Downsizing and
Restructuring
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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
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
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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?
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”
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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.”
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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
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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
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
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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
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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
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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
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
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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
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
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
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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
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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
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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
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
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