Downsizing Essay, Research Paper

1. Introduction

Downsizing is the process of “reducing employment to improve efficiency, productivity, and competitiveness” (Schwind et al., p 538). There has been a surprisingly large amount of downsizing. Between 1984 and 1994 “total employment of Fortune 500 companies fell by 3 million people” (Anthony et al, p 655). This paper will focus on how to manage downsizing and will involve analyzing the downsizing process in stages. First is the pre-downsizing stage. This is where an organization analyzes the issues involved in downsizing their company. Second, there is the planning stage where by the organization plans the downsizing process that will be taken. The third phase is the process of implementation and the fourth stage being managing the survivors. It is very important that human resources be greatly involved during the complete downsizing process. The reason for this is that downsizing is a very difficult situation for all parties involved and the process should be managed properly and delicately. There are many different reasons why organizations feel that downsizing is the only option with certain keys that will lead to a successful downsizing.

2. Keys to a Successful Downsizing Process

As already stated, downsizing in most cases is a very delicate situation. Schwind notes “the average size of downsizing ranges from 14 to 20 percent of the work force”. This is a very significant amount of people therefore the downsizing process should be handled very carefully. The six key principles to keep in mind for a successful downsizing process are (Schwind et al, p539):

1. Downsizing should be initiated from the top but requires hands-on involvement from all employees.

2. Work force reduction must be selective in application and long-term in emphasis.

3. There is a need to pay special attention both to those who lose their jobs and to the survivors who remain with the organization.

4. It is critical that decision-makers identify precisely where redundancies, excess costs, and inefficiencies exist and attack those specific areas.

5. Downsizing should result in the formation of small semi-autonomous organizations within the broader organization.

6. Downsizing must be a proactive strategy focused on increasing performance.

The keys outlined above are only a guideline and other key factors should also be considered for a successful downsizing process. Communicating the organizations plan to downsize and why it must do so to the workforce early is good practice. This will give the employees that are being dismissed an opportunity to prepare for their futures and less of a feeling of uncertainty with their situation. It will also give the remaining employees more respect for the company and give them more job security since they feel that the company will be honest with them with respect to company business. Another factor that is important to consider during the downsizing process is that with a reduced workforce the remaining employees will need to pick up the slack. In downsizing situations the company should be aware of this fact and ask the remaining employees how they feel their jobs could be made easier in order to handle the increased workload.

3. Reasons or Advantages of Downsizing

The main reason why an organization chooses to downsize is that a company may wish to restructure their organization. Theoretically restructuring an organization is a means of increasing productivity and the efficiency of the company. Cutting the number of employees within an organization is the easiest and quickest way to cutting costs. Another advantage to downsizing is that certain positions or people that are unproductive are released. An increase in international competition is another reason organizations choose to downsize. Some companies feel that in order to compete in their respective industries globally that downsizing is the solution.

4. Disadvantages of Downsizing

There are both advantages and disadvantages of an organization downsizing its number of employees. One of main disadvantages of downsizing is the affect that downsizing has on the remaining employees. After a major organizational downsizing there is a decrease in morale and a sense of insecurity amongst the remaining employees. The decrease in morale is not only felt by the colleagues of the released employees but by everyone within the company at all levels. The people that were in charge of the actual firing might feel guilty which might bring on depression. A decrease in employee loyalty and a feeling of resentment towards the company are also a result of downsizing. The results of which may result in lower productivities and higher turnover rates. In some cases the quality of produce being produce can also decrease as a result of employee attitudes. As noted above downsizing is “theoretically” supposed to increase productivity. The reason why it is only theoretical is that there are different studies to support both the increase and decrease in productivities as a result of downsizing.

Studies show that:

? ‘fewer than one-third of downsized firms received expected profit increases’ (Duran et al).

? ‘38% of surveyed companies that downsized reported no change in worker productivity; 34% reported increased worker productivity; and 22% reported decreased worker productivity’, (Filoposki, p. 71).

As can be seen from the above statistics downsizing is not always the best solution.

5. Steps in the Downsizing Process

If downsizing is inevitable, making sure that certain downsizing steps are implemented successfully and smoothly can reduce the negative affects of downsizing. There are four main processing in downsizing process: analysis, planning, implementation, and managing the survivors. These steps make it as easy a transition as possible for all parties involved. This process should be implemented with a large amount of guidance from the human resource department.

5.1 Analysis

The first step in the process of downsizing for the human resource department is the pre-downsizing stage. This step must be done before the decision of downsizing is made by the organization. This stage analyses the consequences and affects that the decision of downsizing may result in. The factors that are considered are the costs to the company, both direct and indirect, the stakeholders’ needs, the employees, and how downsizing would affect the organization as a whole. The organization should only consider downsizing as a long-term solution, not just a quick fix for the organization.

5.2 Planning

The next step in the downsizing process is planning stage. For the successful implementation of a downsizing process careful and complete planning by the human resource department and management should be done. This process should begin long before the formal announcement. If the decision of downsizing is made in the pre-downsizing analysis stage the next step in the process is to choose the best way to downsize. Two possible methods of downsizing are attrition and budget cutting. Attrition is when a company reduces its work force by not replacing employees that leave on a voluntary basis. This is a very slow process and therefore is not usually used as a downsizing method. Budget cutting is the most popular type of downsizing. As specified earlier downsizing of employees is the easiest and most widely used form of budget cutting. A company is able to reduce its workforce while increasing, or at least not decreasing, productivity by increasing the automation within the organization, removing certain positions, or increasing the workload of other employees. Another part of planning is the decision of when to downsize and which employees should be released. The positions that are less technical should be released before the highly technical positions since they are more difficult to fill. The timing of the announcement and the act of downsizing is very important. Timing should be balanced between company welfare and employee welfare. In depth planning is needed if downsizing is to be successful. The last step in the planning stage is to decide upon the details of the transition. Some of the options open to the employer are to offer: severance pay, outplacements, and job counseling. These will be looked at further in the managing the survivors stage.

5.3 Implementation

The third step involved with the downsizing process is its effective implementation. The morale and productivity of employees remaining after downsizing can be a direct affect of how the downsizing process is implemented. Thus, this is the most delicate of the downsizing processes. Therefore, it is important for all parties involved to be considered, including managers, the employees being laid off, and the remaining employees.

One of the first steps in that need to be done is the training of managers and supervisors. This is done before the announcement and is very important in the implementation phase. The supervisors need to understand that they will have a large communication role when the announcement is made, and particularly afterwards. Employees tend to trust their direct supervisor more than anyone else in the organization, so the supervisors need to have the communication and diplomatic skills necessary to deal effectively with the questions that may arise. Managers and supervisors also have to acquire the skills to cope with telling employees they are laid-off. This can be very stressful and difficult for most people. To providing supervisors with effective communication skills, they will have to be given considerable information about the company’s downsizing and future plans, so they are able to accurately and convincingly answer, employee concerns.

The implementation must be well planned, well organized, and well communicated. Employees should be notified in advance that there will be a downsizing, and the actual announcement should take place on the specific day promised. The statement should be carefully prepared and announced to all employees simultaneously. Senior managers should make the announcement. They should be open and honest about the reasons for downsizing, explaining the business rationale behind the decision, providing as much information as they can to employees, and be prepared to answer employees’ questions. Senior managers must also communicate the company’s vision for the future. This gives the survivors more trust in management’s ability to make the company successful. Also the senior managers should be prepared to listen to employees who need to vent their emotions right after the announcement. The information provided should include what the changes mean, and how employees, including those not laid-off, will be affected. Newsletters and meetings can be useful tools to provide information to employees. After the initial announcement, each manager or supervisor should meet with each employee in their department individually, either to inform them that they have been laid-off, or to give them information on what specific changes will be occurring that will directly affect them. Communication is the key to an affective and smooth implementation process and should be done before rumours begin, which can cause a decrease in morale and fuel resentment. Rumours often results in over-exaggerations, which may lead to insecurities amongst the workforce. The actual disruptions may be less devastating than what the rumours express, but if there is not enough open and honest communication, rumours may play a significant role, adversely affecting morale. Even after the announcement communication plays a major role in the process. As such, companies to encourage communication through the use of question drop off boxes.

Laid-off employees should be treated fairly, shown concern, given generous severance and benefits packages, and given assistance with finding other employment, not only to protect the reputation of the organization, but also to ensure that the survivors will feel more positively about the downsizing. Fairness is an important factor when an organization is in a downsizing situation. Perceived unfairness may be inevitable, but with excellent communication, and rational reasons given to employees misunderstandings and resentment should decrease.

Employee involvement during the implementation phase may help improve survivors’ morale and motivation after the downsizing. For example, employees can be involved in redesigning work, restructuring jobs, and improving internal processes to create greater efficiency. Employee involvement helps survivors feel more in control of their future. This involvement may decrease some of the negative feelings that the survivor may have, therefore productivity should be maintained or increased as a result.

5.4 Managing the Survivors

The last step in the downsizing process is the managing of the surviving employees. This step is very important to keeping the morale of the remaining employees. Even if the implementation of the downsizing has been done effectively, the company and remaining employees will still have many issues to resolve.

A number of critical issues need to be addressed if these employees are to become optimally productive contributors to the newly downsized organization. They are: survivors’ feelings of grief, resistance to change, fear, loss of confidence, motivation, trust, commitment, self esteem, employee loyalty as well as issues arising out of the increased workload, such as new skill requirements, and decreasing systems support.

Many employees resist change even when their employment status is not threatened. When that threat is present it is not at all surprising to find even more resistance than might be otherwise expected. The cause of this may be associated with fear. The fear is that downsizing, once begun, will become an ongoing process and though you may have survived this round, there is bound to be another round and you may not be so lucky the second time around. Once the expectation of secure employment has been violated, fear creeps into each employee’s consciousness and continues to eat away at confidence, motivation, trust, commitment, and self-esteem. These feelings may be intensified if the workload of an individual is increased as a result of downsizing. Now the employee may be required to work longer hours compounded by the complication of performing work that requires the acquisition of new knowledge, the mastering of new skills and the establishment of new relationships. These demands are further threats to the self-confidence of many employees, who fear that if they fail in these new tasks their job is at even greater risk.

Employee loyalty may be a concern during the post-downsizing stage. In addition to the increased workloads and new skills needed, opportunities for advancement and growth are often diminished. These factors may lead to an employee searching for better opportunities elsewhere. A lack of loyalty is one of the earliest results of downsizing.

An organization can help reduce some of the feelings that the survivors may have by ensuring the following (Mishra A., Umiker, and Mishra K.):

? Employees have adequate opportunity for personal growth/development.

? Make sure that survivors experience enhanced job variety and autonomy.

? There is reasonable opportunity for promotion/advancement.

? People receive appropriate recognition for excellence in their work.

? Employees are given the opportunity to accept additional responsibility.

? People are valued for their creativity and ideas.

Both managers and the human resources department are responsible for assisting employee adjustment to the changes caused by downsizing. The human resources management is responsible, perhaps more than ever before, for the development of existing staff within the organization. Employees who survive a downsizing often feel anxious and betrayed. HR can help these employees by providing emotional support, role clarification and career management assistance. Employee assistance programs may be one method used to assist with providing emotional support to survivors.

Managers also have an important role in dealing with survivors. Keeping an “open door policy” is one way to encourage communication within the department, which may help some of the employees to deal with and express their thoughts about the situation around them.

6. Conclusion

Downsizing is a very difficult choice that a company makes and affects a great deal of people in the process. The decision should be carefully analyzed before the actual decision is made in order to make the process easier on all parties involved. Six key things to keep in mind along with four general downsizing steps should be followed in order for a successful downsizing transition. The four main steps are: analysis, planning, implementation, and managing the survivors. Following these steps will reduce the negative affects that downsizing results from such as reduced loyalty, productivity, morale, and distrust in the company. Making the downsizing transition as easy as possible for all parties involved is the responsibility of both management and human resources. Steps should be taken to ease the affects of downsizing on employees, laid-off employees, and also management. The main key to a successful organizational downsizing process is good communication.


7. References

? Anthony, William., Pamela Perrewe, Michele Kacmar. Human Resource Management: A Strategic Approach Third Edition. Montreal: The Dryden Press Harcourt Brace College Publishers, 1999.

? Cascio, W.F. 1993. ‘Downsizing: What do we know? What have we learned?’. Academy of Management Executive, 7 (1), p. 96.

? Duran, Catherine A., Vinitia E Mathews,. “Some downsizing approaches more effective than others.” Health Care Strategic Management, Volume 17 Issue 9, 1999.

? Filoposki, D., November 1993, Volume 72, Issue 11, ‘Downsizing isn’t always rightsizing.’ Personnel Journal, p. 71.

? Hendricks, Charles., The Rightsizing Remedy: How Managers can Respond to the Downsizing Dilemma. Homewood: Society for Human Resource Management and Business One Irwin, 1992.

? Mishra, Aneil K., Gretchen M Spreitzer., “Explaining how survivors respond to downsizing: The role of trust, empowerment, justice, and work redesign.”

Academy of Management. Volume 23 Issue 3, 1998.

? Mishra, Karen E., Gretchen M Spreitzer; Aneil K Mishra., “Preserving employee morale during downsizing.” Sloan Management Review. Volume 39 Issue 2, 1998.

? Schwind, Hermann., Hari Das, and Terry Wager. Canadian Human Resource Management: A Strategic Approach Fifth Edition. Toronto: McGraw-Hill Ryerson Limited, 1999.

? Tomasko, R. Downsizing: Reshaping the Corporation for the Future’. New York: American Management Association, 1990.

? Umiker, William., “The essentials of compassionate downsizing.”

The Health Care Manager. Volume 17 Issue 4, 1999.


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