Employee Downsizing
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Transcript of Employee Downsizing
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Employee Downsizing
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DOWNSIZING
Reducing the number of employees on the operating payroll.
Reducing the total number of employees at a company through terminations, retirements, or spinoffs
Most preferred option of companies Important management venture
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REASONS FOR DOWNSIZING Merging of two or more firms
Acquisition
Change in management
Economic crisis
Strategy changes
Excessive workforce
Increase in efficient work flow and computerized
services
Outsourcing practice
Loss of the company
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Alternatives and
Separations
Voluntary Separatio
ns
Involuntary
Separations
Early Retirement
Buyouts
Employee Downsizing
Outplaceme
nt
Layoffs
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VOLUNTARY SEPARATION…
Employee decides,
for personal or professional reasons,
to end the relationship with employer.
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INVOLUNTARY SEPARATION…
Employer terminates relationship
with employee due to
economic necessity or poor fit
between employee and organization.
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CHANGE IN EMPLOYMENT POLICIES
Reduction through attrition
Cut part-time employees
Cut internships or co-ops
Leave of absence
Reduce work hours
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CHANGE IN JOB DESIGN
TransfersJob sharing Job rotations Job enlargement Demotions
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CHANGES IN BENEFITS
Pay freeze Cut overtime pay Use vacation / leave daysProfit sharing or variable pay
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GOALS OF OUTPLACEMENT
Reduce morale problems of employees about to be laid off Minimize litigation Assist separated employees in finding comparable jobs quickly
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PURPOSES & RISK OF DOWNSIZING
PURPOSE = Improve financial performance through
Cost-cutting, while also achieving long-term effectiveness, efficiency, productivity, competitiveness
DILEMMA of Downsizing Short term cost cutting may lead to
negative psychological reactions that HARM the long term aim of increased competitiveness.
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Mind shift
Culture Change
Lack of commitment
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FAILURES OF DOWNSIZING Only between 25% and 50% of
downsizing companies meet their financial targets (improved productivity, higher returns on investment, higher profits, etc.)
Even these mediocre results do not consider psychological and behavioural reactions from survivors which are likely to be negative and further impair financial performance
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POTENTIAL ADVERSE SURVIVOR REACTIONS TO DOWNSIZING
AngerAnxietyGuiltStress
InsecurityDissatisfactionLow moraleLow org commitment
Perceived unfairnessRemorseUncertainty
EMOTIONS, PSYCHOLOGICAL STATES & WORK ATTITUDES
AbsenteeismTurnover intentionRisk aversion
Resistance to changeLess effortPoor performance
BEHAVIOURAL REACTIONS
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FIRST PHASE DOWNSIZING
Increase productivity & efficiency Optimize resources Survive competition Job cuts , redesign structure Implemented quality improvement
programs…
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DOWNSIZED COMPANIES
GE & GM – 1990’s
Boeing
Deutsche Bank
Chemical and Drug companies
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Negative Impacts…
Shortage of labor
Losing experienced and skilled workers
Cost of rehiring is high
Downsizing tax
Low rate of job creation
High rate of unemployment..
eg.. Delta airline…
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EMPLOYEE DOWNSIZING
• 90% companies went in for a lay-off in mid 1980’s.
• Reason for lay-off slow economy
• Employee downsizing increase productivity & company’s effectiveness.
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CHRYSLER’S DOWNSIZING
• Chrysler eliminated between 20,000 and 40,000 jobs at its North American Chrysler division.
• Permanently closed 1 of its 13 plants in the US and Canada huge financial losses.
• Deutsche Bank (a major owner of Chrysler) eliminate 38,000 salaried and hourly workers
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REASONS
• The American company highly competitive.
• The crisis faced by Chrysler product of the slowdown of the US economy.
• Near brush with bankruptcy in 1980-81.
• Chrysler shrank from 160,000 workers to 79,000.
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• Lee Iacocca bailed out Chrysler.
• Iacocca Stimulus Package from American Government.
• In 1991, Chrysler’s Productivity and sales improved.
• Chrysler brought in a lot of new models of Dodge.
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In the mid of 1990s the emp. Downsizing is reduced across the globe
fall in inflation
increase in national income
high profit
stronger economic But in the late 1990s downsizing was
picked up againeconomic recession
increase in global competition
slump in IT industries
change in technologies
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In the late 1990s & early 21st century The organizations hadspend less money on labor force
reduce wage
Many companies suffered of downsizing
Lost some of their best emp.
Due to loss of experienced workerslack of experienced workers
reduced productivity & fall in qualityincurred expenditure on overtime
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AT&T Rehiring its former emp.
AOL 2000- increase in salary 2001-downsized 2400 emp.
FORD 2001-emp. Will forgo bonus
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SECOND PHASE OF DOWNSIZING
• Mid 1990’S- downsizing reduced.- stronger economies- fall in inflation- high profit etc.,
• In late 1990’s- picked up.-world wide economic recession-global competition-slump in IT industry
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*Soon criticism began on downsizing.
*Negative effects were faced by the companies.- loss of best employees- uneven distribution of employees- excess workload- reduced productivity
*Loss of experienced workers resulted in- expenditure on overtime pay- employment of temporary and contract workersl
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*AT&T in 1998 downsized 18000 employees,- lacked experienced workers- not able to manage equipments- hired former employees- paid twice the salaries of laid off workers to bring back them
*Allegations raised- downsizing is adopted to increase S.E pay- 1996- remuneration of chairman doubled even downsizing 40000 employees.
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* AOL faced same criticism.- increased 6 E.O pay by 8.9% to 25.2%.- remuneration of CEO exceeded $73 million- after this raise, downsized 2400 employees-2001.
* After the negative effects and demand by employees, some companies voluntarily announced to cut down top executives remuneration and bonus- while layoff.- Ford is one among them.
* Announced 6000 of its top executives would forgo bonus in 2001- including CEO.- AMR group, Delta, Continental and Southwest airlines.
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Reasons: IT firms send the excess staff cost
which cost more than companys expenses
One-fourth of the companys work force comes around 10,000
Employees will be taken right back if there is any project right back……
SATYAM
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Reasons: Because of the effect of economic crisis The company will layoff around 5% of
its total work force. Company asks senior manager to give
lowest performance rating About 50 sales executives have been
asked to quit
INFOSYS
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Reasons: Reduction of 15% to 18% of the
companys global work force Because of markets shifted to closed-
source to open source technology Also because of the resources that are
captured
SUN MICROSYSTEMS
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Reasons: Because of the loss of US air force
contract It announced a layoff of 750 workers The company blamed the longer
duration of the government contracts as a major factor for the downsizing.
BOEING
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TACKLING THE EVILS OF DOWNSIZING
Flexible Working Arrangements:-
increases the morale of the employees and productivity decreases the absenteeism and employee turnover Reduces the stress Increases the ability to recruit and retain superior quality employees better use of equipment and space
Concept of Contingent Employment:-
No payment of unemployment taxes ,retirement or health benefits salaries less than permanent staffs No long term commitments
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TACKLING THE EVILS OF DOWNSIZING
Allowing Legal Concerns to design the layoff:- As per the law-no discrimination
Give little notice as soon as possible
Severance pay:- Employer have to provide to employee include
layoffs, job elimination, and mutual agreement to part ways for whatever reason.
Severance package might include extended benefits and outplacement assistance.
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LEARNINGS FROM DOWNSIZING
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How can companies identify their critical talent and retain them through this crisis?
Growth perspective
Terms of risk
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WHAT TALENT MANAGEMENT STRATEGIES ARE COMPANIES FOCUSING ON AS A RESULT OF THE ECONOMIC UPHEAVAL?
Managers must provoke strong commitment (loyalty) from employees and ensure that job satisfaction stays high.
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HOW CAN MANAGERS AND EMPLOYEES RETHINK THEIR ORGANIZATIONS EVEN AS THEY CONFRONT THE NEED TO DOWNSIZE?
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Expected economic advantages
Expected organizational advantages
Continuous improvement strategy
RESULTS
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“DOING MORE WITH LESS.”
It is also about creating flexibility, innovation and better communication that lead to increased trust and empowerment between managers and employees.
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CONCLUSION
Employment downsizing had very little effect on a company's return on assets.
On the other hand, asset downsizing increased the return on assets.
Downsizing initiatives must systematically consider both human resource and physical assets to maximize the impact of downsizing on return on assets and profitability.
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THANK YOU