EMPLOYEE DOWNSIZING

Case Code- HROB016
Publication Date -2002

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LESSONS FROM THE 'DOWNSIZING BEST PRACTICES' COMPANIES

In the late 1990s, the US government conducted a study on the downsizing practices of firms (including major companies in the country). The study provided many interesting insights into the practice and the associated problems. It was found that the formulation and communication of a proper planning and downsizing strategy, the support of senior leaders, incentive and compensation planning and effective monitoring systems were the key factors for successful downsizing.

HR managers in these companies participated actively in the overall downsizing exercise. They developed a employee plan for downsizing, which covered issues such as attrition management and workforce distribution in the organization. The plan also included the identification of skills needed by employees to take new responsibilities and the development of training and reskilling programs for employees. Since it may be necessary to acquire other skills in the future, the plan also addressed the issue of recruitment planning.

Communication was found to be a primary success factor of effective downsizing programs. According to a survey conducted in major US companies, 79% of the respondents revealed that they mostly used letters and memorandums from senior managers to communicate information regarding restructuring or downsizing to employees. However, only 29% of the respondents agreed that this type of communication was effective.

The survey report suggested that face-to-face communication (such as briefings by managers and small group meetings) was a more appropriate technique for dealing with a subject as traumatic (to employees) as downsizing. According to best practice companies, employees expected senior leaders to communicate openly and honestly about the circumstances the company was facing (which led to downsizing).

These companies also achieved a proper balance between formal and informal forms of communication. A few common methods of communication adopted by these companies included small meetings, face to face interaction, one-on-one discussion, breakfast gatherings, all staff meetings, video conferencing and informal employee dialogue sessions, use of newsletters, videos, telephone hotlines, fax, memoranda, e-mail and bulletin boards; and brochures and guides to educate employees about the downsizing process, employee rights and tips for surviving the situation.

Many organizations encouraged employees to voice their ideas, concerns or suggestions regarding the downsizing process. According to many best practice organizations, employee inputs contributed considerably to the success of their downsizing activities as they frequently gave valuable ideas regarding the restructuring, increase in production, and assistance required by employees during downsizing.

Advance planning for downsizing also contributed to the success of a downsizing exercise. Many successful organizations planned in advance for the downsizing exercise, clearly defining every aspect of the process. Best practice companies involved employee union representatives in planning. These companies felt it was necessary to involve labor representatives in the planning process to prevent and resolve conflicts during downsizing.

According to a survey report, information that was not required by companies for their normal day-to-day operations, became critical when downsizing. This information had to be acquired from internal as well as external sources (the HR department was responsible for providing it). From external sources, downsizing companies needed to gather information regarding successful downsizing processes of other organizations and various opportunities available for employees outside the organization. And from internal sources, such companies need to gather demographic data (such as rank, pay grade, years of service, age, gender and retirement eligibility) on the entire workforce. In addition, they required information regarding number of employees that were normally expected to resign or be terminated, the number of employees eligible for early retirement, and the impact of downsizing on women, minorities, disabled employees and old employees.

The best practice organizations gathered information useful for effective downsizing from all possible sources. Some organizations developed an inventory of employee skills to help management take informed decisions during downsizing, restructuring or staffing. Many best practice organizations developed HR information systems that saved management's time during downsizing or major restructuring by giving ready access to employee information.

The major steps in the downsizing process included adopting an appropriate method of downsizing, training managers about their role in downsizing, offering career transition assistance to downsized employees, and providing support to survivors. The various techniques of downsizing adopted by organizations included attrition, voluntary retirement, leave without pay or involuntary separation (layoffs). According to many organizations, a successful downsizing process required the simultaneous use of different downsizing techniques. Many companies offered assistance to downsized employees and survivors, to help them cope with their situation.

Some techniques considered by organizations in lieu of downsizing included overtime restrictions, union contract changes, cuts in pay, furloughs, shortened workweeks, and job sharing. All these approaches were a part of the 'shared pain' approach of employees, who preferred to share the pain of their co-workers rather than see them be laid-off. Training provided to managers to help them play their role effectively in the downsizing process mainly included formal classroom training and written guidance (on issues that managers were expected to deal with, when downsizing). The primary focus of these training sessions was on dealing with violence in the workplace during downsizing.

According to best practice companies, periodic review of the implementation process and immediate identification and rectification of any deviations from the plan minimized the adverse effects of the downsizing process. In some organizations, the progress was reviewed quarterly and was published in order to help every manager monitor reductions by different categories. These categories could be department, occupational group (clerical, administrative, secretarial, general labor), reason (early retirement, leave without pay, attrition), employment equity group (women, minorities, disabled class) and region. Senior leaders were provided with key indicators (such as the effect of downsizing on the organizational culture) for their respective divisions. Some organizations tracked the progress and achievement of every division separately and emphasized the application of a different strategy for every department as reaction of employees to downsizing varied considerably from department to department.

Though the above measures helped minimize the negative effects of downsizing, industry observers acknowledged the fact that the emotional trauma of the concerned people could never be eliminated. The least the companies could do was to downsize in a manner that did not injure the dignity of the discharged employees or lower the morale of the survivors.

QUESTIONS FOR DISCUSSION

1. Explain the concept of downsizing and describe the various downsizing techniques. Critically evaluate the reasons for the increasing use of downsizing during the late 20th century and the early 21st century. Also discuss the positive and negative effects of downsizing on organizations as well as employees (downsized and remaining).

2. Why did contingent employment and flexible work arrangements become very popular during the early 2000s? Discuss. Evaluate these concepts as alternatives to downsizing in the context of organizational and employee welfare.

3. As part of an organization's HR team responsible for carrying it through a downsizing exercise, discuss the measures you would adopt to ensure the exercise's success. Given the uncertainty in the job market, what do you think employees should do to survive the trauma caused by downsizing and prepare themselves for it?

ADDITIONAL READING & REFERENCES

1. Making Sense of Corporate Downsizing, www.csaf.com, April 1996.
2. Downsizing and Employee Attitudes, www.ncspearson.com, September 1995.
3. Downsizing Strategies Used in Selected Organizations, www.c3i.osd.mil, 1995.
4. The Wages of Downsizing, www.mojones.com, January 1996.
5. Kirschener Elisabeth, Chemical & Engineering News, www.chemcenter.org, October 1996.
6. Hickok Thomas, Downsizing and Organizational Culture, www.pamji.com, 1997.
7. P.Jenkins Carri, Downsizing or Dumbsizing, http://advance.byu.edu/bym, 1997.
8. L.Lester Martha and M. Hollender Lauren, Employment Law Q&A, www.lowenstein.com, February 1997.
9. Hein Kenneth, Food for the Corporate Soul, www.martinrutte.com, May 1997.
10. GE Knows to Roll With the Changes, www.houstonchronicle.com, June 1998.
11. Jones Shannon, Job Cuts Up 53% Since 1997, www.wsws.org, October 1998.
12. Grey Barry, Boeing Announcements Brings US Job Cuts to 500,000 in 1998, www.wsws.org, December 1998.
13. Unkindest Cuts of All - And Not Always a Payoff in the Layoff, www.managementfirst.com, 1998.
14. Grice Corey and Junnarkar Sandeep, Silicon Valley: Still a Boomtown? News.com.com, January 1999.
15. Shareholders Press AT&T on Wage Gap, www.ufenet.org, May 1999.
16. Baker Wayne, How to Survice Downsizing, www.humax.net, 2000.
17. Duffy Tom, Downsizing with Dignity, www.nwfusion.com, 2001.
18. Global Slowdown Bites I.T. Gaints, www.asiafeatures.com, July 2001.
19. Bowes Barbara, Downsizing Dignity, www.winnipegfreepress2.com, October 2001.
20. Freeze Executive Pay During Periods of Downsizing, www.responsiblewealth.org, February 2002.
21. Layoff and Outsourcing Update, www.erie.net, March 2002.
22. Skaer Mark, Employee Mindset Is Different Today, www.achrnews.com, March 2002.
23. GE to Layoff 1,000, www.wspa.com, July 2002.
24. DiCarlo Lisa, US Airlines on Course with Loan Guarantee, www.forbes.com, July 2002.
25. M.Song Kyung, Boeing Tells 600 More of Layoffs Today, http://seattletimes.nwsource.com, August 2002.
26. Gomez Armando, The Ups and Downs of Downsizing, www.askmen.com, September 2002.
27. Carmaker Jaguar to Cut 400 Jobs, http://story.news.yahoo.com, September 2002.
28. Telecom Giant Sheds Scots Jobs, http://news.bbc.co.uk, September 2002.
29. Dresdner to Cut 3,000 Jobs, http://news.bbc.co.uk, September 2002.
30. Leicester John, Alactel to Cut 10,000 More Jobs, http://story.news.yahoo.com, September 2002.
31. Noguchi Yuki, With Sales Down, Ciena Cuts Another Round of Workers, www.washingtonpost.com, September 2002.
32. www.geocities.com
33. http://govinfo.library.unt.edu
34. www.greylockassociates.com
35. www.whatis.com
36. www.shrm.org
37. www.cio.com
38. www.shrm.org
39. www.forbes.com
40. www.orst.edu
41. www.humanresources.about.com
42. www.business2.com
43. www.businessweek.com
44. www.business-minds.com
45. www.themanagementor.com
46. www.bpcinc.com
47. http://members.aol.com
48. www.doleta.gov
49. www.msnbc.com
 

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This case study is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation. This case was compiled from published sources.