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Chapter 10
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Downsizing and Restructuring
Learning Objectives
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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
Learning Objectives
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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
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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
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Survivor
Survivor – an employee remaining with an organization after a downsizing
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Three Types of Downsizing Strategies
Cameron identifies three types of downsizing strategies:
1. Workforce reduction 2. Work redesign 3. Systematic change
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Definitions
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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
Process Maps
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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
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Why do Organizations Downsize?
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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”
Human Costs of Downsizing
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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.”
Ethical Considerations
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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
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Downsizing Alternatives
1. Cutting nonpersonnel costs
2. Cutting personnel costs
3. Providing incentives for voluntary resignation or early retirement
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Downsizing Alternatives (Gandolfi, 2008)
Short-term Hiring freeze Mandatory vacation Reduce workweek Reduce overtime Reduce salaries Facility shutdowns Employee input for
alternatives to cutbacks
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Downsizing Alternatives (Gandolfi, 2008)
Medium-term Extending reductions in salaries Voluntary sabbaticals Lending employees Exit incentives
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Inplacement and Outplacement Issues
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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
Planning for Downsizing
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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
Adjusting to Job Loss
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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
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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
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The “Survivors” of Downsizing
Job insecurity - feelings of concern about the continuing existence of a job
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Perceptions of Justice
Three types of justice warrant consideration:
1. Procedural justice 2. Interactional justice 3. Distributive justice
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Perceptions of Justice
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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
Negative attitudes and behaviours
Reduced performance capabilities
Lower organizational productivity
Emotions: anger, anxiety, cynicism, resentment, retribution, hope
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Financial Performance and Downsizing
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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
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Effective Downsizing Strategy
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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
Best Practices of Downsizing
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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
Best Practices of Downsizing
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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
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HRM Issues
Managing the Changing Psychological Contract
The “New Deal” in Employment
Altering the Psychological Contract
Downsizing and “High-Involvement” HRM
Labour Relations Issues
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New Terminology
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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