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Chapter 10

Chapter 10 - Downsizing and Restructuring

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Human Resources Management
HRM 3430
Gordon Qi Wang

Chapter 10 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 systems of the organization Downsizing  a set of 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. Three types of downsizing strategies: 1) Workforce reduction  A short-term strategy to cut the number of employees through attrition, early retirement or voluntary severance packages, and layoffs or terminations. • Allows for a relatively quick reduction • Impact is short-term • Organizations can lose valuable human resources 2) 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. • Frequently combined with workforce reduction • Includes: o Elimination of functions, groups or divisions o Reduction of bureaucracy o Redesign of tasks that employees perform • Takes longer because planning is required o Gets away from the problem of the organization simply doing what it always has done but with fewer people 3) Systematic change  A long-term strategy that changes the organization’s culture and attitudes, and employees’ values, with the goals of reducing costs and enhancing quality • Considerable amount of time to implement • Considers downsizing as an evolutionary part of an organization’s life with the goal of continuous improvement o Employees assume responsibility for cutting costs and search for improved methods and practices • Large human and financial commitment o Impact on bottom line rarely immediate o Approach is less than appealing to firms that focus on short- term profits or budget goals 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’ Advantages of Downsizing • Reduced costs (e.g., overhead, and operation cost) • Higher productivity • Improved financial performance • Reduced bureaucracy • Better communication • Improved decision making • Increased innovative activities Disadvantages of Downsizing • Not as effective as anticipated o Research findings are complex o Short-term vs. Long-term gain o Small-scale vs. Large-scale (cut more than 10% of jobs) o Narrowly-based (“pure employment”) vs. Broadly-based downsizing (“asset downsizers”) o Reactive vs. Proactive downsizing • Negative reactions from the financial market o Investors usually respond negatively to downsizing if it is financially motivated  The stock price for Research in Motion (RIM) dropped 4%, and even more after hours, to its lowest point in five years, when it announced layoff of 2,000 workers (11% of its workforce) on July 25, 2011. o Companies that offer incentives for voluntary resignations are viewed more favourably • Threats to an organization’s core competitive advantages o A loss of valuable employees o More attention to the downsizing process while ignoring customer and client needs o A shift from innovation to self-protection o Reduced employee commitment o Lower employee satisfaction o Less favourable employer-employee relations • Considerable impact on employees • Ethical concerns Legal Ethical  Concerns about: o Fairness o Justice o Integrity/truthfulness o Social responsibility  Protecting employees’  The motive of the action  The action itself o Statutory rights o Competence o Contractual rights o Legal requirements o Implied rights o Dignity in workplace o Balancing interests o Confidentiality o Conflict of interest o Professional growth
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