The Role of HRM in Organizational Downsizing - Essay Example

The Role of Human Resource Management in Organizational Downsizing Total Number of Words: 2,514 Executive Summary Organizational downsizing is considered one of the best strategies that will enable a business organizational maintain its profitability despite the weakness of a country’s economic condition. Even though there are benefits associated with organizational downsizing, there are also negative consequences caused by the inability of the human resource manager to effectively handle the organizational conflicts caused by affected employees. In general, organizational downsizing is often described as right sizing the number of employees being employed within a business organization. Given the significant changes in the demand of a company’s goods and services, the number of required employees also changes. Human resource management plays a crucial role over the success of implementing organizational downsizing. In the absence of human resource management, it would be difficult on the part of the human resource managers to effectively handle employees when organization change becomes inevitable. As part of the study of human resource management, human resource managers are encouraged to have competitive leadership and communication skills. Aside from providing the readers a list of recommended solutions on how to minimize and prevent the lost of business opportunities associated with the negative consequences of implementing organizational downsizing strategy, this study will discuss the importance of using transformational and authentic leadership style which are suitable when implementing organizational downsizing. Table of Contents I. Executive Summary ……………………………………………………... 2 II. Table of Contents ………………………………………………………… 3 III. Introduction ……………………………………………………………….. 4 IV. Aims and Objectives of the Study ……………………………………… 5 V. Theory and Concept of Organizational Downsizing…………………. 5 VI. Possible Effects Organizational Downsizing in terms of its Short- and Long-term Financial Impact and Overall Business Performance …………………………………………………… 5 VII. The Role of the Human Resource Management in Counteracting the Negative Consequences Associated with Organizational Downsizing ………………………………………………. 7 a. Importance of Having Competitive Leadership Skill …….. 7 b. Importance of Two-way Communication between the Top Management and Employees ………………………….. 9 VIII. Recommended Ways to make it Easier for Human Resource Managers to Handle Problems Associated with Corporate Downsizing ……………………………………………………. 10 IX. Is Organizational Downsizing About Right Sizing or Dump Sizing? … 11 X. Conclusion ………………………………………………………………… 12 References ……………………………………………..……………………… 14 - 16 Introduction As an end result of globalization, many businesses today are restructuring their organizational and business approach in order to keep the local firms competitive in the local and global market. (Business Week, 1997) One of the most common restructuring strategies that aim to increase the efficiency of a company is organizational downsizing. Although many firms have enjoyed the benefits from organizational downsizing in terms of increasing the profitability of the company by reducing its operational cost and making its operational process more efficient, it remains inevitable that most encounter internal problems related to its existing employees. Each organizational downsizing event could result to predictable outcomes in terms of having similar issues related to the feelings of betrayal, loss of trust in the management of the company, and experiencing internal conflicts between the corporate management and employees in line with retaining and losing their job. (Strom, 2008) As a result, the lack of organizational commitment among the stakeholders of the company becomes a major problem that top management needs to solve. For this study, the theory and concept behind the organizational downsizing will be discussed followed by discussing the possible effects of organizational downsizing in terms of its short- and long-term financial impact and overall business performance. Given that the implementation of organizational downsizing could create serious internal conflicts which may disturb the efficiency of a company’s daily business transactions, the role of the human resource management in terms of enabling a business organization minimize business problems related with the proper way of handling emotionally and psychologically affected employees will be thoroughly discussed. Eventually, recommended ways could make it easier for human resource managers to handle problems associated with corporate downsizing will be provided. Prior to the conclusion, whether or not downsizing is about rightsizing or dump sizing. Aims and Objectives of the Study Aside from enabling the student to carefully analyze the whether or not organizational downsizing is about ‘right’ sizing or dump sizing, the aims and objectives of the study is to enable the student to have a better understanding with regards to the specific role of the human resource management in terms of corporate downsizing. Theory and Concept of Organizational Downsizing According to Budros (1999: 70), the concept of organizational downsizing is defined as “an organization’s conscious use of permanent personnel reductions in order to improve its efficiency and/or effectiveness.” On the other hand, Dessler defined organizational downsizing as “the process of reducing dramatically the number of people employed by a firm” (Dessler, 2000). In relation with the concept and definition of organizational downsizing, the main idea of this particular business strategy is to intentionally and permanently reduce the number of employees within a business organization. (Budros, 1999; McKinley et al., 1995; Mishra and Mishra, 1994) Possible Effects Organizational Downsizing in terms of its Short- and Long-term Financial Impact and Overall Business Performance Organizational downsizing is related to the increase in the managers’ compensation in terms of having a positive growth in sales. (Jensen, 1986; Murphy, 1985) This strategy could enable the company to eliminate unnecessary levels needed to enhance the overall effeciency required to keep the business competitive in the markets. (Koretz, 1997; McKinley et al., 1995; Bryne, 1994) In general, cutting down the operational cost by reducing the size of the work force Is believed to be an effective strategy in terms of increasing the business organization’s profitability. De Meuse et al. (2006) tracked down the financial performance of Fortune 100 companies for a period of five-years in comparison to two years before the formal announcement of a massive layoffs. Contrary to the common belief that an organizational downsizing is the key to improving a company’s financial performance, De Meuse et al. (2006) revealed that the long-term financial performance of a company could worsen right after releasing the news to the employees. This is possible since affected employees are likely to experience a sudden decrease in their morale and the level of their loyalty with their employers. With regards to the negative consequences of implementing organizational downsizing as a strategic way of ensuring the economic survival of a business organization, several studies concluded that improper implementation of organizational downsizing can lead to negative effects like: (1) slow growth on dividend; (2) reduction in the profitability of the company; (3) increasing absenteeism, tardiness and employee turnover; (4) decreased in employee moral and work satisfaction; (5) increasing of employees’ health problems and stress due to a sudden incerase in employee workloads. (Bergmann et al., 2004; Mishra and Spreitzer, 1998; Pfeffer, 1998; Reich, 1993; Noer, 1993; Gambola and Tsetsekos, 1992; Worrell et al., 1991) Since affected employees are at risks of experiencing excessive stress related to the fear of losing their job and financial income, the study of Kivimäki et al. (2000) shows that the overall health status of employees is negatively affected due to the possibility of an impaired support from their spouse resulting to the increase in prevalence to smoking. As a result, the profitability and the overall performance of a business organization suffers. The Role of the Human Resource Management in Counteracting the Negative Consequences Associated with Organizational Downsizing The main purpose of the human resource management is to guide the human resource managers in developing effective strategies and coherent approaches when managing employees within a business organization. (Armstrong, 2006) For this reason, the main role and responsibility of the human resource management is crucial to the success of implementing organizational downsizing. In general, it is a common reaction for employees to express anger and sentimental concerns in case the organizational leaders failed to provide them with a clear direction, financial and non-financial support, and other related information that could address the specific needs of each employee. (Civil Servant) In line with this matter, managers as the organizational leaders play a significant role in the success of facilitating the organizational downsizing plan (Erlebach et al., 2004). Importance of Having Competitive Leadership Skill As part of implementing organizational downsizing, it becomes important to be able to differentiate a leader from a manager. In general, a leader is referring to someone who not only influence, select, equip, and train his/her follower(s) that possess different abilities and skills but also enables the follower(s) to willingly participate with the leader in terms of achieving the organization’s goal whereas a manager is referring to people who actually conducts business affairs (Merriam-Webster, 2008). Competitive leadership skill is an essential characteristic of human resource managers in terms of being able to make the business operational flow efficient. With the use of good leadership skill, human resource managers will be able to reduce the internal conflicts among the employees. When implementing organizational downsizing, human resource managers should have the personal characteristics of a combined transformational and authentic leaders. Transformational leaders have the personal charisma which could enable the human resource manager to effectively attract his/her subordinates to seriously and actively cooperate with the implementation of a new organizational plan (Palmer et al., 2001; Posakoff & Schriesheim, 1985). Aside from being intellectually inclined, transformational leaders tend to go beyond what is happening around his environment since they have the ability to implement new ideas whenever necessary (Johannsen, 2004). In general, the personal characteristics of transformational leaders enables them to be more flexible and effective in handling the challenges associated with the implementation of a major organizational change. Human resource managers who are using the transformational leadership style are more effective in terms of managing the consequences caused by organizational downsizing since this type of leaders guide employees with a clear and accurate vision (Kirkpatrick & Locke, 1996). Since transformational leaders do not practice positional authority, employees are given the privilege to express themselves freely within the business organization (Salovey & Mayer, 1990). In the process of relaying the plan for organizational downsizing, human resource manager as leaders should acknowledge the personal concerns of each employee and be sensitive to the emotions of the employees. By giving the surviving employees a fair and sensitive treatment combined with the practice of a good communication, human resource managers will be able to give the survivors the reassurance they need to minimize employee resentment and anger. On the other hand, the personal qualities of authentic leaders is also important on the part of the human resource managers in terms of lessening the pressure caused by internal conflicts. This is primarily due to the reason that authentic leaders are able to recognize and value the personality, purpose, and potential of each employee (George, 2004). Similar to transformational leaders, authentic leaders also have the ability to communicate their personal or business opinions in such a way that employees would still feel valued and unique individual. Effectively communicating and valuing the uniqueness of each employee is considered as a special quality since this particular characteristic makes it easier on the part of the human resource manager to develop trust and intimacy with the entire workforce (Strarrat, 2004: p. 71). Importance of Two-way Communication between the Top Management and Employees In order to minimize the negative impact of having emotionally and psychologically disturbed employees, human resource managers should make sure that there is a two-way communication between the top management and employees. Through an open forum or group meetings, human resource manager can have the privilege to let employees know about the existing business condition which made the top management decide the need to implement a massive layoff. Likewise, the human resource manager will be able to hear out the personal concerns of each employee. Knowing the main concern of each employee is important in terms of enabling the human resource manager to develop a separation plan which could somehow address employees’ financial concerns. Recommended Ways to Make it Easier for Human Resource Managers to Handle Problems Associated with Corporate Downsizing In order to reduce the negative consequences such as internal conflicts, human resource managers should take it as a challenge to regain the trust and loyalty of the remaining employees. In line with this matter, it is necessary for human resource managers to implement a post-downsizing program which include full staff meetings and/or immediate follow-up meetings with senior managers or supervisors to ensure the remaining employees have a better idea with regards to the new organizational plan and business objectives (Dessler, 2000, p. 385). Aside from letting employees know the new organizational plan, it is equally important for the human resource manager to personally listen to the personal concerns of each worker. When implementing a massive lay-off, business organization should implement these major changes by batch. Doing so will enable the supervisors and managers to effectively handle the remaining employees. As a result of the major organizational restructuring, it is important for managers and supervisors to allow employees to adjust and be more comfortable with their increased tasks and responsibilities. Another good recommendation is for the human resource manager to convince the employer to give employees who will be affected by the organizational downsizing sufficient separation pay. This type of strategic move will encourage its existing employees to either leave the company and look for a better job opportunity with other companies or encourage them to file an early retirement. Is Organizational Downsizing About Right Sizing or Dump Sizing? A better term to describe organizational downsizing is right sizing rather than dump sizing. (McClenahen, 2006) This is primarily due to the fact that a business organization would require more employees to join the workforce because the public demand for the company’s goods and services is high. Given that a country’s economy is weak, the demand for goods and services also declines. This is a good economic example wherein a business organization has an excessive number of employees which only increases the company’s fixed operational expenses. By cutting down the number of employees based on the existing market demand for goods and services, business organizations will be able to maximize its potential profitability despite the weak economic condition. It is not proper to describe organizational downsizing as dump sizing since downsizing strategy is usually conducted in order to make the business operations and the use of the company’s existing human resources more efficient. Conclusion Organizational downsizing is not always the best solution to increase the efficiency of a business performance because of the high possibility that managers could not effectively control the negative impact of this strategy with the survivors. In line with this matter, it remains a challenge for managers to be able to implement a smooth organizational downsizing without sacrificing employees trust in the business management. The main role of human resource management in organizational downsizing is to provide the human resource managers with some ideas on how they can effectively minimize the possible organizational conflicts that may arise out of implementing organizational downsizing. The work of human resource department is considered as a distinctive philosophy in organization because of the fact that human resource managers often face a relatively new and unique situational cases related to the proper way of handling employees. When dealing with different scenarios, human resource managers are responsible in conducting a logical reasoning as he/she develop a new strategic solution that will address the main problem within the business organization. Among the negative consequences of implementing organizational downsizing includes: (1) slow growth on dividend; (2) reduction in the profitability of the company; (3) increasing absenteeism, tardiness and employee turnover; (4) decreased in employee moral and work satisfaction; and (5) increasing of employees’ health problems and stress due to a sudden incerase in employee workloads. Human resource managers are responsible in balancing the business profit with proper management of employees. To prevent and minimize the possibility of encountering such business-related problems, human resource managers should make sure that they can effectively handle the personal concerns of each employee without the risk of being one sided. *** End *** References: Armstrong, Michael. A Handbook of Human Resource Management Practice, 10th edition. London: Kogan Page, 2006. Bergmann, Thomas J., et al. 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