1. Downsizing and Restructuring
Chapter 10
Downsizing and Restructuring

2. Learning Objectives After reading this chapter, you should be able to:
Appreciate the importance of defining “downsizing”
Be familiar with the complexity of the downsizing decision
Recognize the need to address concerns of both the victims and survivors of downsizing

3. Learning Objectives After reading this chapter, you should be able to:
Be aware of the ethical issues and consequences of downsizing
Understand what downsizing strategies are effective in enhancing organizational performance
Comprehend the concept of the “psychological contract”
Develop an awareness of the importance of HRM in managing the downsizing process

4. 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

5. Survivor
Survivor – an employee remaining with an organization after a downsizing

6. Three Types of Downsizing Strategies
Cameron identifies three types of downsizing strategies:
Workforce reduction
Work redesign
Systematic change

7. 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

8. Process Maps

9. 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

10. Why do Organizations Downsize?
Declining profits
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”

11. 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.”

12. 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

13. Downsizing Alternatives
Cutting nonpersonnel costs
Cutting personnel costs
Providing incentives for voluntary resignation or early retirement

14. Downsizing Alternatives (Gandolfi, 2008)
Short-term
Hiring freeze
Mandatory vacation
Reduce workweek
Reduce overtime
Reduce salaries
Facility shutdowns
Employee input for alternatives to cutbacks

15. Downsizing Alternatives (Gandolfi, 2008)
Medium-term
Extending reductions in salaries
Voluntary sabbaticals
Lending employees
Exit incentives

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

17. 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

18. Adjusting to Job Loss Advance notification of layoffs
Severance pay and extended benefits
Education and retraining programs
Outplacement assistance
Clear, direct, and empathetic announcement of layoff decisions
Consideration of HR planning practices that represent alternatives to large-scale layoffs

19. 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

20. The “Survivors” of Downsizing
Job insecurity - feelings of concern about the continuing existence of a job

21. Perceptions of Justice
Three types of justice warrant consideration:
Procedural justice
Interactional justice
Distributive justice

22. 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

23. Survivor Reactions Negative attitudes and behaviours
Reduced performance capabilities
Lower organizational productivity
Emotions: anger, anxiety, cynicism, resentment, retribution, hope

24. 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

25. Effective Downsizing Strategy
Focus on rightsizing
Establish a sense of ownership
Active role for HR department
Monitor downsizing and link to organizational strategy
Train management with downsizing techniques
Increased communication
Increased employee participation
Systematic analysis of tasks and personnel requirements
Visibility of senior management

26. Best Practices of Downsizing
Downsizing should be initiated from the top
Workforce reduction must be selective in application and long-term in emphasis
Special attention should be paid to both those who lose their jobs and to the survivors who remain in the organization

27. 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

28. HRM Issues Managing the Changing Psychological Contract
The “New Deal” in Employment
Altering the Psychological Contract
Downsizing and “High- Involvement” HRM
Labour Relations Issues

29. 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
Downsized the Web Series Episode 1