Downsizing Strategies in Human Resource Management

                

Downsizing  is  a  strategy  designed  to  reduce  the  number  of  employees  in the workforce, often with the aim  of improving organizational performance and selectively decreasing costs. In the context of human resource management, downsizing strategy involves elimination of certain jobs with a view to have greater efficiency. This results in separation  of  those  employees  who  have  been  performing  these  jobs. In order to implement  a  downsizing  strategy,  a strategic  human  resource  management  is essential. There are three types of downsizing strategies that can be used to make reduction efforts beneficial for the company and employees.

Types of Downsizing Strategies:

1. Workforce Reduction

One of the most popular downsizing strategies is workforce reduction. This action involves laying off or firing employees, mandating early  retirement, and transferring individuals to fulfill critical positions. The central goal in workforce reduction is to eliminate unnecessary positions and hence reduce headcount. Workforce reduction leads to a loss of loyalty and commitment among the workforce. This phenomenon results in a deterioration of the willingness to do some extra on behalf of the organization. Besides this, workforce reduction leads to a sphere of "me first" among the employees. If workforce reduction is inevitable, it  is imperative that the individual is responsible for downsizing to communicate with employees. While it is not appropriate to inform a subordinate of every company detail, it is important to be honest about finances when they negatively affect workers. Although large corporations often call large meetings to discuss financial difficulty, it is best to assemble individuals who will be directly affected by manpower reductions. It is in poor taste to inform employees of layoffs or firings on the day of execution. It is also not a good idea to perform unaffected departments of reductions. Since workforce reductions are devastating for everyone involved, it is best for employers to be upfront and professional when implementing plans.

Although a way to gain immediate profit, workforce reduction should not be the first strategy of downsizing that employers seek. Instead, executives and small business owners should consider reorganizing the entire company and then resorting to eliminate manpower if necessary. Following this procedure can save jobs and help the company maintain a positive reputation.

2. Workforce Redesign

This type of downsizing focuses solely on eliminating unnecessary work. Contrary to workforce reduction, redesign does not focus on eliminating employees and hence eliminating positions. As a result, vacant positions are typically targeted for elimination during redesign. A cataloging position at a library that has not been filled for months may be eliminated and its duties transferred to clerks. Work design is less traumatic for workers and employers since downsized positions or departments are already vacant and hence ineffective.

In addition to eliminate special roles or hierarchies, work redesign also involves merging. When a business has experienced substantial loss to the extent of being unable to recover, it may seek to partner with another corporation that is thriving. A baby’s clothing store, for instance, may seek to partner with a toy store after experiencing a serious decline in sales. In order for a merger to be effective, the company experiencing financial difficulty must seek help from a stable organization. It would not profit a gasoline station to merge with a small restaurant that is also struggling to maintain its financial status. Such partnering would only prove harmful and could result in both companies going out of business. In most instances, work redesign by merger requires more time and effort than simply eliminating vacant positions. The profit for such a merger, however, may be substantially greater than decreasing the budget by internal means.

3. Systemic Approach

This type of reduction seeks to change the cultural atmosphere of the company. Instead of viewing downsizing as a negative attribute, the systemic approach highlights positive effects of reducing costs. Increasing productivity and clientele are the key points that systemic downsizing places on display for employees to appreciate. Although the short-term effects of such tactics are not recognizable, the long-term results are positive. Instead of focusing on job loss and company gain, the systemic approach places emphasis on the customer. Such emphasis leads to better customer service during economic hardship, which ultimately leads to increased profit. While an individual will not dine at a restaurant that previously rendered poor service, he will return to a diner that gave him special attention. The systemic approach is most effective at the beginning stages of financial difficulty and least effective during major crises.

In contrast with the other two strategies, systematic redesign strategy is the main focus on the adjustment of the organizations’ culture, attitudes and values of the employees . This kind of downsizing strategy is a continues process of improvements instead of a certain program or target. Some of the systematic redesign activities are for example reducing waiting time, incompatibilities in data systems, and rules/regulations. Like the organization redesign, this strategy does not include the reduction of employees. However, in contrast with the organization redesign, all the employees have the responsibility to achieve cost reductions and finding improvements.

Some of the more popular approaches that have emerged are:

• ·         Hiring freeze. A hiring freeze constitutes a mild form of downsizing and reduces labor  costs in the short term. 
• ·         Mandatory vacation. 
• ·         Reduced workweek. 
• ·         Cut in overtime pay. 
• ·         Salary reduction. 
• ·         Temporary facility shutdown. 
• ·         Soliciting cost-reduction ideas from employees.

Different Stages of a Downsizing Strategy

To achieve successful downsizing strategy implementation and in order to apply it as a strategic intervention, there are five different stages that are determined.

Stage 1: Clarification of the organizational strategies: Goals and objectives 

The main target of this stage is to clarify the organizations’ strategy. This strategy should be communicated among the organizational leaders in order to create support for the determination of the goals and objectives. Accordingly, this is the moment for members to express their concerns and ask questions. 

Stage 2: Assessment stage: Relevant choices and key decisions 

In order to determine a downsizing method the main relevant choices and matching key decisions have to be made in this stage. In general, an organization has to make a choice which kind of downsizing strategy will be applied. 

Stage 3: Implementation stage: Reduction in workforce 

This stage consists of the implementation of different methods in order to achieve a workforce reduction. The kind of workforce reduction depends on the choice of downsize strategy. Several decisions have to be made while there is also a ‘maintaining perspective’ with people who try to preserve their own function. That is why the implementation of a downsizing strategy should be carried out from a top-down perspective. Further, it is important to maintain the organizations’ focus on the main target and remind the individuals that the restructuration is necessary for the performance improvement. 

Stage 4: Survivor Syndrome: Behavioural implications of remaining workforce 

Within a restructured organization, employees have to accept an expansion of the responsibilities and learn new activities/jobs. In contrary to this expansion, employees often do not notice an increase of their compensation. This can result in an environment in which employees do not strive for organizational success but are preoccupied whether there will be additional lay offs. Also the feeling of guilt towards struggling co-workers while receiving payments and uncertainty of career advancement are important aspects for the organization to deal with. Survivor syndrome can be described as “emotional after effects”. In the workforce, this exhibits with anger, frustration, anxiety, and mistrust. The restructured organization needs to deal with a workforce which is willing to take fewer risks at the expense of the productivity. 

Stage 5: Organizational renewal and growth: New or modified strategies 

This is the final stage in which implementing the organizations’ renewal and growth process. Despite all efforts, organizations often fail at this stage because a lack of communication with the employees. Especially at this stage it is important to communicate the growth plans and renewal strategies in order to prevent ineffectiveness. Important is, once a downsize strategy has been chosen, that the whole organization has to anticipate and keep itself focused. 

The most important factor for organizations is an effective human resource management. A focus has to be on the creation of high involved employees who are proud of their membership in the organization. Employees experience downsizing as stressful and unsecured. Organizations which use a downsizing strategy have to acknowledge the importance of the communication with their remained employees. During and after a downsizing strategy it is possible to create or improve the motivation of employees. The results will be useful for organizations which want to apply a downsizing strategy and the possible consequences to the motivation of the maintained employees.

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References

Atwood, Jane; Coke, Ethel: Cooper, Christine: Loria, Kendra. "Has Downsizing Gone Too Far?", 1995

Cameron, Kim S. "Strategic organizational downsizing: An extreme case. " Research in Organizational Behavior, 29: 185-229, 1998.

Hackman, Richard J. "Work Redesign and Motivation. "Professional Psychology. The American Psychological Association, 1980

Cameron, K.S. (1994). “Strategies for successful organizational downsizing”, Human Resource Management, Vol. 33, 189-201.

Cummings, T.G. & Worley, C.G. (2001). “Organizations development and change”. Cencage Learning.

Sheaffer et al., 2009