Layoff and Strategic Downsizing Decisions Essay

INTRUDUCTIONDownsizing is a permanent drop-off of liveforce by dint of layoffs and early(a) means. Organizations usually downsize to save payroll costs and prevent bankruptcy during mean(a) economical conditions. Downsizing, when d maven right, makes the constitution more(prenominal)(prenominal) efficient, lean, and mean .On the an separate(prenominal) side, a faulty approach to furlough can cause the organization to run the encounter of losing key talent and intellectual capital, and becoming dysfunctional by breakdown of hierarchies and systems. The criteria adopted for who stays and who goes rangyly determines the success of the downsize intervention Many organizations, in particular traditional ones, in a bid to ensure impartiality and objectivity adopt the LIFO or Last in First Out tenet whereby those who joined the organization resist do the first to leave. The rationale of making seniority the basis of downsizing is that newer employees take away spent less time in the organization and atomic number 18 less committed or acquainted with the finer nuances of its running.Also, the organization would cook invested lesser time and resources training such employees compargond to older employees. other organizations make the combination of competence and effect, or the ability to do required tasks well, the basis of retaining an employee during downsizing. A fresh performance estimate should precede downsizing, or the last appraisal can be the basis for determining who goes and who stays. Those at the bottom of the appraisal list usually get the layoff nonice first. While making performance the primary selection criteria for downsizing and restructure is appargonntly a just and equitable method, two major concerns remain The soundness and objectivity of the performance appraisal method adopted. A poorly designed performance appraisal method that does not assess the true indicators of performance tycoon churn up a wrong list, causing the danger of the organization dispensing with true performers and retaining people who cleverly mask or cover up their inefficiencies. Whether the performance or competence ofthe employee remains relevant for the organization.The expendability of the person to the organization is another sound basis for determining the selection criteria for downsizing and restructure. This approach primarily holds the value added by the employee to the organization more than any other factor. Regardless of the performance of anemployee, an employee efficacy remain critical for the functioning of the organization, or conversely not needed. For instance, with technology taking roots, most companies do not require specialist stenographers or typists, no matter how skilled or efficient they may be in their work. Similarly, closing down the selling arm of the business and issuesourcing the marketing try baron forget to the lay-off of all marketing executives, no matter how skilled or successful th ey may be.Organizations would, however, do well to identify people with good generic skills, and the right attitude and commitment, and retain them in other patronages even if the jobs they remain competent in become irrelevant to the organization. The commercial interests of the organization notwithstanding, legal considerations play an important role in determining who goes and who stays during downsizing. The federal Worker Adjustment and Retraining presentment Act (WARN) requires employers to travel by employees, state and local officials a 60 days notice to mass layoffs when reducing their workforce by 33 percent or more, or laying off 500 employees within a 30-day menses. WARN further requires employers of unionized employees to give the union 60 days notice in front lay-off of their members, and provide individual notice to non-unionized employees.DEFINITION OF retrenchmentDownsizing occurs when a conjunction permanently lands its workforce. Corporate downsizing is of ten the result of poor economic conditions and/or the companys need to cut jobs in order to lower costs or maintain profitability. Downsizing may occur when one company merges with another, a product or service is cut, or the economy falters. Downsizing also occurs when employers want to streamline a company this refers to corporate restructuring in order to increase profit and maximize efficiency. Downsizing results in layoffs that are often followed by other restructuring changes, such as branch closings, departmental consolidation, and other forms of track pay expenses. In some cases, employers are not fired, scarcely instead become part-time or temporary workers (to trim costs).ACTIVITIES OF DOWNSIZINGIt low recognizen to rectify organizational efficiency, productivity and competitiveness that affect the size of the firms workforce the costs andthe work processes.DOWNSIZING STRATEGIESThere are 3 types of strategies. These are below1.workforce lessening 2.work redesign3.sys tematic change 1. Workforce reductionTypically a short term dodging aimed at cutting the number of employees through and through such programs as attrition, early retirement or voluntary severance packages and layoffs or terminations. Whils a number of these approaches allow for a relatively quick reduction of the workforce, the problem is that their impact is often short term and in many organizations.2. Work redesignOften a medium-term strategy in which organizations focus on work processes and assess whether specific functions, products and services should be changed or eliminated. this strategy which is often combined with workforce reduction, includes such things as elimination of functions, groups or divisions.3. self-opinionated changeLong term strategy characterized by changing the organizations culture and the attitudes and values of employees with the on firing goal of deducting costs and enhancing quality. By its very nature this strategy takes considerable time to imp lement.RESTRUCTURING HOW COMMON IS WORKFORCE REDUCTION AND?The issue that comes up regularly involves how common workforce reduction in Canada. In a subject field study of major Canadian organization conducted in 1992 and in 1998, it was found that 56% of respondents permanently reduce the workforce over two year period ending in 1992, mend 50% cut the number of employee during two year period prior to 1997-1998 about 31% of employee reduced in twain 1992 and 1998 5% precent of organization did not engage in workforce.Three recent studies found 45% of participants reported that their organization permanently reduced workforce in two years. Amongorganizations reducing the workforce average reduction was around 15% of the workforce. Similarly, when investing how the workforce reductions were carried out combining the result from the studies revealed that about 355 of reductions were by attrition, 45% by voluntary severance or early retirement and 40% by layoffs. Compared 1990s, the se results suggest that organization s are relying less on layouts and more voluntary services.WHY DO ORGANIZATIONS DOWNSIZE?There are several reasons why organizational decide to downsize the workforce. Some of the factors most commonly mentioned include the following Declining internetBusiness downturn or increased pressure from competitorsMerging with another organization, resulting in duplication of effort Introduction of new technologyThe need to reduce operating costsThe desire to decrease levels of perplexityGetting rid of employee deadwoodSimply put, many organizations engage in downsizing because managers believe that cutting people will result in reduced cost (with cost being more predictable than future and improved financial performance. In addition, grok cost is often seen as easier to adjust relative to other expenditures. Although executives often perceive that reducing the number of people in the organization will lead to lower overhead cost, reduced bureaucracy , better communication, improved decision making, increased innovative activity and higher productivity, at that place is considerable evidence that workforce reduction programs often fail to meet their objectives, as has been observe by Cascio Study by and by study shows that following a downsizing, surviving employees become narrow-minded, self-absorbed, and risk averse. team spirit sink, producing drops, and survivors distrust management. Some organizations drastically reduce the workforce and employ a severe reduction strategy despite increasing demand and a well-to-do competitive enviroment.This development, which has been mentioned by HR managers in personal interview, may be due to a variety of reasons, including a decision to follow the lead of other firms engage in cutback management and increase awareness of the need of operate in a lean and meanfashion.THE DOWNSIZING DECISIONFor many organizations, going through a downsizing is a very painful and difficult experience. A 1994 article Business week profiled Robert Thrasher, executive vice-president at Nynex and the individual liable for cutting labelled the corporate assassin. In speaking about downsizing Thrasher commented. This is tough, ugly work. The stress is palpable .Im vilified throughout the company .thats tough thing to carry around. More recently, Robert Burtlon of Moore Corporation, when discussing his role in a cost cutting plan at a previous company, stated. I put ont get frustrated any more. I just fire people.Too often, organization embarks on a downsizing program without too-careful consideration of whether there are feasible alternatives to downsizing. Studies after study reveals that many downsizing are not well planned frequently ignore the gene linkage between downsizing and the strategic direction of organization, and underestimate the impact of downsizing on the organization and its human resource.ALTERNATIVES TO DOWNSIZINGDownsizing can be a costly strategy for organization to pursue and as a result, it is desirable to investigate whether alternatives to downsizing exis.In a number of instance, organizations discover that pursuing different alternatives to downsizing may eliminate the need to reduce the workforce or allow for a less severe downsizing strategy.Some of the alternatives include1. Cutting no personnel costs (e.g, through energy conservation, planned capital expenditures, leasing of capital equipment, reductions in travel or club memberships) 2. Cutting personnel costs (e.g, through a hiring freeze, job sharing, a reduction in work hours, reduced benefits, and wage concessions) 3.Providing incentives for voluntary resignation or early retirement Although this list is not complete, it emphasizes the need to consider other ways to manage costs within an organization One organization, road communications inc, asked each member of its staff to take one week of unpaid leave during the summer months. According to senior partner mia wedgbury , it let us keep our core team together while reducing cost. Andit went over well with the staff because it precluded layoffs. another organization acxion corporation cut the pay of each employee earning more than 25000 dollar by 5% but also gave the employee the option to by company stock that would be matched one-foe one by the firm INPLACEORMENT AND OUTPLACEMENT ISSUESOutplacement Issues .Inplacement Refers To A Career Management Approach Inappropriately hardened Workers Into a Restructured organization ,while outplacement focuses on the provision of a program In Examining The Downsizing Decision, It Is Necessary To Consider Both Inplacement And of counseling and job-search assistance for workers who have been terminated. In making career management decisions, organizational decision makers may opt for an inplacement program or termination with outplacement In a survey of Canadian manufacturing firms end in 2000, organizations that had gone through downsizing were asked to report on the benefits they provide to displace workers. These results are provided in figure11.2 .The most common benefits were severance pay, continuation of employee benefits, outplacement develop assistance or family counselingPLANNING FOR DOWNSIZINGIf downsizing is essential, the key issues that need to be considered Determining how many people will lose their job and who will be let go (ie. based on seniority or performance)Determining how reduction will be carried out. For example, to what extent will the organization use attrition, early retirement or voluntary severance programs and layoff or termination. Its possible to consider the approach to workforce reduction from the perspective of employee? As indicated in figure 11.3,the approaches to workforce reduction vary in the degree of protection to employees and the cost to employeeDetermining the legal consequences. For example organizations often ignore or are unaware of legal requirements when downsizing the workforce .some ar eas of law to be aware of include the law of wrongful dismissal,employmentstandards legislation, trade union law ,existing collective agreement provisions, and human right legislation. for instance, there may be a very narrow line between voluntary and involuntary termination, and with the termination of older workers, there exists a possibility of an age discrimination claim Designing current and future work plans .this issue represents a key challenge for the organization and is frequently neglected Implementing the decision. Implementation includes such elements as severance payments, outplacement counseling, the communication of the termination decision, timing if the decision, issues, and communications with remaining employees put to deathing follow-up evaluations and assessment of downsizing effortFigure 11.3 Approaches To Workforce ReductionWorkforce Degree of Reduction protection to Implementation Approach Example Employee Time Attrition Hiring Freeze High assignVoluntary Early Retirement Redeployment Voluntary buyoutWork sharingInvoluntary Transfer Redeployment DemotionImposed job sharingLayoff with Retraining assist job counseling Advance noticeLayoff without Termination Low First Assistance No advance notice No SeverancePROCESS OF DOWNSIZINGThere are 6 processes. These are below1. Develop an RIF team to plot initial strategy.2. Plan the goals and timing of the RIF.3. Perform an overall workforce analysis.4. criticism employment policies, individual contracts of employment.5. Ensure entry with the Worker.6. Special considerations for unionized employers.1. Develop an RIF team to plot initial strategyNobody likes the prospect of a downsizing especially employees who may feel particularly vulnerable to being set off and the mere mention of the word can trigger widespread fury and morale problems. At the early stages of the initial strategy phase, a company should limit discussion of downsizing to a trusted core of high-level management personn el and consultants. For large companies considering large-scale layoffs, the RIF team ideally should include the chief financial officer, the chief executive officer, the chief operating officer, a senior-level human resources or employee relations executive, an upper-level payroll specialist, an employment law attorney, and a public relations consultant.2. Plan the goals and timing of the RIFThe first task is to determine the magnitude of nest egg that need to be realized from a layoff. This task is part of an overall cost-cutting plan, which could implicate other costs and expenses in addition to those related to personnel. Second, the RIF team should consider ways to realize the desired savings, such as subcontracting consolidation of divisions, operating units or functions the sale of the company or a work unit and shutdowns.3. Perform an overall workforce analysis and an analysis of each proposed terminationThe most complicated and difficult aspect of the RIF process is determ ining which employees will be laid off. The most common legal challenges to layoffs are administrative charges and lawsuits premised on discrimination based on age or other legally protected characteristics. Accordingly, it is life-and-death for an employer to be able to give legitimate, nondiscriminatory reasons for every termination decision. Those reasons need to be easy to articulate and logically consistent.4. Review employment policies, individual contracts of employment, separation benefits and stock-option agreements under which affected employees may claim rights or benefitsThe RIF team should perform a due-diligence review of potential liabilities and verify whether, by policy or contract, the company has especial(a) its ability to lay off employees. Likewise, where a collective bargaining agreement or policy dictates a priority for reductions in force, or bumping rights, such procedures should be examined. The company should also review policies and agreements to determ ine eligibility for severance benefits and accrued benefits such as paid time off, vacation or sick leave.5. Ensure compliance with the Worker Adjustment Retraining and Notification (WARN) ActGenerally, employers with 100 or more employees are subject to the WARN Act. Covered employers are required to give 60 days advance written notice of a plant closing or mass layoff. A plant closing is defined as the permanent or temporary shutdown of at least one facility or operating unit that results in an employment spill of 50 or more employees at a single rate of employment. A mass layoff is a redness of employment at a single site of employment that affects at least 50 employees and one-third of the covered employers work force. a loss of employment of 500 or more workers at a single site of employment.Special considerations for unionized employersThe National Labor Relations Board maintains that, with certain exceptions, employers must bargain with employee representatives over the ef fects oflayoffs stemming from entrepreneurial decisions such as closing a plant or transferring bargaining-unit work. In the case of layoffs that do not constitute a business closing or a transfer of bargaining-unit work, employers generally must bargain over the effects of such decisions and, depending on contract language, the very decision to lay off employees.ADJUSTING TO stemma LOSSWorkers who have lost their jobs frequently experience tremendous pain. As well, job loss can be very difficult for family members. Furthermore, many downsized employees are very bitter and angry with their former employer. A U.S. study of downsized workers revealed that 67% would never work for their former company again, 54% would not recommend that others procure the organizations products or services, and 11% considered going to the media and talking about their layoff experiences. One can start adjusting to job loss by using a little psychology. There have been a lot of studies done on how to deal with loss. Psychologists have found that people often have an easier time transaction with loss if they know what feelings they might experience during the grieving process. Grief doesnt usually overwhelm us all at once it usually is go through in stages. The stages of loss or grief may include Shock you may not be fully aware of what has happened.Denial usually comes succeeding(a) you cannot believe that the loss is true. Relief then enters the picture for some, and you feel a burden has lifted and opportunity awaits. Anger often follows you blame (often without reason) those you think might be responsible, including yourself. Depression may set in some time later, when you realize the populace of the loss. Acceptance is the final stage of the process you come to price with the loss and get the energy and desire to move beyond it. The acceptance stage is the best place to be when starting a job search, but you might not have the luxury of waiting until this point to be gin your search. While some people may see a job loss as a challenge which opens up new opportunities, most associate job loss with strong negative emotions.It is important to know that it is natural to have some negative feelings (especially at first) after a job loss, and that most people experiencethem. Here are some feelings and experiences that you may have after losing your job Loss of professional identity Professionals identify strongly with their careers. Unemployment can often lead to a loss of self-esteem. Being employed brings respect in the community and in the family. When a job is lost, part of your sense of self may be lost as well. Loss of a network The loss may be worse when your social life has been strongly linked to the job. Many ongoing work friendships are suddenly halted. Old friends and colleagues often dont call because they feel awkward or dont know what to say. Many dont want to be reminded of what could happen to them.Also, when work and social activitie s mix, such as with company picnics and dinner parties, the job loss can be hard for all family members who participated in such activities. Emotional unpreparedness Those who have never been unemployed may not be randyly prepared for job loss and may be devastated when it happens. It is natural and appropriate to feel this way. You might notice that some people you know dont take their job loss as hard as you have taken it. They might be more prepared for this time of uncertainty. Studies show that those who change jobs frequently, or who are in occupations prone to cyclic unemployment, suffer far less emotional impact after job loss than those who have been steadily employed and who are unprepared for cutbacks.A number of organizational interventions and practices have been identified as helping previously employed workers adjust to job loss and secure new employment. They include the following Advance notification of layoffs, which gives employees time to dent with the reality o f job loss and to seek future employment. Severances pay and extended benefits, which provide an economic safety net. Education and retraining programs, which give individuals time to acquire vendible skills. Outplacement assistance to inform employees of new job opportunities and to improve their ability to market themselves. Clear, direct and empathetic announcement of layoff decisions. Consideration of HR planning practices that represent alternatives to large scale layoffs.There are some benefits of losing a jobTime to reflectGrow new ideas, direction and career planGet out of a job that was substandardSpend more time with family and hobbies