DISCUSSED ABOUT DOWNSIZING AND RESTRUCTURING IN A BORDER ASPECTS

1. Downsizing and Restructuring
Chapter 11

2. Learning Objectives
2
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
 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

3. Downsizing
What is Downsizing?
 A downsizing strategy reduces the scale (size) and scope
of a business to improve its financial performance
(Robbins & Pearce, 1992).
 A reduction of the workforce is one of only several
possible ways of improving profitability or reducing costs.

4. 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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5. Survivor
 Survivor – an
employee remaining
with an organization
after a downsizing
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6. 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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7. Definitions
7
 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. 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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9. 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”

10. Downsizing Effects:
Overall
 Mixed effects on firm performance: some short-term
costs savings, but long-term profitability & valuation not
strongly affected.
 Firm’s reputation as a good employer suffers. Example:
Apple Computer’s reputation as good employer declined
after several layoffs in 1990s.
 Downsizing forces re-thinking of Employment
Strategy. Lifelong employment policies not credible
after a downsizing. Example: IBM abandoned lifelong
policy after several layoffs in early 1990s.

11. Downsizing Effects:
Employee Morale
 Employee motivation disrupted: increase in political
behaviors, anger, fear - which is likely to negatively impact
quality of customer service
 Violation of psychological contract, leads to cynicism,
lowered work commitment, fewer random acts of “good
will”
 “Survivors” experience more stress due to longer work
hours with re-designed jobs, and increased uncertainty
regarding future downsizings

12. Downsizing Effects:
Workforce Quality
 Many senior employees leave due to application of early
retirement incentives: result is loss of institutional
memory.
 The use of voluntary workforce reductions (buyouts) results
in the most marketable employees leaving (“stars”) --
difficult to control since all employees must be legally
eligible to qualify.
 Early retirements & voluntary reductions often result in too
many people quitting, and some are hired back as
consultants at higher cost to firm.

13. Downsizing Effects
Downsizing Works Best When:
 Changes in Strategy, Organization structure and Culture
accompany job cuts of downsizing
 Weak business units and plant closures are used as basis
of reductions, rather than across the board cuts affecting
all units (including healthy ones)
Source: Cascio et al. 1997

14. 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

15. Employee
Relations
Performance
Management
Reward
Systems
Training
Employment
Downsizing
Reputation
effects on
recruitment
Severance pay
& benefits Performance evaluation
as layoff criteria
Morale of
survivors
Loss of training
investment from
turnover
Downsizing and other HR
Systems

16. Downsizing Alternatives
1. Cutting non-personnel costs
2. Cutting personnel costs
3. Providing incentives for
voluntary resignation or early
retirement
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17. 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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18. Downsizing Alternatives
(Gandolfi, 2008)
Medium-term
 Extending reductions in salaries
 Voluntary sabbaticals
 Lending employees
 Exit incentives
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19. 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

20. 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

21. 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

22. 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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23. The “Survivors” of
Downsizing
 Job insecurity -
feelings of concern
about the continuing
existence of a job
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24. Perceptions of Justice
Three types of
justice warrant
consideration:
1. Procedural justice
2. Interactional justice
3. Distributive justice
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25. Perceptions of
Justice
25
 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

26. Survivor Reactions
 Negative attitudes and
behaviours
 Reduced performance
capabilities
 Lower organizational
productivity
 Emotions: anger, anxiety,
cynicism, resentment,
retribution, hope
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27. Financial Performance
and Downsizing
27
 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

28. 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

29. 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

30. 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

31. 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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32. 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