Corporate Downsizing - Venturing

8/14/2019 Corporate Downsizing - Venturing

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I N D U S T R I A L A N D

C O M M E R C I A L

T R A I N I N G

C O R P O R A T E D O W N - S

A N A M E R IC A N T R A INA F F L I C T I O N

Gerald D. Cheek and Walter Cameron

BACKGROUND

The shape of America's large private andpublic organisations has been changingduring the past ten years. The corporatepyramid is flattening because the middle isbeing reduced in size. Managers at all levels,especially at the middle, have been laid off inlarge numbers. Chief Executive OfficerWilliam Morin, of the out-placement firm

Drake Beam, says, "More companies areputting resources into positions that aredirectly and visibly productive, such asmarketing and sales. There is a greateremphasis on jobs that affect the bottom linethan positions that analyze, filter, and reporton data"[1].

In the United States, reducing the numberof employees in an organisation is commonlycalled "down-sizing". Few large organisationshave escaped such workforce reductions.Exxon sold its headquarters building andreduced its senior staff from 1,400 to 320.When International Telephone and Telegraphsold many of its operating units, it reducedits 900 New York headquarters staff byapproximately 70 per cent[2]. Shortly afterGeneral Electric purchased RCA, all 500 ofRCA's headquarter jobs were eliminated[3].

Reductions at Eastman Kodak went wellbeyond the cut-backs at its headquarters.Approximately 13,000 employees at all levelsin Kodak's worldwide operations wereterminated or accepted voluntary separationoffers. Salaries of many of the retainedexecutives were reduced [4] .

Management reductions have also affectedmany newly formed industries. Tektronixreduced its workforce by 10 per cent. Salarycuts were also included for senior

managers[5]. Hewlett-Packard provided earlyretirement packages for 1,000 of itsemployees [6] .

Media companies have not been sparedmanagement cut-backs. Major televisionnetworks have attempted to make theiroperations lean and more cost-effective.Among the three major networks, severalthousand individuals were laid off. Time, Inc.

reduced its staff by 5 per cent. Thisreduction reached the high level of assistantpublisher[7].

While many American businesses haveused down-sizing as a solution to one ormore perplexing problems, cut-backs do notalways address what is really wrong.Companies may have been weak competitors,produced inferior products, provided poorservice, attempted to sell outdatedtechnology, had inadequate logistics, orlacked customer support.

Additionally, federal, state, and localgovernments have felt the sting of theGramm-Rudman-Hollings Act. The Actestablished specific targets over a multi-yearperiod to force reduced deficits. Becausetargets for deficit reduction were not met,there have been across-the-board cuts whichhave reduced growth and constricted thenumber of employees.

Cameron et al .[8, 9] cited problems thatcreated conditions which resulted in downsizing. Those listed were: (a) shrinkingmarkets, (b) increased competition, (c)

budget cuts, (d) decreased revenues, (e)decreased profits, (f) stagnation, (g)deteriorating win-loss records, (h) loss oflegitimacy, (i) maladaptation to anenvironmental niche, and (j) disgruntled

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customers. These are just a few of the realproblems that should be addressed beforedeciding to down-size.

TOO MANY MANAGERS?It is difficult to und erstand why anorganisation would intentionally create astructure that requires an overabundance ofmanagers. Yet, organisations grow and thenumber of managers often becomes morethan can be supported by existing conditions.Internal problems can lead to an excessivenumber of managers in large organisations.These problems accumulate over time and are

not the result of one bad decision.

Age, Prosperity, and Size of OrganisationThere is a direct relationship between over-staffing and the length of time anorganisation has been in existence.Additionally, the more profitable anorganisation is, the more it tends to createunnecessary managerial positions. Moreover,this situation is more complex than just timeand success. Managers in older organisations

believe they have a social objective toincrease the number of positions. Theybelieve more managers are warranted becausethey need help to co-ordinate and control theorganisation's functions. When moremanagers are added, the number of supportstaff also increases. This phenomenon tendsto slow the reaction to warnings thateconomic troubles are coming. Slowerreaction times will cause more penetratingproblems resulting in more lay-offs thanoriginally required.

DEPARTMENTAL MANAGERSESTABLISH PRIORITIES W H IC H OFTEN

DO NOT SUPPORT THOSEOF THEORGANISATION

After a company becomes large enough, itmay departmentalise. Internal competitionbetween departments can de-emphasiseorganisational priorities and lead toadditional hiring. Departmental managersestablish their own priorities which often donot support those of the organisation.Numerous corporations have established

departments to manage such issues as energyconservation, product quality, work-lifequality, productivity improvement, and

employee empowerment. To meet newobligations and increased internalcompetition, each unit may increase itsnumbers in order to gain an advantage.Consequently, the number of managers andstaff is increased unnecessarily.

Diversification and DecentralisationBeginning in the 1960s and continuingthrough the 1970s, corporate growth in theUnited States was accomplished following a

preferred course of diversification.Corporations became diversified throughacquisitions and start-up enterprises. Theyoften took on unrelated business ventures inwhich senior managers had little or noexpertise. This resulted in the proliferation ofnew layers of managers to cope with thediversification. This action can become morecomplicated by attempting to decentraliseauthority. Not wishing to lose control, newlayers of managers are added and seniormanagers surround themselves with assistants.

Government RegulationsDuring the 1970s, the number of governmentregulations increased dramatically.Regulations dealing with the environment,safety, equal opportunity, etc. increasedmanagers' work-loads. Many corporationshave created special positions to respond tothe government's requests for compliancewith regulations.

Expanding Markets and Lack of ExpertiseInternational expansion and competition haveadded to the complexity of problems in manycorporations. Special divisions were staffed tohandle expanding markets. However,individuals with knowledge and expertise indealing with overseas markets are difficult tofind. To offset this dilemma, severalindividuals with partial competence are hiredrather than a single competent individual.

Mistrust within the Corporate CultureA perplexing internal problem exists inAmerican corporations which is responsiblefor hiring too many managers. The culturewithin the American corporate structure

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ensures that managers learn early that it isnot in their best interest to trust one another.They may withhold information that will

shed a bad light on a situation, show failure,reveal declining profits, customerdissatisfaction, over-estimates of consumerdemands, etc. They often hide the truthrather than learn from it. Instead of findinga solution and correcting the problem, manytop executives hire "safeguard units" thathave special avenues of communications tothe top. Often outsiders or consultants areused to bring out the bad news withouthighlighting the good. This behaviour isinefficient, costly, and demoralising.Additionally, it adds to the number ofmanagers an organisation must support[10].

THE QUICK-FIX TENDENCYH ASPROVED TO BE NOSOLUTION

Above are reasons for the expansion ofcorporate bureaucracies. Adding layers ofmanagers has been an attempt to solve

problems which have in many instancesresulted in new ones. The quick-fix tendencyto cope with change by inflating themanagerial staff has proved to be nosolution. Over-staffing can be traced tohuman resource development practices inAmerican corporations. There has been alack of documented decision-making policiesrelated to increasing management positions.

IMPLICATIONS OF DOWN-SIZING

Down-sizing is accomplished using a varietyof techniques. Besides simply dischargingunneeded managers, companies use hiringfreezes, demotions, salary reductions,redeployment, and early retirement packages.However, when corporations down-size, theyoften do so without proper planning. Theydischarge many of their managers, thenattempt to formulate reorganisation plans forthose remaining. These new plans aredeveloped without considering the humancosts. Companies may improve their financialperformance, but at a price. The organisationis left with managers who will continue to beconcerned about their job security. When thethreat of job loss exists, anxiety and jobstress increase[11]. Lack of job securityreduces employees' commitment to the

organisation and their effectiveness incarrying out duties and responsibilities.

Through these troubling times,

organisations may lose those whom they wishto retain. Managers may leave the companybefore personnel decisions are made anddown-sizing commences. They are positionedto have prior knowledge of reductions andknow the probabilities for reductions orpermanent closing. As many as 75 per centof managers and executives have been knownto leave for other jobs before the companycloses its doors[12].

Trainers should know how down-sizing willaffect them and their training efforts. Downsizing affects more than just those who aredisplaced[13]. For those who were retainedbut still fear job loss, training may be viewedas having little value. Parallel to this trainingproblem, workers who are anxious abouttheir jobs will resist change. They becomemore rigid in their thinking and avoid risktaking. This is difficult for trainers to dealwith, especially in smaller companies whichrequire a more flexible employee with a widerrange of skills[14]. Retained managers insmaller companies that have down-sized mustbe cross-trained or retrained for difficult

responsibilities. However, they may resist suchtraining since they may view these attemptsas another way to reduce their numbers.

THE NUMBEROF TRAINERSANDTRAINING FUNCTIONSH ASINCREASED EVEN THOUGH

COMPANIES HAVE DOWN-SIZED

Additionally, the lowered self-esteem ofpreviously laid-off employees, those withsalary reductions and demotions, is anotherproblem for trainers. The disappointment oflosing a job, having a salary reduction, beingtransferred, loss of status, etc., coupled withbleak prospects of finding another positionas good as before can lead to depression,family problems, drinking, drug problems,and other disorders. All of these willadversely affect the participants' willingnessand abilities to be retrained.

TRAINERS' RESPONSE TO D OW N-SIZINGEven with the problem of down-sizing,American businesses have begun to look at

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ways of developing their human resources.Proportionally to the number of employees,the number of trainers and training functions

has increased even though companies havedown-sized. This situationhas developedpartially because of internationalcompetition. An analysis of the impact ofhuman resource developmentin other nationshas shown that it has helped them gain acompetitive advantage in some areas. Sincebusiness interests are being focused on howto develop human resources rather thanutilise them for short-term gains, trainingisviewed as a vehicle to develop individuals.

LEADERSHIP MUST COME FROM

TH ETOP

However, training departmentsare by nomeans immune to reductions in staff.Training specialists must demonstratethecritical role they play if they are to survive inshrinking organisations. Odiorne[15] providedsome ideas on how training departmentscould respond to down-sizing. Some of hiskey ideas were:

(1) Revise goals. Trainers must assume theywill be building new, lean programmes tohelp employees and managers to operatemoe effectively. Trainers should evaluateexisting training programmesanddetermine those that are making adifference in performance. Trainers mustconcentrate on training goals that providethe most impact in an effective, efficientmanner.

(2) Use more technology.Trainers should useor adapt off-the-shelf training materialswhich can be delivered by technologyalready owned by the company. At thesame time, requests for additional fundsfor capital equipment, especiallyfordevices that promise to cut labour costsshould be made.

(3) Use systematic training. Systematictraining requires the studying ofrelationships between inputsand outputs.

When training inputs budget,personnel and materials are cut,trainers must plan to produce the sameor more output with less. Owingto thephysical limitations of doing this, trainers

must change the way they conduct theiractivities. Trainers must rearrange,simplify and question everything about

what has been done in the past. Therelationships between inputsand outputsmust be reviewed constantly and thelowest output services mustbe dropped.

(4) Avoid the activity trap. Trainers can losesight of their goal because of involvementin the processes and procedures of anactivity. Thus the activity may become anend in itself and the training goal may beforgotten.

(5) Apply the 80/20 rule. This rule projectsthe natural maldistribution between causeand effect: 80 per cent of valuable resultsare produced by 20 per cent of theefforts designed to produce the results.Applied to training, this would suggestalarge percentage of the favourable effectsof training comes from a smallpercentage of the courses, seminarsorefforts of a training staff. Trainers mustconcentrate on training that has the mostfavourable cost and profit impact.

FUTURE PLANSAmerican companies are making progress inthe process of integrating human resourcesand strategic planning. Even thoughpersonnel experts havea role to play inintegrating the two, it is unrealistic to expectthem properly to implement it. Leadershipmust come from the top. Additionally, it ismore logical for some companies to move thetraining function out of the personneldepartment and group it with other unitssuch as information systemsandcommunications.

CROSS-TRAINING SHOULDBEENCOURAGEDAND INDIVIDUALS

REWARDED

Ideas offered by companies that have madesome successful changesin the way they

perceive human resource development werediscussed at the Positive Employee PracticesInstitute held in Atlanta, Georgia, duringOctober 1989. Successful practices offeredbycompanies which are determined to stay lean

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and really develop their human resourcesincluded:

(1) Make hiring more impo rtant than fillingpositions. Use detailed selection criteriafor new hires to ensure their fit withorganisational culture as well as jobrequirements. In addition, contractorsand part-time employees can be used asbuffers to absorb the swings of a cyclicalbusiness.

(2) Make it easy for poor performers toleave. Put teeth into the performancereview process. Managers need to ensurethat how a person accomplishes a job israted as well as what is accomplished.Input is obtained by having subordinatesrate managers and staff members arerated by their internal customers, as wellas by their supervisors. Results ofperformance reviews are used primarily toimprove performance, not to makedecisions on raises.

(3) Design career paths that go horizontal aswell as vertical. Include more functionallevels than hierarchical levels. Cross-training should be encouraged andindividuals rewarded for being proficient

in other functions. Some companies arenot assuming that all good performerswill remain for their entire careers oreven that the situation is the mostdesirable for all workers.

CLOSING REMARKSDown-sizing has become a way of life inAmerican corporations. It is being used tosolve economic problems. Many of theseproblems were the result of shrinkingmarkets, increased competition, budget cuts,decreased revenues, decreased profits,stagnation, loss of legitimacy, disgruntledcustomers and the like. At the same timeAmerican companies have increased thenumber of their managers. Increases havecome about owing to corporate maturity,diversifications, government regulations, newtechnologies, expanding markets, mistrust,etc. These factors have fuelled the fires ofbureaucracies by adding too many managerialand staff positions.

In many cases, corporations have beenoverzealous in their attempts to reduce thenumber of their managers and staff and arenow paying the price. Without properplanning, down-sizing has left thoseremaining many unnecessary hardships.

Trainers are now being given the task ofmaking things work with fewer resources andthey are dealing with employees who may be

less willing to learn. Trainers can be effectivebut they must work smarter than in the past.Trainers must also become involved in

research to find ways to improve trainingeffectiveness. Associated with the problemsof down-sizing, the following questions mustbe answered:

(1) What are the deterrents to trainingeffectiveness during and afterdown-sizing?

(2) What are superior ways of trainingindividuals who are anxious about theirjobs or disappointed in theirachievements within the organisation?

(3) What are the factors that lead to mistrustamong managers? What are thedeterrents to the elimination of mistrustbetween/among affected groups?

(4) What are the most effective trainingtechniques for preparing employees toaccept change, to become risk-takers, andto be less rigid in their thinking? Is this aproblem for managers only, trainers only,or for both managers and trainers?

(5) What are the benefits to trainingdepartments in companies havinghorizontal career paths versus verticalcareer paths?

Most certainly, down-sizing will result insmaller companies which will require moreflexible managers with a wider range of skills.It is also important to help them become lessrigid in their thinking, not to resist change,and to continue to be risk-takers. Withoutthese qualities, the down-sizing will be atrend that will continue into the 1990s.

References1. "Corporate Victims",American Demographics,

May 1989, p. 19.2. "Cost-saving Efforts Spread", Washington

Post, 19 September 1986, p. G2.3. Banks, H., "The New Ways of Firing at the

Top", Forbes, 25 August 1986.

4 . Armon, D., "Kodak Plans Major Lay-offs, Cost-cutting", Washington Post, 12 February 1986,p.F1.

5. Tharp, M., "Tektronix Sets Lay-off of 2,000" ,Wall Street Journal, 22 May 1986, p. 4.

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6. Schlender, B., "H ew lett to Offer 1 ,800 aProgram to Retire Early", Personnel Journal, 13June 1986. Seibuet, E.H. and Seibert, J.,

"Benefits: Look into Window Alternatives",PersonnelJournal, May 1989.

7. Vamos, M., "Trouble in Paradise: A J olt ofReality at Time Inc.",Business Week, 17February 1986.

8. Cameron, K.S., Kim, M.U. and Whe tten, D.A.,"Organizational Effects of Decline andTurbulence", Administrative Science Quarterly,Vol. 32, 1987, pp. 222-40.

9. Cameron, K.S., Sutton , R.I. and W hette n, D.A.,Readings in Organizational Decline:Framewo rks, Research and Prescription,

Ballinger, Boston, 1988.10. Tomasko, R.M., Down-sizing: Reshap ing the

Corporation for the Future, AMACOM, AmericanManagement Association, New York, 1987.

11. Kahn, R.L., Work and Health, Wiley, New York,1981.

12. Gordus, J.P., Jarley, P. and Ferman, L.A., PlantClosings and Economic Dislocation, W.E.Upjohn Institute for Employment Research,Kalamazoo, 1981.

13. Perrucci, C.C., Perrucci, R., Targ, D.B. and Targ,H.R., Plant Closing: International Context andSocial Costs, Aldine DeGruyter, New York, 1989.

14. Becker, F.D., Workspace: Creating Environmentsin Organizations, Praeger, New York, 1981.

15. Odiorne, G.S., "Training in a Time ofDownsizing", Training, September 1989.

BibliographyGreenhalgh, L., Lawrence, AT. and Sutton, R.I.,

"Determinants of Work Force Reduction Strategiesin Declining O rganizations",Academy of

ManagementReview,

Vol. 13, 1988, pp. 241-54.Sutton, R.I. and D'Aunno, T., "Decreasing

Organizational Size: Untangling the Effects ofMoney and People", Academy of ManagementReview, Vol. 14 No. 2, April 1989, pp. 194-212.

Willis, R., "What is Happening to America's IdleManagers?", Management Review, January 1987.

Gerald D. Cheek is Professor and Head ofthe Department of Technological and AdultEducation, and Walter Cameron is Professorand Director of the Office for HumanResources Development, Department ofTechnological and Adult Education, TheUniversity of Tennessee, Knoxville, USA.

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Corporate Downsizing - Venturing

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