A Strategic Look at Downsizing - Essay Example

A Strategic Look at Downsizing Introduction Often expressed as ‘organisational downsizing’, the human resource implications of such occurrence have usually been quite detrimental to productivity, employment relations, and personal lives. Downsizing has been a persistent corporate strategy recently due to the weak economic situation. Over the years, an organisation’s common solution to economic challenges was to trim down the number of its employees (Karake-Shalhoub 1999). The current unfavourable economic environment has been unrelenting and ongoing. Consequently, according to Schuler and Jackson (2007), a large number of organisations that were performing poorly have shut down, and majority of those that have endured were obliged to reorganise so as to make their operations more efficient and realise operating cost reductions that would guarantee their long-term competitiveness on the international and domestic markets. This essay discusses downsizing in terms of strategic human resources management (SHRM). The next section discusses the effect of organisational downsizing on human resources; then the SHRM components associated with downsizing; and SHRM solutions that organisations can use to make downsizing successful. The last section recommends strategies by which companies can avoid negative consequences of downsizing and effectively realise their streamlining objectives. Effect of Organisational Downsizing on Human Resources Downsizing usually attains its urgent goal of better competence, but it is not without a cost; employment relations may change drastically. The loyalty of employees to their organisations has traditionally been viewed as an important ingredient of a competitive company (Schuler & Jackson 2007). For instance, researchers who study Japanese companies conclude that one of the most essential elements of their success is their commitment on making sure that employees’ interests complement the companies’ objectives (Casson 2000). According to Gilley and Maycunich (2000), downsizing and the consequent transformation in employee dedication endanger the way employees perceive their occupations and their selves. Downsizing, in that case, has altered the ways in which employees and their organisations relate. Usually, commitment was recompensed with security. Yet, with numerous companies deciding to downsize, they are no longer capable or keen to assure long-term employment. When organisations economise its workforce, they suppose the remaining workers will team up for the general interest (Gratton et al. 1999). Few of the studies putting emphasis on the effect of downsizing on the remaining employees have reported that, depending on external and internal environments, downsizing may influence various work approaches and behaviours of the remaining employees (Gratton et al. 1999). These employees response to downsizing have possible major relevance to corporate survival. To put it briefly, when organisations downsize, they usually concentrate their efforts on the individuals who are to be laid off. Such organisations have a tendency to disregard the difficulties confronted by workers who stay with the organisation (Mathys & Burack 1993). Unluckily, according to Gilley and Maycunich (2000), the disaffection and emotional difficulties of ‘surviving’ employees can have a detrimental effect on organisational efficiency and individual lives. It has been proposed in the existing SHRM literature that the answer could be found in a thoroughly developed organisational policy designed to ease fears and reviving the modified, leaner labour force. Strategic Human Resource Component in Downsizing Alongside the growth of research on corporate downsizing, a novel viewpoint surfaced in the human resources (HR) discipline, referred to as ‘strategic human resource management’, which “involved linking human resource management (HRM) to firm-level outcomes with financial and strategic importance” (Butler, Ferris, & Napier 1991, 1). Proponents of SHRM claim that successful corporate strategy planning and execution necessitates a consolidated, highly central position for HRM role. Given that most corporate strategic plans have major repercussions for the form, the sum, and the structure of its HR, top HRM managers should be active contributors to the process of strategy planning from its beginning (Schuler & Jackson 2007). According to Burke and Cooper (2005), scholars focusing on this issue have emphasised the importance of putting together corporate strategies, HR processes, corporate attributes, and corporate life cycles. Moreover, they have emphasised the major task performed by the HRM function in effectively executing strategic plans, particularly those demanding major corporate change. As anticipated, while regard for downsizing management became more widespread in the SHRM literature, SHRM scholars began to look at its importance to the HRM role. For instance, Ferris and colleagues (1984) created a downsizing perspective on the basis of the extent of qualitative adjustment in the company’s position and the decline rate in company assets or resources (as cited in Grieves 2003). Other scholars have proposed techniques for HRM practitioners to remove survivor distress, prevent loss of competent workers, and take up the function of ‘transition manager’ throughout the process of downsizing (Cropanzano 1993). Inopportunely, only a small number of studies have investigated the impact of downsizing on HRM processes, or the relevance of the HRM role to successful corporate downsizing attempts (Grieves 2003). Due to the bleak rate of success of downsizing attempts, it is crucial that both theory and practice acquire greater knowledge of the aspects affecting the results of a major downsizing attempt. Organisational downsizing has often been in the form of acquisitions, mergers, and closures (Gratton et al. 1999). Downsizing, according to Band and Tustin (1995), is “one tactic within a corporate strategy for shifting the organisational structure from what it is now to what it has to be in order to sustain competitive edge and satisfy customers’ needs” (as cited in Grieves 2003, 49). Yet, if involves the workforce and viewed as a strategic organisational goal, then it occupies a practical and ethical function. Thus, Band and Tustin (1995) claimed that (as cited in Grieves 2003, 50): If the objective of downsizing should be to raise productivity per head, then strategic downsizing can achieve this—layoffs cannot. It is possible to plan to reduce a workforce. In the absence of severe financial and environment factors, which usually dictate an immediate layoff, downsizing can be carried out with the full commitment of the workforce to the long-term benefit of the company. Once downsizing is seen as a strategic requirement, it immediately becomes ‘rightsizing’. Hence, rightsizing aims to restructure the company by forming primary and secondary workers (Schuler & Jackson 2007). Theoretically, the flexible organisation is thus capable of adjusting to the marketplace’s flexibility. According to Burke and Cooper (2005), two kinds of workers surface, namely, (1) a group of flexible workforce that comes and goes as the necessity occurs, and (2) central employees with definite job permanence. The Excellence Movement was claimed to be a framework deviating from tradition. It seemed to become the post-bureacuratic key by reshaping organisations with ‘adaptable’ practices and ‘flatter structures’ (Grieves 2003, 50). Nevertheless, the post-bureaucratic type of flexibility and informality promoted by empowerment courses has also become related to the disadvantages of downsizing (Burke & Cooper 2005). The Excellence Movement paradigm bears emotional and behavioural repercussions unfavourable to the objectives of empowerment courses. Such repercussions can be explained as follows (Grieves 2003, 50): (1) delayering to form more aggressive and leaner companies that have economised to the critical centre by taking out entire levels of middle management; (2) to change practical strategic formulating and bureaucratic arrangements so as to manage volatile situations with strategic planning; (3) a particular technique is to ‘disaggregate’ or outsource to enhance ‘adaptability’; and (4) organisations ‘decentralise’ by dividing their administrations into autonomous or smaller divisions (p. 50). Each of the abovementioned repercussion has relevance to SHRM. Disaggregation, for instance, demands de-concentration of assets or investments hence overturning the ‘the historic trend towards vertical integration’ (Casson 2000, 248). Downsizing and de-layering usually make available an impartial expression to lawful dismissing workers and still demand more useful communication by employees who stay through independent groups (Casson 2000). Moreover, according to Butler and colleagues (1991), incentives and career directions are changed from personalised employment relations to more dependence on other group-directed ways for dealing with each other. Even though the rationale for downsizing frequently refers to the issue of organisational crisis, it manifests as well an aspect of organisational change that perceives ‘capability’ as regards to the novel management techniques rooted in empowerment and recreated flat structures (Gilley & Maycunich 2000). A major interest is the manner wherein downsizing’s accounting process, concentrating on cutting back costs, disagrees with the idea promoted by the Excellence Movement (Grieves 2003). The popularity of the discourse on cost cutback has resulted in an unconstructive suspicion concerning the intentions for organisational change. Even though unstable settings are growing to be ordinary, McHugh has argued that “management within organisations stands accused of looking at the needs of the organisation and overlooking the needs of employees” (Cropanzano 1993, 114) resulting in an inequality between the needs of workers and those of the organisation. The rate of failure of downsized companies seems to be elevated for various causes that involve (Cropanzano 1993, 114-115): (1) a miscalculation of the complexity of human concerns produced in an acquisition or merger; (2) a considerable exhaustion of assets that weaken performance; and (3) the failure of top managers to assess the intricacy of change concerns associated with organisational cultures and the integration of highly diverse organisations. According to Davidson (1991), at most 20% of merged companies attain their objective of capitalising strategic and financial goals (as cited in Grieves 2003, 51). Numerous aspects explain this rate of failure such as, according to Marks (1997), “paying the wrong price, buying for the wrong reason, selecting the wrong partner or buying at the wrong time. Another reason, however, that contributes to the high failure rate is managing the post-merger integration process inappropriately” (as cited in Grieves 2003, 51). Nevertheless, large numbers of companies that were not able to get the needed cost cutbacks usually do so for they ignore the human aspect of the endeavour. The answer to some extent is that most organisations were not able to attach downsizing techniques to the organisation’s more permanent strategic requirements. Even for organisations that have a background in informed HR processes and policies, like International Business Machines (IBM), encountered major problems in estimating the ‘correct’ level of workers required in the coming years because of unexpected changes (Mathys & Burack 1993). Because of serious downturns in their tactical marketplace, IBM has been compelled recently to withdraw their lifelong employment plan for the downsizing needed could no longer be managed through early retirement policies. Workers who are important to the company’s continued existence could make use of early-retirement plans or could be abruptly laid off (Mathys & Burack 1993). According to Schuler and Jackson (2007), the key to such concerns is to treat these unfavourable circumstances not only as risks, but also opportunities. Furthermore, downsizing organisations frequently devalue the ‘unseen’ outlays of dismissing highly qualified, trained, and experienced workers, most to the detriment of the organisation (Burke & Cooper 2005). According to head of Saratoga Institute, Jac Fitz-enz, the standard direct outlay per worker is roughly $7,000 when sacking highly paid and veteran workers (Mathys & Burack 1993, 71). In addition to that are the indirect outlays like weakening performance as people become skilled at new tasks and a potential drop in profit because of inadequate employment. According to Faltermayer (1992), employing substitute workers costs roughly $5,000 per worker (as cited in Mathys & Burack 1993, 71). Likewise, according to Mathys and Burack (1993), Dow Chemical calculates that dismissing managerial and technical workers can cost at least $30,000 per worker when all costs of downsizing are summed up (p. 72). Developments in technology, associated with the domains of information and manufacturing, have greatly influenced the needs of an organisation’s workforce as well. Numerous organisations enlist and hire people with higher educational attainment because it is crucial to have employees with superior or industrial training, and because these people are seen to possess the adaptability favourable to drastic technological developments (Gratton et al. 1999). According to Karake-Shalhoub (1999), the general impacts of improved technology are still to be identified since integral technological developments remain in their formative years. Although there is sufficient evidence indicating that downsizing efforts seldom grant the commonly expected gains, there is also an interceding knowledge that ‘economised’ organisations are pushed to manage the societal, social, and human consequences of restructuring. Studies reveal that the human effects of downsizing are serious and especially overwhelming for the society, families, and individuals (Butler et al. 1991). Although downsizing cannot constantly be prevented, there are credible explanations why organisational downsizing should still be viewed as the very last managerial fallback. One of the initial solutions is to make sure that the workforce identify with the need for change. The collapse and downsizing of the company can be very risky to employees, and such risk is confronted as a form of job uncertainty. Earlier studies report that surviving employees’ view of impartiality and pressure serves a major function in reconciling the emotional and behavioural effects of downsizing (Cropanzano 1993). Furthermore, studies on downsizing have reliably demonstrated that the effect of downsizing surpasses simple economic concerns. As stated by Schuler and Jackson (2007), the strategy carried out to economise the labour force influences not just the economic standing of the company but also the remaining employees’ commitment and performance, the company’s reputation and culture, and the achievement of present and future strategic goals. Conclusions and Recommendations During an economic depression companies should cautiously weigh its options and evaluate the possibility and appropriateness of restructuring strategies before choosing to embark on downsizing efforts. Although numerous studies or theories that talk about substitutes to downsizing have been made public, there remains a lack of theoretical knowledge of restructuring-based dismissals as they pertain to the organisation’s real, concrete cost-reduction phases (Grieves 2003). In fact, it is crucial for a company to take account of the idea of cost-reduction and to identify the exact cost-reduction phase that distinguishes the company’s present business setting and status. Hence, a company has to identify the possible extent of the economic depression (Grieves 2003). In order to succeed, according to Burke and Cooper (2005), the senior decision-makers should be aware of the current position of the company in its cost-reduction phase. In theory, an organisation’s cost-cutting phase denotes the timetable the organisation needs to effectively cut back operational costs. In a nutshell, the discussion describes the fact of downsizing as a widespread response in periods of economic turbulence. Nonetheless, it shows the reality that downsizing can be put into effect strategically. The favourable aspects of downsizing are (Mathys & Burack 1993, 72): (1) that remaining employees would sustain their efficiency and keep on improving within and outside the organisation; (2) that sacked workers would stay marketable; and (3) that organisations would have the opportunity to realise their transformed strategic goals. Nevertheless, such idea presupposes that downsizing is an outcome of an organisational streamlining quite apart from its causes. It is presupposed that the streamlining effort is rooted in a reconstruction of the organisation’s mission and vision and in recently developed strategic objectives (Mathys & Burack 1993). According to Gratton and colleagues (1999), the endeavour starts from the time the new structure that strengthens the new organisational objective has been identified and established and the requirement to downsize has been approved as critical. Therefore, it is recommended that a review of all existing job functions be carried out to identify which of them should be removed, which should be included, and which should stay or changed to bolster the strategic objectives of the newly reformed organisation. This well-designed job analysis must identify the jobs the current employee in each position acts upon, the way these jobs are carried out, and the level to which information, issues, and people are handled or utilised (Schuler & Jackson 2007). Moreover, the data obtained from the job analyses can be applied to find out the training requirements of the adjusted organisation. Simultaneously, efforts in the initial activities activating the downsizing programme itself could begin by identifying the goals for the downsizing programme, creating a timetable for its execution and finishing point, and establishing a budget. When these tasks have been accomplished, all other techniques for employee downsizing should be studied and assessed as regards to their effect on all stakeholders and their appropriateness to the downsizing goals (Schuler & Jackson 2007). Here it is crucial to make sure that the preferred downsizing techniques do not force the organisation to lay off required skills, knowledge, and experience, particularly if the organisation is at the mercy of highly technical or expert abilities (Gilley & Maycunich 2000). According to Gilley and Maycunich (2000), when the functions or positions to be removed are identified, and the techniques of downsizing have been chosen, the concrete downsizing programme can be enhanced. Simultaneous with the aforementioned tasks, the demands of the adjusted organisation and its surviving workers should be identified and evaluated. It is afterwards that a support programme for surviving employees can be created based on goals to be established that would allow the workers of the adjusted organisation to willingly exert their best efforts towards realising the newly developed strategic objectives (Grieves 2003). When the support plans for downsizing and surviving employees have been created and agreed upon, the application of the support plan for surviving employees begins while the creation of the termination plan is underway (Mathys & Burack 1993). As stated by Mathys and Burack (1993), such practice is time-efficient for they are separate tasks and provide the organisation more opportunities to psychologically and emotionally strengthen its workers for the execution of the downsizing programme through the initiation of its communication plan. When the termination plan is finished, it is put into effect immediately. Nevertheless, the tempo of the execution should consider the possibility that a measured implementation could be helpful in preparing the workers to the transition (Burke & Cooper 2005). Drastic change could bring about unexpected transition setbacks in employee empowerment and the organisation’s operational functions. It is proposed that a few months after the downsizing’s conclusion, official assessments of the support plans and downsizing should be carried out and the outcomes properly documented for future application should the organisation go through another downsizing or streamlining (Burke & Cooper 2005). Nevertheless, according to Schuler and Jackson (2007), if an organisation stays in long-term downsizing approach, adjustments must be performed to the existing plan anchored in the results of the assessments to make sure that any unfavourable consequences from the past plans are lessened or prevented in the future. The prevalent practice of organisational downsizing to enhance response time and to cut back expenses has not been completely studied in terms of strategic human resources management (Grieves 2003). SHRM has developed various perspectives that can be valuable in these settings. According to Grieves (2003), corporate decision-makers require an array of design alternatives from which they can choose to successfully deal with the broad array of individual circumstances that occur under these situations. Furthermore, it was discussed that adjusting employment circumstances have facilitated the development of an updated psychological contract with provisions, expectations, and duties mostly distinct from the traditional ones. This occurrence should be recognised because the success of different HR techniques will be influenced by the strength of the structure of such employee relations (Mathys & Burack 1993). Employment and organisational issues are an intrinsic component of thorough and appropriate HR methods to strongly deal with the unparalleled economic circumstances with which current organisations are faced. It is apparent that innovative organisational designs are surfacing and these consequently indicate the requirement for more inclusive and ingenious methods to handle HR and organisational concerns. References Burke, R. & Cooper, C. (2005) Reinventing human resource management: challenges and new directions. UK: Routledge. Butler, J., Ferris, G., & Napier, N. (1991) Strategy and human resources management. Michigan: South Western Pub. Co. Casson, M. (2000) Economics of international business: a new research agenda. UK: Edward Elgar Publishing. Cropanzano, R. (1993) Justice in the workplace: approaching fairness in human resource management. New York: Lawrence Erlbaum Associates. Gilley, J. & Maycunich, A. (2000) Organisational Learning, Performance, and Change: An Introduction to Strategic Human Resource Development. Cambridge, MA: Perseus Books. Gratton, L., Hailey, V., Stiles, P., & Truss, C. (1999) Strategic Human Resource Management: Corporate Rhetoric and Human Reality. Oxford: Oxford University Press. Grieves, J. (2003) Strategic human resource development. UK: Sage. Karake-Shalhoub, Z. (1999) Organisational Downsizing, Discrimination and Corporate Social Responsibility. Westport, CT: Quorum Books. Mathys, N. & Burack, E. (1993) “Strategic Downsizing: Human Resource Planning Approaches” Human Resource Planning, 16(1), 71+ Schuler, R. & Jackson, S. (2007) Strategic human resource management. UK: Wiley-Blackwell. Read More