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Downsizing and Restructuring

Downsizing refers to strategies to improve organizational efficiency by reducing the workforce, redesigning work, or changing systems. There are three main downsizing strategies: workforce reduction through layoffs/terminations, work redesign to change functions/services, and systematic change to alter organizational culture. While downsizing aims to cut costs, it often negatively impacts surviving employees through increased stress, lowered morale and productivity. Effective downsizing requires communication, participation, analyzing job needs and linking decisions to long-term strategy.

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YASH GAJJAR
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67 views27 pages

Downsizing and Restructuring

Downsizing refers to strategies to improve organizational efficiency by reducing the workforce, redesigning work, or changing systems. There are three main downsizing strategies: workforce reduction through layoffs/terminations, work redesign to change functions/services, and systematic change to alter organizational culture. While downsizing aims to cut costs, it often negatively impacts surviving employees through increased stress, lowered morale and productivity. Effective downsizing requires communication, participation, analyzing job needs and linking decisions to long-term strategy.

Uploaded by

YASH GAJJAR
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Downsizing and

Restructuring

1
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

2
Survivor

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

3
Three Types of
Downsizing Strategies

Cameron identifies
three types of
downsizing
strategies:
1. Workforce reduction
2. Work redesign
3. Systematic change

4
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

5
Process Maps

6
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

7
Why do Organizations
Downsize?

 Declining profits  Introduction of new


 Business downturn or technology
increased pressure from  The need to reduce
competitors operating costs
 Merging with another  The desire to decrease
organization, resulting in levels of management
duplication of efforts  Getting rid of employee
“deadwood”

8
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.”

9
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

10
Downsizing Alternatives

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

11
Downsizing Alternatives
(Gandolfi, 2008)

Short-term
 Hiring freeze
 Mandatory vacation
 Reduce workweek
 Reduce overtime
 Reduce salaries
 Facility shutdowns
 Employee input for
alternatives to cutbacks

12
Downsizing Alternatives
(Gandolfi, 2008)

Medium-term
 Extending reductions in salaries
 Voluntary sabbaticals
 Lending employees
 Exit incentives

13
Inplacement and
Outplacement Issues

 Outplacement -  Inplacement -
providing a program of reabsorbing excess or
counselling and job-search inappropriately placed
assistance for workers workers into a
who have been terminated restructured organization

14
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

15
Adjusting to Job Loss

 Advance notification of  Clear, direct, and


layoffs empathetic announcement
 Severance pay and of layoff decisions
extended benefits  Consideration of HR
 Education and retraining planning practices that
programs represent alternatives to
 Outplacement assistance large-scale layoffs

16
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

17
The “Survivors” of
Downsizing

 Job insecurity -
feelings of concern
about the continuing
existence of a job

18
Perceptions of Justice

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

19
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

20
Survivor Reactions

 Negative attitudes and


behaviours
 Reduced performance
capabilities
 Lower organizational
productivity
 Emotions: anger, anxiety,
cynicism, resentment,
retribution, hope

21
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

22
Effective Downsizing
Strategy

 Increased communication  Focus on rightsizing


 Increased employee  Establish a sense of ownership
participation  Active role for HR department
 Systematic analysis of tasks and  Monitor downsizing and link to
personnel requirements organizational strategy
 Visibility of senior management  Train management with
downsizing techniques

23
Best Practices of
Downsizing

1. Downsizing should be initiated from the top


2. Workforce reduction must be selective in application
and long-term in emphasis
3. Special attention should be paid to both those who
lose their jobs and to the survivors who remain in the
organization

24
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

25
HRM Issues

 Managing the Changing


Psychological Contract
 The “New Deal” in
Employment
 Altering the Psychological
Contract
 Downsizing and “High-
Involvement” HRM
 Labour Relations Issues

26
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

27

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