicism, resentment, retribution, hope

24. 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

25. Effective Downsizing Strategy • 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

26. Best Practices of Downsizing • 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

27. Best Practices of Downsizing 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

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

29. 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