The Best Practices In Downsizing Management Essay

Of late, companies have started realizing that managing a large pool of employees is quite a cumbersome process calling for high amounts of time and resources and inflicting cost. Thus, they are warming up to the idea of downsizing employees to attain their said target. Multinational companies are saving millions of dollars by downsizing but sadly, many fail to understand that organizations have to bear up with the most dreadful outcome of downsizing – insecure employee attitudes.

Throughout this report, my intention will remain to provide a collection of best practices that can be employed by all the organizations when developing their tactical, business, and similar plans for downsizing. To make the work more specific, I have narrowed down my broad study areas into seven HR and management categories:

Leadership,

Communication,

Early planning and homework,

External and internal information needs,

Strategic target,

Implementation, and

Performance management, evaluation and reporting.

Executive Summary

Whenever the history of the world is reviewed, a major trend that seems to have erupted in the workforce management can be viewed in the form of downsizing which means that the old practice of a mutual lifetime agreement of service in both the public and private sectors is now being challenged. As per a series of articles in the New York Times, namely “The Downsizing of America,” it was revealed that over more than 43 million people had been laid redundant in the United States since 1979, and this activity had hurt almost one-third of the families residing there.

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The terms downsizing, rightsizing, delayering, reduction in force, redundancy elimination, etc, all point towards the fact that the hope of permanent employment with a single employer has now become the exception rather than the rule. This practice in sectors, public as well as private has led to the loss of a critical sense of security and belongingness in one work place – and this surely has its demoralizing after math, that has to be endured by the left over employees, commonly referred to as the “survivors.”

The basic and most significant hall mark of the downsizing practice was the ability of organizations to offer enhanced services with a smaller quantity of workers thus indicating lower costs being incurred on work forced management. An ideal scenario for the new organizations is one in which a business unit performs better and at the same time costs a lesser amount. However, downsizing has its pros and cons and an organization must never think of this practice as the single, most reliable solution to lowering costs or optimizing performance, and must bear in mind and be aware of the fact that downsizing does not always pull off the anticipated consequences.

Reasons for downsizing vary as per the sector. Private organizations have a profit maximization motive and thus they naturally must reduce their costs as much as possible to maintain their competitive edge in an all the time more international market. Private sector entities have to make their operations such that they can also make best use of their investment and offer promising returns to their shareholders.

On the contrary, public sector downsizings are mainly motivated by targets of budget cuts and technology up gradation, in short anything that promotes the employment of a fewer number of workers to do the same old amount of work.

Acknowledgements

This acknowledgment note would intend to express thanks to all the people who helped me in the completion of this work. I would like to put on record my gratitude towards my peers, faculty, as well as various professional contacts from the industry that helped me in accomplishing this analysis. My thanks are especially due to Mr. Adil Kazi and Mr. Sheraz Karim who have fully extended their support by arranging the necessary resources for the betterment of this study. Last but not least, I would wholly thank my parents and siblings who were always there to guide me and to ensure that I had all the means to deliver my research study.

Table of Contents

Introduction……………………………………………………………………………….2

Executive Summary………………….……………………………………………………3

Acknowledgements……………………………………………………………………….4

Chapter 1: Introduction……………………………………………………………………6

Chapter 2: Purpose of Study………………………………………………………………8

2.1 An attempt to study the importance of humane hr downsizing………..8

2.2 An attempt to devise an action plan to address the issue…..………….8

Chapter 3: Research Methodology……………………………………………………….10

3.1. Research Design and Methodology…………………………………10

3.1.1 Case study approach

Survey approach

Interviews

3.2. Variables for the Research…………………………………………..11

3.3. Hypothesis…………………………………………………………..12

3.4. Data Collection………………………………………………………12

3.5. Limitation to the Research…………………………………………..13

Chapter 4: Literature Review……………………………………………………………14

Appendix A: Questionnaire………………………………………………………………21

References ……………………………………………………………………………….24

Chapter 1: Introduction

“With proper leadership, the act of downsizing, however painful, presents an opportunity for business leaders to bring the surviving employees together to help make the business more competitive. This takes attention, effort and heart.”

Turning ‘Survive’ into ‘Thrive” by Brenda Kowske, Kyle Lundby and Rena Rasch

The fundamental discussions presented in this report will deal with the debate on how downsizing can have a deep effect on the way that the employees see their workplace, and how it affects their loyalty and dedication to remain with the organization or to simply walk away as a consequence. As layoffs get more common, leaders are assigned to boost employees’ confidence in the organization’s leadership team, offer a vision for the future, train managers to be encouraging and revive the work itself, representing their conviction that employees are in fact the business’ most key asset.

Layoffs have a noteworthy effect on the optimization and exploitation of the organization’s workforce. Preserving the right set of workforce is vital for supporting revival and organizational sustainability. Leaders who fall short of understanding the importance of workforce in an organization may see their organizations bloom in a strong fiscal position but without the hearts and minds of their workers.

In the words of Drucker, “Unless commitment is made, there are only promises and hopes … but no plans.” Organizations that emerge with a healthy balance sheet and employees that are committed and engaged are far better positioned for future growth.

Whether the downsizing efforts are planned or unplanned, they attempt to reduce costs while improving efficiency and sustaining efforts devoted to meeting production and performance goals. In other words, managerial leaders are aiming to uphold or to get better at profit margins. In strong times leaders prefer a “lean-and-mean” organization by supporting workforce level with the core strategy and dropping down the level of redundancies. However, when organizations face a not so easy time, the same leaders pay off for lower sales by cutting down operational costs at the expense of the firms human capital.

Although there are a few studies that have argued that the blow of downsizing on profitability and shareholder value is not so devastating but is in fact quite limited (Lewin & Johnston, 2000, Cascio and Young, 2003; De Meuse, Bergmann, Vanderheiden, & Roraff, 2004). At the same time, one should not tend to ignore the principle rule of the downsizing process: one should uphold the self-esteem of the leaving workers and the spirits and productivity of the workers who make it by surviving the downsizing.

Following a lying off event, employee morale usually runs pretty low. A slight pat on the back, particularly for the ones who have survived becomes a way to battle the devastating after math of such an event. It is self evident how the survivors are left behind in an even harder situation where they have to work harder to compensate for the workforce that is not there anymore. Managers can also make a difference by doing small and easy day to day recognition of efforts, telling everyone their importance, praising their contribution, strengthening their team’s stance of job security etc.

Chapter 2: Purpose of Study

An attempt to study the importance of humane HR downsizing

A distressing 80 percent of downsizers admit that the morale of their remaining employees has been mugged. These sullen, dispirited, hunkered-down folk, lest we forget, are the very people who are supposed to revitalize your enterprise and delight your customers.

Ronald Henkoff

Offering better service with lesser amount of staff is the most essential trait of a downsizing that has been well managed. Sadly, downsizing is usually taken as a ‘once in a lifetime’ technique to reduce payroll/operational staff costs. Undesirable outcomes usually result for those organizations that intend to implement the downsizing strategy just to achieve the above mentioned targets.

There are many examples of negative impact on employee productivity and morale level on and on customer service and product quality as well. Besides, downsizing does not necessarily always accomplish the intended goals. Previous research conducted has exposed that while well over half of the companies have achieved cost and expense reductions, over less than half of them achieved higher profitability, productivity, and customer satisfaction.

Employed as a tool in general reengineering/ reshuffling/restructuring strategy, downscaling has been productively accomplished by successful organizations that have recognized downsizing for what it is:

‘A management tool that must be used with other management tools to achieve the goals of reduced costs and improved service.’

An attempt to propose an action plan to address the issue

Devising HR programs to provide clear employee career transition services to the organization’s leftover survivors as well as the dis/relocated employees;

Planning and implementing policies for re- training the displaced employees for further career opportunities;

Formulating a well planned and strategic recruitment and selection process that aims make internal selection of well-qualified survivors or displaced internal employee before selecting any other candidate etc.

Downsizing plans ought to furthermore include review of the current as well as the future organizational structure, existing workforce expertise, competencies and needs; and last but not the least, a well- planned, clear and transparent communications plan.

Chapter 3: Research Methodology

3.1. Research Design and Methodology:

Case Study Approach

This research will tend to have a qualitative preference, which involves the calculated use and collection of a variety of practical/empirical material – this would include reference from a variety of case studies , personal experience of the employees, interview, observational, interactional and visual text – that tend to describe regular and challenging moments and meaning in individuals lives .

As the research topic is related closely to the human aspect and organization, qualitative research will support the topic as it is used to investigate issues involving the operations of organizations in society and its effect on the people. As the purpose of the study is to examine “WHY” organizing are undertaking restructuring and subsequently opting for downsizing and “HOW” it is going to impact the employees as well as the organization as a whole.

Survey Approach

Practical inference helps to avoid the highly structured deductive approach, which often ignores the element of subjectivity in the entire research. The methodology/practical inference will provide a free approach to get an access in people’s life without creating misrepresentation which suits the case for research.

This study will look at the particular aspects of both the point of view of downsizing from the employee’s as well as the management point of view. Telephonic interview along with questionnaires will be conducted as they can provide perceived casual inference from the actor’s point of view.

Interviews

Interview method is selected as it will provides a casual inference from the actor’s point of view which is highly desirable from the research point of view.

I would conduct primary as well as secondary research to reach a proper conclusion as to what will be done. The secondary source that I will use will include past economic journals, newspapers, articles, books, historic papers and personal observations that have been noted down. For acquiring primary data, I will approach the redundant individuals to assess the magnitude of the psychological anxiety they had to face after they had been dismissed from their duties/organizations.

3.2. Variables for Research:

There are several quite different mechanisms through which effects occur, and the effects of each may need to be kept separate:

– Attitudes/behavior in relation to recession

– Perception of security of job

– Involuntary job loss

– Organization or plant closures

Protracted unemployment after displacement leads to:

– Loss of earnings in subsequent employment,

– Failure to regain steady post-termination employment, and

– Chronically low geographic mobility

Tangible changes include: (variables)

– Dissatisfaction with life,

– Reduced social interaction,

– Political alienation,

Others:

Employee reductions

Reductions in the number of high-grade positions

Increase in the ratio of supervisors to employees

Decrease in headquarters positions;

Personnel loss due to attrition versus personnel loss due to incentive programs;

Decrease in personnel, budget, acquisition, and auditor positions;

Impact on diversity goals;

Ability to meet budgetary limits;

Ability to continue to accomplish legal and regulatory mandated programs;

Percentage of employees finding new positions;

Financial indicators, such as the payback period on incentive programs;

Reduction in total cost of wages and salaries;

Meeting authorized budget and FTE levels;

Number of voluntary participants in incentive and career transition programs; and

Customer service ratings.

3.3. Hypothesis:

I want to assess how the Human Resource department can shape policies for the sake of protecting the intellectual property by managing the downsizing effects on the life of organizational employees. This can also be done by building strong people systems.

For that purpose, I will discuss various crisis faced by employees during a lay off period, trying to prove facts that can lessen the impact on both the individual as well as the organization as a whole.

H0:

Successful downsizing results not only when less costs are incurred to yield higher returns – it is in fact the result of a humane and careful management of the workforce through strong and consistent leadership.

3.4. Data collection:

Secondary recourses: To conduct my literature review and to discover the past consequences faced by various firms so that I am able to draw inferences for my study.

Primary research: Interviewing laid off employees to learn about the loss that they feel has resulted out of the dismissal.

3.5. Limitations

Since I will be presenting a global perspective, the results may not be too focused. Also, the organizations have been slightly reluctant to disclose their HR policies in this regard due to their personal limitations.

Chapter 4: Literature Review

“Survivor sickness” (Band & Tustin, 1995) and “survivor syndrome” (Kim, 2003) may very well work against potential returns. And layoffs can negatively affect the organizational culture, creating ramifications for employees and customers (Bastien, Hostager, & Miles, 1996; Shah, 2000).

Research (Trevor & Nyberg, 2008) has demonstrated that organizational commitment moderates the relationship between layoffs and turnover-in other words, the more committed and satisfied employees were with their choice to join an organization, the weaker the relationship between layoffs and turnover. In the same study, HR practices also mattered, specifically formal arrangements for addressing perceptions of injustice (referred to as “procedural justice”), feelings of “fitting in” and job fit, plus the cost of leaving to the employee (i.e., “job embeddedness”), and career development support, such as succession planning.

The magnitude of the reduction has an uncertain impact on employees. While some research has demonstrated that the magnitude of the layoff event is virtually irrelevant (Trevor & Nyberg, 2008), others have shown no effect when smaller reductions are compared to larger reductions of more than 10 percent of the workforce (De Meuse et al., 2004). Therefore, any employer seeking to soften the blow to the organization after downsizing should attend to certain employee characteristics regardless of reduction magnitude, but certainly in cases of a large reduction of force.

Other closely related constructs to engagement, such as job satisfaction, job involvement and organizational commitment have been found to be related to turnover itself (Griffeth, Hom,& Gaertner, 2000). Beyond the costs of hiring and training that accompany high turnover rates, engagement positively affects business outcomes as well. Prior research has found it to be significantly related to customer service scores (Wiley, 1996) and business financial performance metrics (Wiley & Campbell, 2006).

For the sake of context, 54 percent of the employees who worked at an organization with layoffs were men and 46 percent were women. Layoff survivors were generally equally distributed among employees aged 25-34 (27 percent), 35-44 (24 percent) and 46-55 (25 percent), with a smaller percentage of employees in the youngest (18-24; 8 percent) and eldest age groups (55-64; 15 percent; over 65, 1 percent); 18 percent of employees in organizations that had conducted layoffs were represented by a union and 82 percent were not.

The largest groups of employers who had conducted layoffs were in retail/wholesale trade (10 percent), heavy manufacturing (10 percent) with fewer in healthcare services (8 percent), light manufacturing (6 percent), education (6 percent) and construction or engineering (5 percent).

Other studies have demonstrated the influence these forces may have on engagement (Schaufeli & Bakker, 2004). We also know that engagement at the organizational level is related to turnover (Harter, Schmidt & Hayes, 2002). Recently, Macey & Schneider (2008) have posed a hypothetical model, based on previous research, that suggests engagement and related constructs such as motivation and commitment can be influenced by organizational innovations.

It is difficult to build confidence without foundational trust in leadership, and by proxy, the organization’s future viability. Trust and confidence go hand-in-hand because both constructs are based on an employee’s expectation of desirable outcomes that matter to him/her. While an employee builds confidence in the organization by looking out for social cues, such as organizational and coworker opinion, that will help predict personal outcomes (Leiter & Harvie, 1997), trust is based on the expectation that future interactions will be positive (Robinson, 1996). The question now arises, “How do we build trust and confidence?”

In a world of unknowns, employees will likely attempt to predict the future by reflecting on the past. Trust can be built by openly addressing the past, and then moving on to a vision of the future. In a unique sample of layoff victims and survivors, research demonstrated that trust in management was strongly and positively related to the quality of communications about the downsizing event, specifically messages surrounding the rationale for the layoffs, a post-layoff vision for the organization, examples of previous successful change implementations, and the potential down-side of their actions (Paterson & Carey, 2002).

During times of high organizational stress, senior leadership is likely continuously evaluating its strategy against progress and making adjustments in response to the current conditions. Sharing the strategic discourse with employees, and conveying a confident vision, can help create confidence and a feeling of involvement (Cobb, Wooten, & Folger, 1995).

According to past research, fairness and communication likely support trust. Hopkins and Weathington (2006) supported the findings presented here: In a sample of lay-off survivors, trust was found to be strongly and positively related to organizational commitment and organization satisfaction, and strongly, negatively related to turnover intentions. These authors threw fairness into the mix–distributive justice (rewards and resources are doled out fairly, procedural justice, and that decisions are made based on fair processes) and interactional justice (the degree to which people are treated with respect and dignity).

Fairness had a role to play in that perceptions of distributive and procedural justice mediated the relationship between trust and organizational commitment and satisfaction. Paterson and Carey (2002) found that perceptions of interactional justice mediated the relationship between leaders’ communication about the layoff event and its positive effect on employees’ post-downsizing trust in management. Leaders should ensure that resource allocation decisions (distributive justice), the procedures used to implement decisions (procedural justice) and the treatment of subordinates (interactional justice) are perceived as fair (Greenberg, 1990) if they wish to belay the negative effects of layoffs.

Being excited about work can be difficult when employees are preparing themselves for the next round of layoffs. Prior research has found that layoff survivors suffer from negative health outcomes (Matthew, 1987), such as the significant association between measures of anxiety and depression and perceptions of low job autonomy and security, and high work load and group conflict (Kim, 2003). Chances are increased employee anxiety and depression will severely mitigate the existing work excitement employees had prior to downsizing. Work design and career opportunities may be ways to keep jobs intrinsically motivating to employees.

According to Chase, P. (1996), “Redundancy” is a category in the question ‘reason for leaving last job’. Unfortunately bundled with other reasons for leaving a job: viz. – Laid off / dismissed / made redundant. Presumably Laid off=made redundant but dismissed can cover a much wider range. Also a reason for not seeking employment is ‘discouraged’ (presumably, usually through not able to find jobs)”.

According to Collins, J. A. (1995), ‘the linked employer employee database allows tracking for each quarter the remuneration of each of 16 or so industries together with number of jobs, workers and then a worker turnover rate. A job turnover rate can be calculated using the following variables: Total earnings $(million), mean earnings (Continuing, New hires), Total filled jobs, Job flows (Creation, Destruction), worker flows (Accessions, Separations, Turnover rate-%).”

According to Gray, A (1988), ‘If your company does decide that layoffs are necessary, you have an important role to make sure that the layoffs are fair and to provide ongoing support to employees who remain. These employees will be shouldering more. Make sure they receive information on how the future looks and their role, along with the company’s appreciation and recognition.’

According to Houghton, R. M. (1987), ‘Focus on improving productivity – Identify which employee programs can drive a dramatic increase in productivity. Track sales per employee or profit per employees and watch it monthly. Determine how to improve the current approach. Provide incentives for wellness programs – offer incentives to encourage employees to participate in wellness programs. Trim health care costs – Many companies were already planning to increase deductibles, co-payments, co-insurance or out of packet spending limits which will shift more costs to employees. Cross train employees – shift employees to most essential functions. Use technology – make more extensive use of the internet for recruiting and web-based formats for hr systems, assess, counsel, and retrain displaced employees.”

According to Hunt, G (2006), ‘Offer employee driven cost savings – clearly communicate the purpose of the program and have employees identify cost cutting opportunities and submit them on line. Reward employees with a % of the savings. Hire contract workers in lieu of regular employees, share the pain – use a progressive scale of reduced hours or wages, offer sabbaticals – offer small stipend for going to school or working for a non-profit.”

According to CIPD, ‘ Faced with reduced consumer spending, many business leaders are searching for ways to reduce costs. Layoffs are an easy but drastic answer. Moreover, layoffs often have unintended consequences, such as, increases in voluntary turnover, lower productivity, and a more stressful workplace.

According to CIPD, ‘Consumers, the engine of the US economy, have trimmed their spending because of reduced access to credit, fear of job losses, and trepidation about the economy. Many business leaders are searching for ways to reduce costs. Layoffs are an easy but drastic answer. Layoffs often have unintended consequences, such as, increases in voluntary turnover, lower productivity, and a more stressful workplace.”

According to The CIPD’s ‘Redundancy Watch’ it has been discovered that,” 50% employers claim that they have introduced recruitment freezes to offset the need to make redundancies, while 44 % are terminating temporary or agency worker contracts to prevent the shedding of in-house staff and one in seven (15%) have introduced short-time working. ”

According to Abhishek Priyad(2009), “There is a high cost to making people redundant, and letting skilled staff go can risk longer-term damage to the future prospects of the business. These findings highlight the lengths to which managers are going to minimize the impact of the recession on their organizations and employees.”

According to Naumi Haque (2002), ‘Review your business plan. Keep your focus on the long term but uncover ways to cut costs in the short term. Find unnecessary expenses and reduce them. Review entertainment expenses, association fees, club fees and other perks. Shift costs to individuals or cut the programs completely. Downsize perks to ride the recession out.’

According to Dr John Philpott (2009), ‘ Renegotiate business agreements if possible. Seek out new vendors, explore relationships with smaller companies and consultants. Turn your business into a lean machine to weather the recession. Downsize costs associated with doing business.’

According to Gerwyn Davies (2009), ” Assess your employees. Reassign employees to areas that need manpower. Utilize existing human resources before seeking replacements to reduce training time and increase company loyalty. Review the existing skills present in your workforce and make sure you utilize all the training and skills your business already has.”

According to Charles Crothers ESSU, AUT University (May, 2009), ‘Cut unnecessary employees from the payroll. Check the costs related to downsizing employees including severance agreements, unemployment costs, employee morale and productivity. Remember you need to keep doing business. Assess if all business functions are possible with retained personnel. Price the cost of outsourcing before downsizing existing employees. Keep both long-term goals and short-term needs in focus when reducing staff.”

According to Keys, F. J. (1991), ‘Spread the cuts among all levels of your organization. Institute pay cuts at the executive level as well as further down the line. Keep morale positive in the workforce by sharing the cuts caused by recession.”

According to CIPD Chief Economist John Philpott, “Businesses are under huge pressure right now and restructuring is a fact of economic life that can never be ruled out. But while making people redundant can seem one of the most straightforward ways of cutting costs, redundancy is itself a significant cost to most organisations with a number of direct and indirect or hidden costs. This is particularly true if redundancies are an employer’s first resort in difficult times and have to be quickly reversed by renewed hiring when economic conditions improve. ”

According to CIPD Chief Economist John Philpott , “While the average direct cost to employers of making redundancies can reach £16,375, on top of this are hidden or indirect costs resulting from the effect of redundancy on survivor employees, such as higher labour turnover and a fall in staff productivity.

According to CIPD, “This is likely to be a conservative estimate and provides a hard business case for why redundancies should be a last resort in the downturn. We urge employers to plan for recovery by investing in and growing their people, rather than reducing their workforce.”

According to Harbridge, R. V. (1992), ‘One of the key factors to your success will be how you handle the people who work for you – especially if you are considering laying off staff. It’s tempting to assume that your employees are grateful just to have a job and would never dream of leaving during a recession, but that would be a costly mistake.”

A 2008 study published by the University of Wisconsin-Madison found that ”downsizing can actually lead to a higher rate of turnover, which can leave organizations without the critical people they need to keep operating through the tough times. Although they may not be actively looking, unhappy employees are usually open to new opportunities if they present themselves.”

According to Foote, R. L. (1993), ‘If downsizing becomes necessary, deal as humanely as possible with the employees you let go and the employees who remain. Communicate, communicate, and communicate during the whole process. You must appear rational, thoughtful, and fair in your process for employees to continue to trust you and to retain your position as an employer of choice. ”

According to Ewart, B. H. M. (2000), ‘Employees will bring their economic stress into the workplace. An employee whose spouse is laid off has real and troubling econom