STRATEGIC HUMAN

RESOURCE MANAGEMENT

Retrenchment, Redundancy, Downsizing, HR

outsourcing, Employee Leasing
Retrenchment

When a company or government goes through

retrenchment, it reduces outgoing money or
expenditures or redirects focus in an attempt to
become more financially solvent.

Many companies that are being pressured by

stockholders or have had flagging profit reports may
resort to retrenchment to shore up their operations and
make them more profitable.
Retrenchment and Layoffs

Although retrenchment is most often used in countries

throughout the world to refer to layoffs, it can also
label the more general tactic of cutting back.

Layoffs is more associated with employees and it

means about cutting the overall number of employees
of the firm.
Tactics of retrenchment

 Slash expenditures by laying off employees, closing superfluous

offices or branches, reducing benefits such as medical coverage or
retirement plans, freezing hiring or salaries, or even cutting salaries.

 Can be non-employee related, such as reducing the quality of the

materials used in a product, streamlining the process in which a
product is manufactured or produced, or moving headquarters to a
location where operating costs are lower.

 Downsize in one market that is proving unprofitable and build up

the company in a more profitable market. If one market has become
obsolete due to modernization or technology, then a company may
decide to change with the times to remain profitable.
Concept & issues of retrenchment

 In capitalist nations, retrenchment is effected by

lowering taxes in the hopes of pumping more money
into the economy. This tactic is always healthily
debated throughout all levels of government.
 Employees are often the casualty of retrenchment, as
the tactic does not take their interests into account.
They are often considered simply as commodities
that are either profiting or costing the company, and
are therefore either a necessary expense or a
financial liability.
Strategies for retrenchment

 Captive Company - Essentially, a captive company's destiny

is tied to a larger company. For some companies, the only way
to stay viable is to act as an exclusive supplier to a giant
company.
 Turnaround - If a company is steadily losing profit or market
share, a turnaround strategy may be needed. There are two
forms of turnarounds: First, one may choose contractions
(cutting labor costs, etc.) & second, they may decide to
consolidate.
 Bankruptcy - This may also be a viable legal protective
strategy. If one declares bankruptcy with loyal customers,
there is at least a possibility of a turnaround.
Strategies for retrenchment

 Divestment - This is a form of retrenchment strategy used by

businesses when they downsize the scope of their business
activities. Divestment usually involves eliminating a portion of
a business. Firms may elect to sell, close, or spin-off a
strategic business unit, major operating division, or product
line.

 Liquidation - Take the book value of assets, subtract

depreciation and sell the business. This may be hard for some
companies to do because there may be untapped potential in
the assets.
When to consider retrenchment

 Divest businesses too small to make sizable contribution

to earnings having little or no strategic fit with firm’s core
businesses options.

 Retrenchment revolves around cutting sales.

 Retrenchment is a corporate-level strategy that seeks to

reduce the size or diversity of an organization's operations.

This strategy is design to fortify an organization's basic

distinctive competence.
Redundancy

An employee is said to be retrenched when his or her job

becomes redundant and the employer either cannot offer the
employee any alternative position or, any alternative position
offered by the employer cannot be accepted by the employee.

An employee is often referred to as redundant but a more

accurate description is that the job the employee was
employed to perform is redundant (that is, the employer does
not want the job performed by anyone, anymore) and the
employee's employment is then terminated by reason of that
redundancy. That is, a job becomes redundant, not an
employee.
Organizational issues

 In cases of termination by reason of redundancy

(that is, retrenchment), the law requires an
employer to treat the employee fairly and lawfully.

 Redundancy and unfair dismissal laws interact in

such a way that a retrenched worker can make a
claim for unfair dismissal. However, the court will
take the view that provided the employer has acted
in good faith then the employer's needs must be
respected.
Circumstances for redundancy

 Worker was unfairly selected for redundancy

 The worker was selected for redundancy because of
work performance without having been given the
opportunity to respond to the employer's concerns
about his ability or performance
 The worker was not properly consulted before the
decision to retrench was made;
in some cases non-award employees can attack the
adequacy of the redundancy payments made to
them
Downsizing

 Downsizing is a commonly used euphemism which

refers to reducing the overall size and operating
costs of a company, most directly through a
reduction in the total number of employees.

 When the market is tight, downsizing is extremely

common, as companies fight to survive in a hostile
climate while competing with other companies in
the same sector. For employees, downsizing can be
very unnerving and upsetting.
Reasons for downsizing

 To make the daily operations of a business more

efficient. For example, a company may be able to
replace assembly line employees with machines
which will be quicker and less prone to error.
 Downsizing increases profits by reducing the
overall overhead of a business.
 A company may decide to shut down an entire
division; a car company, for example, might decide
to stop making sedans altogether, thus cutting an
entire department.
Employee downsizing

 Employees may be terminated, fired, laid off, made redundant, or released.

A business may be optimized or experiencing a reduction in workforce.
 Since profit is an important bottom line for companies, downsizing
measures should be expected by employees, especially when they observe
a troubled market or they are working for a struggling company.
 For employees, the process can be stressful, because they may feel
uncertain about whether or not they will continue to employed.
Sometimes, downsizing is very abrupt, with a huge batch of employees
being released from employment on the same day, while in other cases it
may be a more drawn out and nerve wracking process in which employees
are slowly let go.
 Employers should remember that downsizing is very upsetting and
stressful, and they should take steps to make it run smoothly while
assuring valued employees that their jobs are secure.
Organizational issues

 Layoff, may refer to a mass temporary release of employees

who will brought back in once business picks up, while a
redundant employee is one who is asked to leave permanently.

In a business enterprise, downsizing is reducing the number of

employees on the operating payroll. Some users distinguish
downsizing from a layoff , with downsizing intended to be a
permanent downscaling and a layoff intended to be a temporary
downscaling in which employees may later be rehired.
Businesses use several techniques in downsizing, including
providing incentives to take early retirement and transfer to
subsidiary companies, but the most common technique is to
simply terminate the employment of a certain number of people.
Outsourcing

Very simply outsourcing can be defined as a process in which a

company delegates some of its in-house operations/processes to a
third party.

Thus outsourcing is a contracting transaction through which one

company purchases services from another while keeping ownership
and ultimate responsibility for the underlying processes.

The clients inform their provider what they want and how they want
the work performed. So the client can authorize the provider to
operate as well as redesign basic processes in order to ensure even
greater cost and efficiency benefits.
HR outsourcing

HR outsourcing is the delegation of a human

resources process or processes to an external HR
provider that specializes in this service.

This provider takes charge of managing and

administering the outsourced services for its client.
Strategies for HR outsourcing

 Identification - While these processes are purchased from said

providers, the ultimate responsibility for the processes still
rests with the purchasing company. Outsourcing is an option
that's being explored by an increasing number of companies
for reasons that include increased efficiency and cost savings.
 HR Functions - These key features include hiring, employee
compensation, benefits, training and development, safety and
wellness, employee performance management vis-à-vis
company standards, evaluation, sanctioning and firing.
 Details - The HR division or group may previously have
administered said process or processes for the company but
may have decided or have been instructed to outsource it.
Strategies for HR outsourcing

 Reasons - reduced operations costs, increased company

efficiency, access to HR expertise that may not be available
within the company and which the company may not wish to
acquire or develop, strategic reasons, such as a change in the
company's goals and focus.

 Qualifications – one factor is the range of HR services the

provider can handle, as well as the HR resources it has at its
disposal. Another is the provider's reputation in the industry. A
third is whether the provider's strategy is in context with that
of the parent company.
Organizational issues

Outsourcing operations happen for increasing the net

profits of the companies as they find it cost effective very
much in the long run by outsourcing their operations.
However companies must look beyond initial cost saving
and must analyze the impact of outsourcing on employee
satisfaction and the overall organizational performance.
Giants like PepsiCo and Duke Energy and other big
companies have started outsourcing their Human
Resource operations. This clearly shows the importance
of firms understanding as to why the operations have
been outsourced and matching metrics to those goals.
Organizational issues

By outsourcing, an organizations HR team can

connect between recruitment sources and the
performance of the recently hired employees. Trading
investments and performance rankings can be
connected. Employee exit data and their total reward
programs can also be compared and connected. These
things give an organization a better and an effective
basis for evaluating its programs.
Employee leasing

Arrangement in which a firm (called subscribing

firm) transfers its employees to another firm (called
leasing firm) which specializes in human resource
management, payroll accounting, and risk
administration.
The subscribing firm leases its employees back as
employees of the leasing firm and usually pays more
for their services than their salaries at the time of
transfer. This way the payroll and associated expenses
and taxes of the leased employees become the leasing
firm's liabilities.
Organizational issues

Better management of workplace safety can help control the

cost of worker compensation. Improved hiring practices and
experienced representation in unemployment insurance
benefit and tax matters can help keep the cost of
unemployment compensation down.
Because leasing companies represent a number of
employers, and therefore a larger pool of workers, the cost
of benefits can sometimes be lowered. In some cases, client
employers, which could not afford to provide certain
benefits such as health insurance, find it affordable to do so
when taking advantage of the buying power of an employee
leasing company.
Questions