Chapter 10 Downsizing and Restructuring

Downsizing strategystrategy to improve an organization’s efficiency by reducing the workforce, redesigning the work, or changing the systems of the organization
Survivorsemployees remaining with an organization after a downsizing

Downsizing- activities undertaken to improve organizational efficiency, productivity, and/or competitiveness that affect the size of the firm's workforce, it's costs , and it's work processes.

Kim Cameron's 3 types of downsizing strategies:
1. Worforce Reductions- short-term strategy to cut the number of employees through attrition, early retirement or voluntary severance packages, and layoffs or termination.
2. Work Redesign- medium-term strategy in which organizations focus on work processes and assess whether specific functions, products and/or services should be eliminated.
3. Systematic Change- long-term strategy that changes the organization's culture and attitudes, and employees' values, with the goals of reducing costs and enhancing quality.

Merely cutting staff is usually insufficient to achieve organizational objectives and therefore, organizations look to restructure. There are 3 types of restructuring:
1. portfolio restructuring - involves changes to the business portfolio;
2. financial restructuring - financial changes such as reducing cash flow or increasing levels of debt;
3. organizational restructuring - any major reconfiguration of internal administrative structure that is associated with an intentional management change program.

Why do Organizations Downsize?
  • Declining profit
  • 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"

Managers perceive that cutting people will result in reduced costs and improved financial performance.

Studies have shown that most downsizings are not well planned and frequently ignore the linkage between downsizing and the strategic direction of the organization, and underestimate the impact of downsizing on the organization and its human resources.

Alternatives to Downsizing:
- Hiring freeze
- Mandatory vacation
- Reducing the workweek
- Reducing overtime
- Reducing salaries (and extending if necessary)
- Short-term facility shutdowns
- Obtaining cost-reduction ideas from employees
- Voluntary sabbaticals
- Lending employees
- Exit incentives

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

Planning for Downsizing
If an organization has decided to embark on a downsizing strategy, planning is essential. Here are some key issues:
-Determining how many people will lose their jobs
-Determining who will be let go; and on what basis (seniority, performance, or potential)
-Determining how the reduction will be carried out; which methods will be used (attrition, early retirement, severance, layoffs or termination)
-Determining the legal consequences; will there be violations (wrongful dismissal, employment standards , collective agreement or human rights)
-Designing current and future work plans (Represents a key challenge for the organization and is frequently neglected)
-Implementing the decision
-Performing follow-up evaluation and assessment of the downsizing efforts (This step is crucial, but is often ignored)

Downsizing and restructure has a huge impact on those employees left. Human Resources and the perception employees have. Personally I had to downsize several employees in 2011 and the impact on HR was very negitive. Though most employees understand it may be required it still has a negitive impact on the HR department and how other see you.

Adjusting to Job Loss
The following organizational interventions and practices have been identified as helping previously employed workers adjust to job loss and secure new employment:
  • Advance notification of layoffs, which gives employees time to deal with the reality of job loss and seek future employment
  • Severance pay and extended benefits, which provide an economic safety net
  • Education and retraining programs, which give individuals time to acquire marketable skills
  • Outplacement assistance to inform employees of new job opportunities and to improve their ability to "market" themselves
  • Clear, direct, and empathetic announcement of layoff decisions
  • Consideration of HR planning practices that represent alternatives to large-scale layoffs

Perceptions of Justice
When understanding how survivors of a downsizing react to the experience, perceptions of fairness and equity play a key role.
  • Procedural justice - the procedures (or "decision rules") used to determine which employees will leave or remain with the organization
  • Interactional justice - the type of interpersoanl treatment employees receive during the implementation of the downsizing decision
  • Distributive justice - the fairness of the downsizing decision. Ex: responses from employees may include feelings of guilt after seeing co workers lost their jobs, support for the downsizing decision as necessary for the firm, or feelings of unfairness and concern that further layoffs may place thier own job in

Survivor Reactions:
There is considerable evidence that downsizing may produce a number of dysfunctional behaviours among the employees who remain with the organization, such as:
- Negative attitudes and behaviours
- Reduced performance capabilities
- Lower organizational productivity
A study has also found that a higher level of job insecurity was associated with:
- Less effort to ensure that the quality of the individual's work was higher than his or her peers
- A lower score on "organizational citizenship behaviour" (which involves engaging in activities such as volunteering for thingsnot required by the organization or helping out new employees)
- Lower organizational loyalty (commitment to the organization)
- Higher levels of career loyalty (a focus on the individual's career)
- More job-search behaviour (seeking alternative employment)

Best Practices of Downsizing
1. Downsizing should be initiated from the top
2. Workforce reduction must beselective 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
4. Decision-makers should identify where inefficiencies and cost exist
5. Should result in the formation of small semi-autonomous organizations within the broader organization
6. Must be proactive strategy focused on increasing performance

It is important to attend to rumours, provide survivors the available information on the downsizing, ensure the survivors are aware of the new organizational goals, make expectations clear, tell the survivors that they are valued, and allow time for grieving.
Downsizing; Financial Aftermath
There are conflicting results on whether businesses who have downsized performance better. While investors may initially respond negatively to a workforce reduction, some analysts believe that stock values may increase after the initial turbulent period. While other analysts believe that there is no financial improvement from a cutback on employees because of the negative impact of the consequences of downsizing.

Downsizing and "High Involvement" HRM
High Involvement Human Resource Management-a commitment to human resource management practices that treat people as assets.
Human resources experts have a considerable role to play in downsizing and restructuring:
  • Advising on restructuring the organization to maximize productivity and retain quality performers.
  • Develop skill inventories and planning charts to evaluate the impact of downsizing on HR needs and projected capabilities.
  • Communicating the downsizing decision effectively.
  • Evaluating the downsizing program after completion. Includes the assessment of who left the organization and who remains. Key issues include job design and redesign, worker adjustment to change, the need for employee counselling, organizational communication and a review of the appropriateness of HRM policies and programs.

Human Costs of Downsizing: As Cascio suggests, most 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."

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 This article touches on the legalities, human side and the emotions surrounding downsizing.