Ways Of Downsizing And Its Impact On Corporate/Business Strategy

Methods of Downsizing

Dind ways of downsizing and its impact on corporate/ business strategy.

Downsizing is an overall reaction to one or more of four settings namely, mergers and acquisitions, reduced profitability and market share through improvement of technology and varying industry, the introduction of new corporate structure, and the notion that the least the better (Sitlington, & Marshall, 2011). There are three central downsizing approaches according to Kim Cameron namely, Workforce reductions, work redesign, and systematic change (Gandolfi, 2013).

This approach also known as layoffs, primarily focuses on the elimination of headcount and the reduction of the size of the workforce. It involves activities such as layoffs, retrenchments, natural attritions, and premature retirements (Gandolfi, 2013). Gandolfi notes that this approach is acted on reactively to cost-cutting and is a short-term approach to the reducing profits. Workforce reductions are most likely negative and do not readily achieve the expected results. Carriger (2016) questions whether workforce reduction produces the anticipated results.  Over 50% of the organizations that implement workforce reduction strategies do not attain reduced expenditures as initially intended. Furthermore, studies show that most of the firms realize after downsizing that some of the terminated employees carried out very significant roles, and as a result, these organizations have to come into terms with the loss and engage new employees.

In endeavoring to maintain both the input of the skilled employees and profitability of the firm, the HR has devised alternative cost reduction strategies or instead alternatives to workforce reductions. These strategies are implemented over a period and they do not involve workforce reduction but instead cost reduction. For instance, they can be grouped into short-term cost adjustments (mandatory vacation, reduced workweek, cut in overtime pay and salary reduction), medium-term cost adjustments (extended salary reductions, employee lending and exit incentives) and long-term cost adjustments (internal job affairs and maintaining communication with laid-off staff) (Gandolfi, 2013).

This approach mostly emphasizes on the elimination of unnecessary work, instead of reducing the size of the workforce (Gandolfi, 2013). It includes actions like eradicating functions, eliminating hierarchy levels, teams, divisions, products, restructuring responsibilities, and decreasing work hours. Vacant positions are targeted and then abolished during the redesign.  For instance, a cataloging hierarchy at a library that hasn’t been occupied for a long time may be repealed and its roles assigned to the clerk.  Work redesign is less stressful to the staff and employer because the downsized positions or departments are not filled prior and thus are unproductive. Work redesign also comprises of merging in addition to the removal of specific roles or job levels. For example, if an organization experiences significant loss beyond recovery, it may decide to partner with another company that is doing well. A successful merger requires the struggling company to merge with a stable firm. Work redesign by merger takes more time than the simple elimination of vacant positions. Work redesigns are rarely implemented due to their complexity and their need for advanced analysis of the affected areas (Gandolfi, 2013).

Workforce Reductions

A systematic strategy is an approach whose view to organization change is more holistic. This method, therefore, considers all aspects of the firm such as suppliers, customer service, production techniques, design procedures, and stock (Gandolfi, 2013). The emphasis of this approach is changing the intrinsic culture of the business and the employee’s attitudes and ethics. Instead of perceiving downsizing as a contrary initiative, this method outlines the positive impacts of cost reduction. The systemic approach emphasizes an increase in clientele and productivity to attract employees’ appreciation. However, such techniques may not produce the desired results in the short-term, but the positive outcomes can be recognized in the long-term. Instead of emphasizing on organizational gain and job loss, the systemic approach focuses on the client.  Such focus results in improved customer service during the economic regression, which finally culminates to increased returns. This approach is most applicable at the start of the financial crisis and least efficient at the peak of the financial difficulty.

Numerous studies have been carried out on downsizing to ascertain the consequences of downsizing on both the individual employee and the corporation as a whole (Datta et al., 2010). The impacts of downsizing on business or corporate strategy have been viewed from the perspective of their effect on the psychological and behavioral of individual employees who have been terminated and the survivors. This is because organizational strategies are designed and implemented by the human resources that are affected by downsizing (Kim, 2003).

Downsizing is a process that disrupts the normal flow of organizational operations because it calls for the restructuring of roles and responsibilities assigned to the terminated employees and those that remain (Datta et al., 2010). This implies that the organization has to strategize all over again and this is costly concerning time and resources.

As previously mentioned, downsizing results in problems and fails to attain the objectives of the organization through the implementation of the corporate strategy. This is as a result of the negative impacts that downsizing has on the survivor employees such as high-stress levels, increased job insecurity, loss of trust, job dissatisfaction, and low productivity (Datta et al., 2010). These affect organizational commitment which also determines the successful implementation of business strategy. According to Adair Erickson, & Roloff (2008), the decrease in organizational commitment decreases the success of the implementation of corporate strategy. This is because the surviving employees believe that there is bias in downsizing, the staffs are worried about the future of their jobs, and they think that the layoffs will increase workloads.

Work Redesign

Downsizing means the decrease in the number of employees and a corresponding increase in the workload. This reduces the efficiency of the workforce and hinders successful implementation of the business strategy. It also does away with specialization because the survivors have to share the responsibilities of those whose employment has been terminated. These affect the success of the business strategy because the employees previously allocated specific roles are in existence, and their functions are added up to the survivors who already have burdens to bear. Schmitt, Borzillo, & Probst, (2012) argue that the individual competency of the survivors is threatened because of the additional loads from the laid-off colleagues resulting in lack of job clarity. Each employee is initially assigned roles befitting the qualifications when designing organizational strategy, and yet downsizing eliminates the employee who leaves a gap in the implementation of the business strategy. The lack of the required skills to adapt the plan also contributes to its failure. Or if the procedure is implemented, it is not likely to attain the expected results.

Ambrose, & Chiravuri (2010) reasons that downsizing negatively affects the reputation of the organization which makes it difficult to win the confidence of the best-qualified employees in the market for they fear of job security. This changes corporate strategy in that the organization no longer has the required expert skills to achieve its objectives after losing the employees that it had invested a lot in training and had the right experience. Furthermore, reduced reputation negatively affects the perception of the financiers or stakeholders and that of loyal customers thus hindering the success of the corporate strategy because the business will be financially constrained and the loss of loyal customers will reduce the market share and revenues.

Human resource planning is a process that determines the short-term and long-term human resource for the corporation to attain its goals. HR planning serves as a connecting bridge between the human resource management and the general strategic plan of the business.

The HR planning is equally affected by downsizing because of loss of training investment from turnover. The staff whose employment has been terminated has incurred organizations resources through training, and this means that the human resource department has to begin all over again (Mellahi, & Wilkinson, 2010). Additionally, the HR department is unable to make long-term plans for the labor force because of the effects of downsizing. This is because HR planning requires the analysis of the present employee resources alongside the objectives of the corporation and matches that with any future needs.  Now, downsizing disrupts the normal flow of operations upon which the HR planning had been based. This implies that the human resource department has to plan afresh and restructure the organizational roles thus affecting the efficiency and effectiveness of human resource planning.

Downsizing also affects HR planning regarding cost. The employees that are laid off are often hired back as consultants to the firm because the organization realizes too late that the initial objective of cutting costs through downsizing was a mistake because it was done at the expense of the achievement of the corporate goals. Thus the human resource department has to incur additional costs in its function of planning. Studies show that non-financial expenses are usually disregarded when downsizing and yet they are significant in HR planning. Costs like the loss of outstanding talent and disruption of organizational memory (Gong, & Greenwood, 2012) are part of the reasons for failed downsizing and hr planning.

References

Adair Erickson, R., & Roloff, M. E. (2008). Reducing attrition after downsizing: Analyzing

the effects of organizational support, supervisor support, and gender on organizational commitment. International Journal of Organizational Analysis, 15(1), 35-55.

Ambrose, P. J., & Chiravuri, A. (2010). A socio?cognitive interpretation of the potential

effects of downsizing on software quality performance. Information Systems Journal, 20(3), 239-265.

Carriger, M. (2016). To downsize or not to downsize–what does the empirical evidence

suggest?. Journal of Strategy and Management, 9(4), 449-473.

Datta, D. K., Guthrie, J. P., Basuil, D., & Pandey, A. (2010). Causes and effects of employee

downsizing: A review and synthesis. Journal of Management, 36(1), 281-348.

Gandolfi, F. (2013). Workforce downsizing: Strategies, archetypes, approaches and

tactics. Journal of Management Research, 13(2), 67.

Gong, B., & Greenwood, R. A. (2012). Organizational memory, downsizing, and information

technology: A theoretical inquiry. International Journal of Management, 29(3), 99.

Kim, W. B. (2003). Economic crisis, downsizing and “layoff survivor's syndrome”. Journal

of Contemporary Asia, 33(4), 449-464.

Mellahi, K., & Wilkinson, A. (2010). Slash and burn or nip and tuck? Downsizing,

innovation and human resources. The International Journal of Human Resource Management, 21(13), 2291-2305.

Schmitt, A., Borzillo, S., & Probst, G. (2012). Don’t let knowledge walk away: Knowledge

retention during employee downsizing. Management Learning, 43(1), 53-74.

Sitlington, H., & Marshall, V. (2011). Do downsizing decisions affect organisational

knowledge and performance?. Management Decision, 49(1), 116-129.