2. Downsizing

3. Fall 2008MGMT 412 | DownsizingPage 2 Downsizing: Why? Domestic competition Foreign competition Technological change Change in firm strategy Too often…Bad Management Sources: Cascio, 2002; Fox & Bernasek, 2003

4. Fall 2008MGMT 412 | DownsizingPage 3 Downsizing Trends Source: DoL, Bureau of Labor Statistics

5. Fall 2008MGMT 412 | DownsizingPage 4 Downsizing: Cases For and Against Benefits of downsizing Reduced costs Symbolism of cutting jobs Costs of downsizing Costs associated with downsizing Potential lawsuits Public image of firm Decreased loyalty of current employees Danger of losing the wrong people Difficulties in recruitment

6. Fall 2008MGMT 412 | DownsizingPage 5 Alternatives to Pure Downsizing Prevent the need… Staff with contingent workers Treat employees as assets… Reassign workers to different jobs within firm Retrain workers in new technologies Shorten hours / pay cuts When there’s no alternative….some less painful options Attrition Early retirements Layoffs (temporary) Voluntary severance

7. Fall 2008MGMT 412 | DownsizingPage 6 Attrition How and where First, a hiring freeze, then reduce workforce as employees quit or retire on their own Usually, the first step in most firms Advantages Managers not forced to make difficult decisions Employees leave voluntarily Disadvantages May not work quickly enough No control over which workers leave

8. Fall 2008MGMT 412 | DownsizingPage 7 Early Retirement How and where Financial incentives to retire FedEx Advantages Less painful Older and/or more senior workers are often paid more than younger workers, so fewer people affected Older workers may not have skills needed for new technologies Disadvantages Cost Lack of control May not attract enough people May attract too many people

9. Fall 2008MGMT 412 | DownsizingPage 8 Temporary Layoffs How and where Workers placed on furlough Seasonal industries (i.e., agricultural workers, IRS) Heavy industry (automobiles, steel) Temporary downturns (airlines...) Advantages Firm can decide which jobs to eliminate Laid-off workers can be recalled if needed Disadvantages Decreased loyalty and commitment Workforce may look for permanent work Source: Zimmerman, 2001

10. Fall 2008MGMT 412 | DownsizingPage 9 Voluntary Severance How and where: Generous severance packages offered to employees who voluntarily leave the company More and more, today (in Memphis, at FedEx) Pro: Less painful Con: Cost Lack of control Too many people may accept Not enough may accept Source: Cascio, 2002

11. Fall 2008MGMT 412 | DownsizingPage 10 Responsible Downsizing Think through what you’re doing and why Weigh the long-term advantage of keeping people, versus short-term benefits of layoffs Seek employee input It’s not a quick fix Make the process fair Communicate Give survivors hope Assist employees to cope with change Examine HR policies Sources: Barnes, 2003, Cascio, 2002