Assignment 5(HRM) Downsizing

Visit and identify a company website that has undergone HR downsizing. Identify the cause of downsizing and describe its processes.

Downsizing is an extremely relevant issue to organizations today in that it has become the most prevalent dilemma in recent years. The current tendency of organizations to restructure and ultimately to downsize has a major negative impact on the organizations themselves, on their surviving and terminated employees, on the government, and on society as a whole. In fact, it is everyone's problem, and it seems to have become more the rule than the exception that it used to be in the not too distant past. The current adverse economic climate has been persistent and long-lasting. As a result, many organizations that were operating inefficiently have been driven out of business, and most of those that have survived were forced to restructure in order to streamline their operations and achieve operating cost savings that would ensure their continued competitiveness both on the local and global markets. More often than not, this meant downsizing the organization and, in many cases, the downsizing was conducted in multiple phases or on an on-going basis. The direct result on the organization was a marked drop in employee morale and productivity which prevented organizations from realizing their strategic objectives.

What is Downsizing?

 A downsizing strategy reduces the scale (size) and scope of a business to improve its financial performance (Robbins & Pearce, 1992).

 A reduction of the workforce is one of only several possible ways of improving profitability or reducing costs.


Why do Firms Downsize?

 Reduce costs

 Reduce layers of management to increase decision making speed and get closer to the customer

 Sharpen focus on core competencies of the firm, and outsource peripheral activities

 Generate positive reactions from shareholders in order to improve valuation of stock price

 Increase productivity



Downsizing effects:

 Mixed effects on firm performance: some short-term costs savings, but long-term profitability & valuation not strongly affected.

 Firm’s reputation as a good employer suffers. Example: Apple Computer’s reputation as good employer declined after several layoffs in 1990s.

 Downsizing forces re-thinking of Employment Strategy. Lifelong employment policies not credible after a downsizing. Example: IBM abandoned lifelong policy after several layoffs in early 1990s.

 Employee motivation disrupted: increase in political behaviors, anger, fear - which is likely to negatively impact quality of customer service

 Violation of psychological contract, leads to cynicism, lowered work commitment, fewer random acts of “good will”

 “Survivors” experience more stress due to longer work hours with re-designed jobs, and increased uncertainty regarding future downsizings

 Many senior employees leave due to application of early retirement incentives: result is loss of institutional memory.

 The use of voluntary workforce reductions (buyouts) results in the most marketable employees leaving (“stars”) -- difficult to control since all employees must be legally eligible to qualify.

 Early retirements & voluntary reductions often result in too many people quitting, and some are hired back as consultants at higher cost to firm.


Downsizing Works Best When:

 Changes in Strategy, Organization structure and Culture accompany job cuts of downsizing

 Weak business units and plant closures are used as basis of reductions, rather than across the board cuts affecting all units (including healthy ones).


Critical Thinking Questions:

 1. Which is a better criterion to use as the basis for downsizing employees: seniority or performance? State your reason.

 2. Should employers give future notice to downsized employees, or tell them on the day they are expected to leave the firm?

 3. Separation pay is voluntary. What benefits do firms get when they give separation pay to employees in a downsizing?

 4. Is there a set of “best practices” to let an employee know she/he has been downsized?

 5. Under what circumstances might a company’s managers prefer to use layoffs instead of early retirements or voluntary severance plans as a way to downsize the workforce?



Some Local Companies Undergone Downsizing:

It is said that the only thing that is constant in this world is change. This particular maxim is clearly manifested in the ever-changing business organizations we have today. While some companies choose to be conservative and follow the same boring traditional procedures, many of the companies that emerge as leaders in business industries choose to reengineer itself and adapt to global trends scenarios.

Hammer and Champy, as cited by Rafael Rodriquez and Jasmin Acuña in the article entitled “Reengineering: A Path to Change”, talk about two companies, namely Hallmark and Ford Motors that undergone the reengineering process. For Hallmark, before a greeting card is perfected it has to pass through several segments of the company. Any revisions, no matter how small it seems, create a huge delay for the company’s processes. The management, after recognizing the problem, then decided to put up independent teams that will be focus in the creation of a new greeting card. In Management Accounting, they refer to such teams as a Responsibility Center. The reengineering procedure that was adapted by the Hallmark’s management worked perfectly as reflected by a more efficient and cost-effective means of production. The same reengineering procedure was also adapted in the For Motors Company thereby increasing its efficiency.

San Miguel Corporation, a local example of a company that has reengineered itself was pictured by Rodriguez and Acuña as an entity that was able to down size the number of its employees by adapting its own reengineering procedures. An example that was given would be that of a particular bottling department in San Miguel that was able to downsize its employees from 300 to only 24 upon the acquisition of new equipments that would speed up its operation and the adoption of new procedures. Another example that was given was the implementation of a “pull system” in San Miguel where many functions that require many employees before is now single handedly operated by only one salesman whom the company provided a lap top with a data base management software and a van to take orders from independent customers. Such procedure reduced the need for warehouses and redundant employees since the software was able to create an optimized route for the delivery of the ordered goods.

Edgar Schein on the other hand, talks about six procedures to achieve organizational effectiveness. They are 1) sensing the external and internal environment, 2) Importing information, 3) changing processes and procedures, 4) stabilizing internal change, 5) exporting products and services and 6) getting feedbacks. Following Schein’s procedures, a company would be able to adapt to global trends.

Colgate-Palmolive in terms of restructuring itself was able to promote a lower hierarchy structure for its employee. Ms. Annette Santiago, the HR head of SMART is also proud to say that they were able to do the same since a lower hierarchy structure promotes openness to its employees. A lower hierarchy also promotes transparency since the gap between management and employees are bridged and the employees can easily open up questions pertaining to the company.

The IBM Sales Executive for the Asia-Pacific Region announce the bold move IBM is about to under take by instituting a new procedure in database storage, this is in line with their own reengineering schemes. Thus, most companies now are open to change, those that are not maybe gone by now or maybe inexistent by tomorrow.

References:

http://www.tigweb.org/express/panorama/article.html?ContentID=2096
http://www.questia.com/googleScholar.qst;jsessionid=KWWM2XgGdwLVmQpy03yLMrknyG7Y0hSkgydPPJMnkN0JqNMXTh1L!-2050619229!766828861?docId=5001676706
http://www.authorstream.com/presentation/edwinlee-111819-downsizing-hr-business-finance-ppt-powerpoint/