08/04/2023 ADITI BAKSHI 1

DOWNSIZING AND ITS IMPLICATIONS

ADITI BAKSHI02-MBA-09

THE BUSINESS SCHOOLJAMMU UNIVERSITY.

08/04/2023 ADITI BAKSHI 2

08/04/2023 ADITI BAKSHI 3

“Next to death of relative or a friend, there's nothing more traumatic than loosing a job .Corporate cutbacks threaten the security and self esteem of victims alike. They cause turmoil and shatter morale inside the organization and they confirm the view that profits always come before people”

-Laura Rubach Famous industry

analyst

08/04/2023 ADITI BAKSHI 4

WHAT IS DOWNSIZING?It is a set of activities undertaken on part of the management and designed to improve organization structure.A downsizing strategy reduces the scale(size) and scope of a business to improve its financial performance.A reduction of workforce is one of only several possible ways of improving profitability or reducing cost.

08/04/2023 ADITI BAKSHI 5

WHY DO FIRMS DOWNSIZE?Reduce costs.Reduce layer of management to increase decision making speed and get closer to customers.Sharpen focus on core competencies of the firm, and outsource peripheral activities.Declining profitsGenerate positive reaction from shareholders in order to improve valuation of stock price

08/04/2023 ADITI BAKSHI 6

Introduction to new technologiesBusiness downturn or increased pressure from competitorsincrease productivityMergers and acquisitionsGetting rid of employee “Deadwood”

08/04/2023 ADITI BAKSHI 7

DOWNSIZING TACTICSDOWNSIZING TACTICS CHARACTERISTICS EXAMPLES

Workforce reduction •Aimed at headcount reduction•Short term implementation

• Attrition• transfer and

outplacements• Retirement incentives• Lay offs

Organization redesign •Aimed at organization change•Modern term implementation

•Eliminate functions•Eliminate layers•Eliminate products•Redesign tasks•Merge units

System redesign •Aimed at cultural change•Long term implementation

•Change responsibility•Involve all constituents

08/04/2023 ADITI BAKSHI 8

BENEFITS OF DOWNSIZING

Gain new skills.Increase in efficiency.Increase profit.

08/04/2023 ADITI BAKSHI 9

APPLICATION STAGES OF DOWNSIZING

1. IMPLEMENTATION STAGES• Reduction in workforce2. SURVIVOR SYNDROME• Behavioral implications of remaining workforce3. ORGANISATIONAL RENEWAL AND GROWTH• New or modified strategies

08/04/2023 ADITI BAKSHI 10

DOWNSIZING EFFECTS

1. OVERALL EFFECT:Mixed effect on firm performance-some short term cost savings ,but long term profitability and valuation not strongly effectedFirms reputation as a good employer suffers.

Example: APPLE Computer’s reputation as good employer declined after several lay offs in 1990’s.

08/04/2023 ADITI BAKSHI 11

Downsizing forces rethinking of employment strategy .Lifelong employment policies not credible after a downsizing.

Example: IBM abandoned lifelong policy after several layoffs in early 1990’s.

08/04/2023 ADITI BAKSHI 12

2. EFFECT ON EMPLOYE MORALE:Employee motivation disrupted-increase in political behaviors, anger, fear, which is likely to negatively impact customer service.Violation of physiological contract, leads to cynicism, lowered work commitment, fewer random acts of goodwill“Survivors” experience more stress due to longer wok hours with redesigned jobs and increased uncertainty regarding future downsizing.

08/04/2023 ADITI BAKSHI 13

3. WORKFORCE QUALITY:Many senior employees leave due to application of retirement incentives:-result is loss of institutional memory.The use of voluntary reductions(buyouts)results in most mark able employees leaving (i.e. "stars”)Early retirements and voluntary reductions often result in too many people quitting and some are hired back at higher cost to firm.

08/04/2023 ADITI BAKSHI 14

4. DOWNSIZING WORKS BEST WHEN:Changes in strategy ,organization structure and culture are accompanied by job cuts of downsizing.Weak business units and in plant closures are used as basis of reductions, rather than across the board cuts affecting all units(including healthy ones)

08/04/2023 ADITI BAKSHI 15

ALTERNATIVES TO DOWNSIZING1. EMPLOYMENT POLICIES:

AttritionHiring freezeOut internsOut tempsVoluntary time offReduced work hours

08/04/2023 ADITI BAKSHI 16

2. CHANGE IN JOB DESIGN:TransfersRelocationsJob sharingDemotions

08/04/2023 ADITI BAKSHI 17

3. PAY/BENEFIT POLICIESPay freezeOut overtime payUse vacations and leave daysPay cutsProfit sharing or variable pay.

4. TRAININGRetraining

08/04/2023 ADITI BAKSHI 18

THE DELTA DIFFERENCE

08/04/2023 ADITI BAKSHI 19

DELTA AIRLINES-A CASE STUDY

3rd largest U.S. airlineIndustry pushed over the edge post 9/11Major U.S. carriers cut costs by $14 BOver 70,000 or 16% of workforce was lay off.267 aircrafts were grounded

08/04/2023 ADITI BAKSHI 20

DOWNSIZING EFFECTS AT DELTADirect dealing between management and employees.HR was outsourcedA core team was set up lead by CLOA war team was set upBuild a workforce reduction program to manage crisisDWP-a set of 3 programs

Enhanced early retirement Leave of absence Severance

08/04/2023 ADITI BAKSHI 21

Employees provided with 6 voluntary programs-1-5 year leave programs.Added flight privileges, pension credit times, and ability to bid for their jobs while on leave.Intended to keep connectivity of employees.Involuntary severance program also created98% of employee reduction created through voluntary leave programOpen to apply to other positions

08/04/2023 ADITI BAKSHI 22

CHANGE MANAGEMENTTools were developed to assist managers to evaluate their process ,job designs and organization structureIdentify and implement changes in management with reduced staff levelsTraining programsNew “LEADER-LED” communication strategyHR being viewed as a support areswebsites

08/04/2023 ADITI BAKSHI 23

CORPORATE EXAMPLES:

IBM:Most firing company for IT professionals.Company fired 20% employees.Reason being performance issues.No strategic plans at HR policies regading employee security.

08/04/2023 ADITI BAKSHI 24

DLF:Retrenched around 300 employees across all its centers and subsidiaries as it decided to slow down its project execution, especially in tier II cities.Tough time in real estate forced the company to rationalise manpower and bring down costs.

08/04/2023 ADITI BAKSHI 25

Aviation industry:Aviation recently was under several financial pressure due to which Kingfisher had downsized 300 staff whereas, Jet downsized around 650 jobs.

08/04/2023 ADITI BAKSHI 26

CONCLUSION

Downsizing in the strategic management plan can increase organizational efficiency by maintaining a focus on core competencies that promote competitive advantage and potentially increase market share.