Downsizing

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Prepared by:
Nikki Shrestha Bhuwanesh Man Rajbhandari Roshan Yadav Akhilesh Yadav Manu Priya Shreshta Mittal

and / or competitiveness´. productivity. .‡ It refers to the process of reducing the number of employees on the operating payroll by way of terminations. retirements. downsizing can be defined as ³a set of organizational activities undertaken by the management. ‡ From the management's point of view. designed to improve organizational efficiency.

. Buyout is a similar technique that includes offering lump sum payment to encourage employees (eligible/not eligible for voluntary retirement or regular retirement) to voluntarily leave the organization. ‡ Voluntary retirement and buyout benefits: Voluntary retirement benefits encourage employees to retire early with full or reduced pension benefits before the stipulated retirement age. It is a normal Human Resources (HR) practice of a downsizing company to freeze hiring totally / partially.‡ Attrition: Natural reduction of workforce that occurs when employees leave the organization due to retirement. death or resignation.

‡ Involuntary Separation/Layoff: A layoff may be defined as the separation of an employee from service for involuntary reasons other than resignation. not reflecting any discredit on the employee. which downsized to cut costs rather than to reduce the workforce by a certain number. It was also defined as termination of an employee's employment for reasons beyond the control of an employee and which do not reflect discredit on the employee. . but with the guarantee of job when they return at the end of their leave period. This strategy was useful for firms.‡ Leave without pay: Leave without pay is granted to employees with reduced benefits.

‡ These companies not only reduced their workforce. . Companies such as General Electric (GE) and General Motors (GM) starts downsizing.‡ Till the late-1980s. they also redesigned their organizations and implemented quality improvement programs. the number of firms that adopted downsizing was rather limited. but the situation changed in the early-1990s.

‡ By the mid-1990s. fall in inflation. . decrease in level of unemployment. and high profits. increasing national incomes. factors such as increased investor awareness. stronger economies. reduced the need for downsizing across the globe.

‡ To eliminate duplication of work after mergers and acquisitions (M&As). ‡ To optimize resources and cut costs. . ‡ To increase productivity and efficiency by eliminating unnecessary intermediary channels and ‡ Companies expected the productivity of employees remaining after downsizing to increase as they thought it would be easier to train and manage a smaller workforce.

000 7.250 1.200 2.000 6.500 3.400 18.000 10.500 2.YEAR COMPANY INDUSTRY NO.00 1.000 1998 1998 1998 1998 1998 1998 1998 1998 1998 1998 Boeing Citicorp Chase Manhattan Bank Kellogg BF Goodrich Deere & Company AT&T Compaq Intel Seagate Aerospace Banking Banking FMCG Tires Farm Equipment Telecommunications IT IT IT . OF EMPLOYEES DOWNSIZED 20.

000 68.000 3.000 4.000 2.000 2.250 28. OF EMPLOYEES DOWNSIZED 1999 1999 1999 2000 2000 2001 2001 2001 Chase Manhattan Bank Boeing Exxon-Mobil Lucent Technologies Charles Schwab Xerox Hewlett Packard AOL Time Warner Banking Aerospace Petroleum IT IT Copiers IT Entertainment 2.YEAR COMPANY INDUSTRY NO.400 .000 9.

anger and bitterness in the downsized employees.‡ Depression. frustration. . anxiety. ‡ µSurvivors¶ experienced low morale and high stress and had to cope with an increase in workload.

‡ A survey conducted by the American Management Association revealed that less than half of the companies that downsized in the 1990s saw an increase in profits during that period. ‡ The survey also revealed that a majority of these companies failed to report any improvements in productivity .

including France. ‡ The tax burden of such companies increased because they were no longer exempt from various payroll taxes. and submit a plan to the government regarding the retraining program of its displaced employees (for their future employment). ‡ This type of tax already existed in France. ‡ Also. contribute to an unemployment fund. it damaged the chances of potential job seekers to get into the company. . This tax was mainly responsible for the low rate of job creation and high rates of unemployment in many European countries. where companies downsizing more than 40 workers had to report the same in writing to the labor department.‡ Some economists advocated the imposition of a downsizing tax (on downsizing organizations) by the government to discourage companies from downsizing. This policy restrained a company from downsizing. such companies had liable to pay high severance fees.

. including France. ‡ This tax was mainly responsible for the low rate of job creation and high rates of unemployment in many European countries. it damaged the chances of potential job seekers to get into the company.‡ This policy restrained a company from downsizing.

decreased absenteeism and employee turnover.‡ During the early 21st century. increased ability to recruit and retain superior quality employees improved service to clients in various time zones. many companies began offering flexible work arrangements to their employees in an attempt to avoid the negative impact of downsizing. reduced stress on employees. and better use of office equipment and space. ‡ A flexible working arrangement resulted in increased morale and productivity. .

use of newsletters. video conferencing and informal employee dialogue sessions. all staff meetings. employee rights and tips for surviving the situation. videos. face to face interaction. fax. breakfast gatherings.‡ A few common methods of communication adopted by these companies included small meetings. and brochures and guides to educate employees about the downsizing process. one-on-one discussion. memoranda. e-mail and bulletin boards. telephone hotlines. .

.‡ In many organizations where downsizing was successfully implemented and yielded positive results. it was found that senior leaders had been actively involved in the downsizing process.

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