Downsizing and Restructuring

Chapter 11

1
 Downsizing and Restructuring

Downsizing-is the strategy to improve an

organization’s efficiency by reducing the
workforce, redesigning the work, or
changing the systems of the organization.
Downsizing strategies are there to improve
an organization’s efficiency by reducing the
workforce, redesigning the work or
changing the systems of the organization.

2
 Taxonomy of Downsizing
Kim Cameron's downsizing strategies are :
1. Workforce Reductions- short-term strategy to cut the
number of employees through attrition, early retirement or
voluntary severance packages, and layoffs or termination.
2. Work Redesign- medium-term strategy in which
organizations focus on work processes and assess whether
specific functions, products and/or services should be
eliminated.
3. Systematic Change- long-term strategy that changes the
organization's culture and attitudes, and employees' values,
with the goals of reducing costs and enhancing quality.

3
Taxonomy of Downsizing (cont)
Merely cutting staff is usually insufficient to achieve organizational
objectives and therefore, organizations look to restructure. There are
3 types of restructuring:

1. Portfolio restructuring - involves changes to

the business portfolio;
2. Financial restructuring - financial changes
such as reducing cash flow or increasing
levels of debt;
3. Organizational restructuring - any major
reconfiguration of internal administrative
structure that is associated with an
intentional management change program. 4
Why do organizations Downsize
Declining profit
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"

5
 Alternatives to Downsizing:
 Hiring freeze
Mandatory vacation
Reducing the workweek and overtime
Reducing salaries (and extending if necessary)
Short-term facility shutdowns
Obtaining cost-reduction ideas from employees
Voluntary sabbaticals
Lending employees
Exit incentives

6
 In placement and Out placement Issues
Outplacement --> providing a program of
counseling and job-search assistance for
workers who have been terminated.

In placement --> reabsorbing excess or

inappropriately placed workers into a
restructured organization

7
Some Key issues of Downsizing
Determining how many people will lose their
jobs?
Determining who will be let go; and on what
basis (seniority, performance, or potential)
Determining how the reduction will be carried
out; which methods will be used (attrition, early
retirement, severance, layoffs or termination).
Determining the legal consequences; will there
be violations (wrongful dismissal, employment
standards , collective agreement or human
rights).
8
Some Key issues of Downsizing (cont)
Designing current and future work
plans (Represents a key challenge for
the organization and is frequently
neglected).
Implementing the decision
Performing follow-up evaluation and
assessment of the downsizing efforts
(This step is crucial, but is often
ignored)
9
 Adjustments to the Job Loss
According to USA study 67% of the
downsized workers would never work
for the former company whereas, 54%
would not recommend that others
purchase the company’s products or
service and 11% would want to go to
media & talk about their lay-offs.

10
10
Adjustments to the Job Loss (cont)
Advance notification of layoffs, which gives
employees time….
Severance pay and extended benefits
Education and retraining programs, which give
individuals time to acquire marketable skills
Outplacement assistance to inform employees of
new job opportunities and to improve their ability to
"market" themselves
Clear, direct, and empathetic announcement of
layoff decisions
Consideration of HR planning practices that
represent alternatives to large-scale layoffs
11
Survivor Reactions on Downsizing
Negative attitudes and behaviors
Reduced performance capabilities
Lower organizational productivity
Less effort to ensure that the quality of the
individual's.
A lower score on "organizational citizenship
behavior“
Lower organizational loyalty (commitment to the
organization)
Higher levels of career loyalty .
 Effective 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
Decision-makers should identify where inefficiencies and
cost exist
Should result in the formation of small semi-autonomous
organizations within the broader organization
Must be proactive strategy focused on increasing
performance
13
Financial Performance and Downsizing
 HRM Involvement in Downsizing
Advising on restructuring the organization to maximize
productivity and retain quality performers.
Develop skill inventories and planning charts to evaluate
the impact of downsizing on HR needs and projected
capabilities.
Communicating the downsizing decision effectively.
Evaluating the downsizing program after completion.
Includes the assessment of who left the organization
and who remains.
Key issues include job design and redesign, worker
adjustment to change, the need for employee
counseling, organizational communication and a review
of the appropriateness of HRM policies and programs.
15
15