FACILITATOR Prof. Dr. Mohammad Majid Mahmood Art of Leadership & Motivation HRM – 760 Lecture - 8

Role of Leaders in Downsizing: Who Goes and Who Stays? 2

Faulty Assumptions Leaders will handle the downsizing just fine because “they are leaders” Once we get past the downsizing, things will return to normal We only need to worry about what is happening inside the organization walls 3

The Tough Part of Downsizing: How to say what you don’t want to say to people who don’t want to hear it 4

Downsizing What is Downsizing? Downsizing - process of reducing the number of employees within an organization by eliminating jobs. 5

Downsizing What is Downsizing? A downsizing strategy 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. 6

Downsizing Why do Firms Downsize? Reduce costs Reduce layers of management to increase decision making speed and get closer to the customer Sharpen focus on core competencies of the firm, and outsource nonessential activities Generate positive reactions from shareholders Increase productivity 7

Downsizing Downsizing doesn’t guarantee improvements or cost savings. It can have a devastating impact on employee morale 8

Downsizing Issues 2011 (EASNA Survey) 9

There is no perfect way to handle downsizing that “feels right” or “goes well” for everyone involved. 10

What happens to the organization? Employees can turn into headcounts where there is a decreased emphasis on understanding the personal impact of downsizings and change Stress typically increases in response to restructuring or increased workload The work environment is marked by fear of job loss and paranoia (both real and imagined) The focus on employee engagement can change to “just be glad you have a job” Resources shift away from “softer” people issues like diversity, learning, safety and instead focus on economic or business outcomes 11

The impact on surviving employees Threat of job loss can increase the risk of workplace accidents as surviving employees show less concern for safety in order to meet production standards (2010 Journal of Occupational Health) Increased physical complaints, stress, abuse, and domestic/social problems Crime, workplace theft, violence, and suicide rates tend to increase 12

Downsizing Effects: Overall Mixed effects on firm performance: some short- term costs savings, but long-term profitability & assessment 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. 13

Downsizing Effects: Employee Morale Employee motivation disrupted: increase in political behaviors, anger, fear - which is likely to negatively impact quality of work Violation of psychological contract, leads to distrust, and lowered work commitment “Survivors” experience more stress due to longer work hours with re-designed jobs, and increased uncertainty regarding future downsizings 14

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. Early retirements & voluntary reductions often result in too many people quitting, and some are hired back as consultants at higher cost to firm. 15

Alternatives to Downsizing (Gomez-Mejia, Balkin & Cardy, 2011) Employment Policies Changes in Job Design Pay/Benefits Policies Training Hiring freezeTransfersPay freezeTraining Voluntary time off RelocationsCut over time payDevelopment Reduced work hours Job sharingUse vacations & leave days Retraining DemotionsPay cuts Profit sharing/variable pay 16

Leadership Challenges in Downsizing What are fair and effective HR policies for separations, and downsizing? How can legal issues be minimized in separations? 17

Prepare for Downsizing Communication is key Give as much warning as possible for downsizings Announcement of downsizing(s) must be managed – Group meeting-individual meetings – Individual meetings-group meeting Give facts - Determine where to hold the meeting 18

Prepare for Downsizing Meetings Know organization policies and benefits Determine if security should be present Determine who will give notice and when – Consider notice given by higher level manager – Followed by meeting with immediate manager Determine when notice is to be given – Late in the day so employee(s) can leave – Early in the morning before employees arrive 19

In the Process of Separation Use a private office Sit down one-on-one with the individual Be sure the employee hears about his or her termination from a manager, not a colleague. Be clear Don’t leave room for confusion. Put everything in writing Provide written explanation of separation benefits. Allow no time for debate Tell the individual in the first sentence he or she is terminated or laid off. Complete a firing session within 15 minutes. 20

In the Process of Separation Maintain the integrity of all Don’t make personal comments; keep the conversation professional. Don’t rush the employee off-site unless security is really an issue. Express appreciation for what the employee has contributed, if appropriate. Don’t fire or lay people off on significant dates, like the twenty-fifth anniversary of their employment or the day their mother/father died. Don’t fire employees when they are on vacation or have just returned. 21

What to say in Downsizing Get to the point quickly Avoid words like “fire” and “terminate” Do not argue Be prepared to listen sensitively but limit discussion- 22

What to say in Downsizing Be honest: – Tell the employee why he or she is being laid off. – You may cushion the poor performance assessment in a variety of ways, but the truth must be told. – For any downsizings due to poor performance, a recent record of poor performance reviews will support your decision and justify it to the employee. It may also be used as evidence if a wrongful dismissal suit is filed against the employer. 23

What to say in Downsizing Be compassionate: – Being laid off can be painful. Show the terminated employee some sympathy and understanding. – If your company has the capability, provide outplacement services or job counseling to help cushion the blow. – Keep the employee's ego in mind - you can provide it by praising previous accomplishments. 24

Completing the Downsizing Meeting Listen and acknowledge concerns Remember this is not personal Stop giving unnecessary information- the employee is not hearing you Have tissues available Offer to end the meeting or give the employee a moment to leave 25

Completing the Downsizing Meeting Listen intently by concentrating on what the person is saying Don’t interrupt- focus on the employee Be patient – hear the employee out in the limited amount of time allotted 26

Completing the Downsizing Meeting Give employee(s) written materials Thank the employee for service and commitment to the organization Discuss reference for future employment 27

PREPARING FOR A WORSE CASE SCENARIO: 28

Recognizing the Angry/Threatening Employee Early identification is key Employees who may respond with potential violence are those who: – Continually express discontent – Display unmanageable incidents of anger – Demonstrate verbal/non-verbal threats or intimidation – Verbalize plan to hurt self or others – Show an inability to take criticism – Express feelings of being victimized 29

Responding to the Angry/Threatening Employee Have security available before the meeting Acknowledge the person’s feelings Establish ground rules if unreasonable behavior persists Use delaying tactics – Leave the room – Offer water 30

Responding to the Angry/Threatening Employee Accept criticism of the organization or self in a positive way Be an sympathetic listener Maintain a relaxed yet attentive posture 31

Responding to the Angry/Threatening Employee Do NOT Use styles of communication such as disrespect Pose in challenging stances such as standing with arms crossed or at hips Challenge or threaten the individual(s) Attempt to bargain with the threatening individual(s) Make false statements or promises you cannot keep 32

Responding to the Survivors Communicate, communicate, communicate Recognize, support and reward good performance Inform about coming changes Provide a realistic picture of the organization’s future Listen and show respect Ask employees their opinion about things 33

Acknowledge the right direction and right attitudes, do not wait until a project is completed Celebrate small successes Make training/development opportunities available Offer survivors to share feelings, concerns about the past Encourage and coach Responding to the Survivors 34

FINALLY Be calm and honest 35

FACILITATOR Prof. Dr. Mohammad Majid Mahmood Bagram 36