Pros And Cons Of Cutting Back On Middle Level Management During Economic Crisis: An Essay.

The group assignment is to summarise and evaluate an OB debate. The group assignment will be presented during tutorials. Your tutor will assign each group a debate topic. Work as a group to research the topic and the debate, drawing from both academic and practitioner perspectives.  

The poster and portfolio require that your group has read academic research other than what is provided in the textbook and in class. The academic research should be high quality and must be referenced appropriately.

You should also find high quality sources that provide information primarily for management practitioners. Tips for finding appropriate references will be posted on Moodle and further assistance is available from the library. Note that Wikipedia and similar sources are not acceptable for this assignment.work as a group to prepare a group poster and group portfolio summarising the debate and your group’s research. There will be some time allocated during tutorials to work on the group assignment. The group should maintain copies of specific meeting materials to include in the group portfolio (see further description below).

General Guidelines for the Poster Session and Formatting

• The poster should be formatted as a single poster sheet, no larger than A1. The University of North Carolina has created an excellent resource with tips for how to create effective posters: 
• All posters will be presented in a poster session during tutorials during week 10.

Disadvantages of cutting back

To save their financial resources and survive in today's harsh conditions with the least losses, companies should resort to cutting costs. It is a fact. First of all, many companies rush to cut middle level management, thinking that this is their salvation. But often, they do not think about the company's image, in addition to the other consequences listed above.

The current economic crisis is only one of the stages of the economic cycle, and, despite negative macroeconomic indicators and panic in the media, it will ultimately end in new economic growth (Benn et al.,2014). When the stage of economic growth comes, the demand for products and services of companies will increase, all will need middle level management in order to be able to meet the growing demand in the market. Therefore, the ability of companies to retain and attract talented employees will directly depend on how companies behaved during the reduction of middle level management. So the crisis is a good test of its kind (Wagner and Hollenbeck, 2014).

Disadvantages of cutting back

Middle management includes managers at local business units. Delayering or downsizing comes at a cost. 

Less direct leadership

There will be less direct leadership which can lead to detachment between employees and their managers. This goes against organizations premise of direct involvement, coaching and training expected from a manager to employees. Cutting back makes it difficult for employees to approach management with ideas, concerns or issues which may affect operations.

Lack of oversight

Apart from saving money, cutting back is done when companies do not believe that they need close oversight over employees. Thus cutting back may lead to a single manager overseeing over 30 which makes it difficult to spot mistakes. Unethical actions by employees may go unnoticed which can lead to costly errors in customer service or production (Quirke,2017).

Communication challenge

Cutting back middle level may lead to communication problems and the inability to regularly interact with employees will affect delegation and follow up on tasks. There will be lagging of cross functional communication.  This takes away the nature of collaboration at the work place and the overall team culture.  Effective leadership is necessary to ensure that there is efficiency at the work place.

Backlash

In small communities when cutting back is done employees who are fiercely loyal to their managers may lead a rebellion which can lead to disruption of business. This may also  public image damage.

Dismissal is a phenomenon that has become widespread in the crisis. Sometimes many companies reduce the number of employees, not guided by the criteria for the importance of each employee for the business process, and the existing costs that need to be reduced. Reduction most often occurs not on the basis of analytical studies, but on the principle of "management set the task to cut costs several times."

Decisions are made not always deliberately and judiciously, not only from the point of view of the moral attitude towards employees, but also taking into account the development of business even in the conditions of crisis. The distribution of the functional of a qualified dismissed middle level management among the specialists remaining in the company worsens the overall result of the work. In this material, we want to propose options for optimizing expenses in the field of personnel management during the economic crisis.

Less direct leadership

Many executives and business owners are pessimistic about whether to declare a company bankrupt or to quit business. A more optimistic option is to adapt to the current situation on the market. That is why active, persistent and courageous entrepreneurs come into conflict with the crisis. It is commendable that people begin to take action promptly, and not sit and wait for "weather from the sea". By cutting back this category of managers begins to sharply reduce costs and try to increase sales.

Consider another option that can be adopted in the company during the crisis. This is the provision of short-term leave to middle level management, which is determined by each company individually. It can be a week off, monthly - there are lots of options. In this case, production, workplaces and salaries for employees remain, but the company's organizational expenses are reduced. So there are positive sides to this alternative.

The effectiveness of the business is proven by the fact that this decision is not correct. Experts and analysts recommend not saving on people, but on costs. If before the crisis managers most often thought about managing financial profit, then today, in a crisis, you need to be able to manage and costs. It is necessary to make financial restructuring aimed at increasing business efficiency. It is no secret to anyone that our country differs from others in that the problem of low labor productivity is especially pronounced here.

Many employees sit on the Internet, which, as it would seem, in a crisis, you need to fire first. But this decision in this situation is very simple and obvious. Let's look at the situation through the prism of profitability for business and the solution of the company's high goals. It is worthwhile to invite them to direct their energy to solve business problems. Motivation is the main criterion of success in this issue, which will allow employees not to fall into the category of shortened middle level management.

In general, it is necessary to think unreasonably in the crisis, to seek new solutions to problems and develop their own individual anti-crisis programs (Engelbrecht, 2016). Suppose that the dismissed employees of business leaders who have certain connections in the market will be able to offer interesting work options. And you can think of something inside the company, up to the introduction of special anti-crisis middle level management in the middle level management.

 This is a good incentive in the problem of the employee's further performance on the company. In addition, such programs will have a positive impact on the corporate culture of the company, more solidly middle level management. This approach will give more chances to survive during the crisis than simply laying off people. Trying to quickly get out of a difficult situation through layoffs, the company deprives itself of the chance to develop in the future, because without the old employees it will be difficult to overcome the crisis.

During the crisis, the company is faced with the choice to reduce middle level management or find new effective ways of development, which in the future will be a competitive advantage of the company. We can say that companies that choose the easy way will lose, and middle level management reduction is an extreme measure, which must be taken at the very last moment, when there are simply no other options. Use this method can companies of different forms of ownership and of any scale. The most important thing is to weigh and analyze all the "pros" and "minuses" of this approach, and then apply it to your company.

Lack of oversight

We propose to consider the possibility of reducing middle level management costs with the least negative consequences. To change the schedule is a good option. But the employees need to correctly convey information that during the economic downturn of the company is particularly difficult, so the middle level management need to use the remaining leave, or take extra unpaid leave, especially since employees will retain the right for his workplace. Also, middle level management can be offered a shortened working week. Under the circumstances, these measures are generally perceived by employees with understanding, given that they retain their place of work and career development opportunities in the future.

Optimizing the social package is another worthy alternative. The company can estimate the costs of providing employees with benefits and compensation. Some benefits can be reduced or completely eliminated, for example.

But you need to remember, no matter how the cost optimization path is chosen by the company, it should not contradict the contractual obligations with employees, as well as legislation and collective agreements. Depending on the company's characteristics, different measures can lead to an effective result. Employees of a close-knit team can accept with understanding the news about "freezing" the growth of salaries or the cancellation of bonus payments.

. Today there is a very popular direction that can help company executives cut their expenses. Such a service is called outsourcing. Outsourcing (external outsourcing) is the transfer by an organization of certain business processes or production functions to the service of another company specializing in the relevant field (Mwangi et al,2015). And many companies follow the innovation and transfer their specific functions (partially or completely) to special third-party organizations.

Most often outsourcing transfers the following activities: accounting, legal support, personnel management, personnel records management, information technology, marketing, etc. Let's consider the positive and negative aspects of this service. Among the advantages can be noted - cost savings (cost reduction - salary, workplace, software, etc.), as well as concentration on the main business processes, without being distracted by the secondary tasks that need to be performed. As a rule, specialists of a third-party organization are highly qualified, because each of them specializes in its field. In addition, one-time project can attract just highly qualified specialists from outside.

 When middle level management are cut back outsourcing can be carried out at a lower cost. Outsourcing has not only advantages, but there are some risks. There is a problem of information leakage of a third-party organization, since certain information is still transferred to the contractor. There may also be a problem of team resistance, as not all employees can join the process of interaction with an outside organization, which can complicate the transition to the outsourcing program.

It is impossible to avoid losses arising from poor-quality or untimely performance of services (Miner, 2015). So to the choice of the company, with which it is necessary to work on the system of outsourcing, it is necessary to pay special attention. It is worth to contact such companies, for example, on the recommendation. After a crisis, a mistake can cost a lot. Or choose third-party organizations that have long been working in the market and specialize in some specific direction (Luthans et al.,2015).

In general, the withdrawal of middle level management for middle level management is another possibility of reasonable savings in a crisis. In general, the scheme of cooperation based on outsourcing is a fairly good solution for business in a difficult economic situation (Chang, 2016). The large expenses go from the variables to the permanent ones, and as a result the middle level management costs in general are reduced and the financial indicators are improved. We do not just use cheaper labor, but we also have a higher result of work, legally and actually for which the contractor company is responsible. The company ceases to pay wages and taxes, regardless of whether a person went to work or not, and pay only for services, the description of which appears with fixed and constant costs.

Calculation

Let’s say a company has 15 middle level management staff earning  $70000 each. The company would have spent  15*$70,000= $1,050,000 annually of salaries for the managers. If the company cuts back the middle level management it will have saved $1,050,000.  By outsourcing it will have saved maybe half of this amount.

Conclusion

Being able to understand the factors that affect costs, as well as their behavior, allows us to carry out a better estimation in the future of them, establish priorities and achieve an efficient allocation and control of resources, avoiding unnecessary costs. This will allow them to achieve the goals established in their strategic planning. 

References

Benn, S., Edwards, M. and Williams, T., 2014. Organizational change for corporate sustainability. Routledge.

Chang, J.F., 2016. Business process management systems: strategy and implementation. Auerbach Publications.

Engelbrecht, A., 2016. Corporate entrepreneurship: the role of middle-level management on corporate entrepreneurship within the telecommunications industry in South Africa(Doctoral dissertation).

Luthans, F., Luthans, B.C. and Luthans, K.W., 2015. Organizational Behavior: An EvidenceBased Approach. IAP.

Miner, J.B., 2015. Organizational behavior 1: Essential theories of motivation and leadership. Routledge.

Mwangi, G.K., Olayo, J.O. and Simuyu, A.N., 2015. Employee skills, management style and organizational culture in implementation of strategic plans in middle level colleges in thika sub-county, Kenya. International Journal of Business and Management, 10(6), p.199.

Quirke, B., 2017. Making the connections: using internal communication to turn strategy into action. Routledge.

Wagner III, J.A. and Hollenbeck, J.R., 2014. Organizational behavior: Securing competitive advantage. Routledge.