Chapter 10

Downsizing & Restructuring

Strategic Human Resource Planning
Downsizing Phenomenon
Survivors: employees remaining with an organization
after a downsizing
Downsizing strategy: Strategy to improve an
organization’s efficiency by reducing the workforce,
redesigning the work, or changing the system of the
organization
Downsizing: Activities undertaken to improve
organizational efficiency , productivity, and or
competitiveness that affect the size of the firm’s
workforce, its costs and its work processes.
Downsizing strategies
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 eliminated
Systematic change: a long term strategy that changes
the organizations culture and attitudes and employee’s
values with the goals of reducing costs and enhancing
quality.
Why Do organizations downsize?
Declining Profit
Business downturn or increased pressure from competitors
Merging with the other organization, resulting in the
duplication of efforts
Introduction of new technology
The need to reduce operations cost
The desire to decrease levels of management

MANAGERS BELIEVE THAT CUTTING PEOPLE WILL

REDUCE COSTS AND WILL RESULT IN FINANCIAL
PERFORMANCE
Alternatives to downsizing
In placement: reabsorbing excess or inappropriately
placed workers into a restructured organization

Outplacement: Providing a program of counseling and

job search assistance for workers who have been
terminated
Planning for downsizing
Determining how many people will lose their jobs
Determine who will be let go. For e.g. will the
decision be made on the basis of seniority,
performance or potential?
Determine how will reduction be carried out
Determine the legal consequences
Design the current and future work plans
Implementing the decision
Performing follow up evaluation and assessment
Adjusting to Job loss…
It Includes…
Advance notification of layoffs
Severance pays and extended benefits
Education and retraining programs
Outplacement assistance to inform employees of new
job
Clear, direct, and empathetic announcement of layoffs
decisions
Consideration of HR planning practices that represent
alternatives to large scale layoffs
The survivors of downsizing
Perceptions Of Justice
 Procedural Justice: Procedures or rules used to determine which employees will
be downsized
 Interactional Justice: the interpersonal treatment the employees receive during the
implementation of the downsizing decision
 Distributive Justice: the fairness of the downsizing decision

Survivor Reactions
 Negative attitudes and behaviors
 Reduced performance capabilities
 Lower organizational productivity

Impact on the “Downsizers”

Consequences of downsizing
There may be some unwanted consequences
 High human costs, psychological trauma experienced both by
those let go and the survivors, reduced employee commitment,
lower performance among employees due to job insecurity,
greater attention by management to the downsizing process
while ignoring customer and client needs, a shift from
innovation ton protection of one’s turf, lower morale, potential
litigation by employees who believe that they are victims of
discrimination, and a loss of valuable employees
 Effect of downsizing on the organization’s reputation for
downsizing on the organizations reputation for corporate
social performance(RSCP)
 Job Insecurity
Effective downsizing strategies
From strategic perspective a manager should consider:
should we downsize? When should we do it? How
should we do it? The focus should be on rightsizing
which is supported by management , understood by
employees and involving a sense of “ ownership” by
the members of firm

Effective communication and early employee

participation
Effective & Ineffective
Downsizing strategies
Downsizing should be initiated from the top but requires hands on
the involvement from all the employees
Workforce reduction must be selective in application and long term
in emphasis
Special attention should be paid both to those who lose their jobs
and to the survivors who remain with the organization
Decision makers should identify precisely where redundancies
excess costs and inefficiencies exist and attack those specific areas
Downsizing should result in the formation of small,
semiautonomous organizations within the border organization
Downsizing must be proactive strategy focused on increasing
performance
It is Important for employer …
Attend to rumors
Provide survivors with the available information on
the downsizing
Ensure that survivors are aware of the new
organizational goals
Make exceptions clear
Tell survivors they are valued
Allow time for grieving
Some important aspects
The new deal in employment and psychological
contract

Downsizing and high involvement HRM

Labor Relations Issues

Questions…