Downsizing
In a business enterprise, downsizing is reducing the number of employees on the operating payroll. Some users distinguish downsizing from a layoff, with downsizing intended to be a permanent downscaling and a layoff intended to be a temporary downscaling in which employees may later be rehired.
Downsizing also refers to the process of reducing costs within an organization by reducing the workforce. Re-engineering or restructuring might involve other processes, including cost cutting by changing the way in which people work, but downsizing almost always has a reduction in workforce component. Typically, executives in organizations which undergo downsizing programs emphasize the need to save money and to take the painful step of laying off employees.
There are immediate local economic effects when a company downsizes; the larger the company and the greater its relative importance to an area, the greater these effects. Initially, the short-term effects are to reduce the amount of disposable income in the local area. This has a direct effect on retailers and those providing services. Home loans may be put in jeopardy, which affects the amount of capital available to the community. If a plant is the single largest employer in a small town, closing it in the name of downsizing can ruin the town's economy
.Downsizing also refers to the process of reducing costs within an organization by reducing the workforce. Re-engineering or restructuring might involve other processes, including cost cutting by changing the way in which people work, but downsizing almost always has a reduction in workforce component. Typically, executives in organizations which undergo downsizing programs emphasize the need to save money and to take the painful step of laying off employees.
There are immediate local economic effects when a company downsizes; the larger the company and the greater its relative importance to an area, the greater these effects. Initially, the short-term effects are to reduce the amount of disposable income in the local area. This has a direct effect on retailers and those providing services. Home loans may be put in jeopardy, which affects the amount of capital available to the community. If a plant is the single largest employer in a small town, closing it in the name of downsizing can ruin the town's economy
Downsizing to Increase Profits
A contemporary business practice is known as downsizing, or the effort by a company to reduce the size of its workforce in order to increase profitability. Such a quest for profits is often seen as detrimental to the worker, creating a new sense of insecurity, reducing decades-old relationships between worker and management, and assuring corporate profits while undercutting the ability of workers to make a living. The corporate manager in such a situation has determined that his responsibility lies with the company and not with the community, at least in some ways, and he or she may even have a rationale as to why their effort benefits the community in some way.
There are internal signals that warn of wasted effort and expense, such as slow decision making, excessive monitoring, and complaints of too many reports and meetings. If properly managed, overhead restructuring can be a positive move for the organization.
There are internal signals that warn of wasted effort and expense, such as slow decision making, excessive monitoring, and complaints of too many reports and meetings. If properly managed, overhead restructuring can be a positive move for the organization.
Common characteristics that improve the effectiveness of overhead programs include:
1) maintaining consistency with the firm's strategy;
2) examining functions with a plant to corporate 'vertical slice' perspective;
3) focusing on the underlying factors of cost and staffing;
4) eliminating low value work;
5) reallocating resources;
6) simplifying management processes; and
7) considering automation enhancements
Loss of Jobs
Companies refer to the process by many names: "downsizing," "rightsizing," "cutting back," "trimming the fat," "working smarter" and "re-engineering" are just a few of the ways the process is described. Regardless of what companies call the process, the end result is that employees, sometimes hundreds or thousands, lose their jobs and incomes, and entire communities are sometimes plunged into chaos as a result. For some companies, reducing their labor force by such drastic measures is a necessity if any part of the company is to survive. These companies are in severe financial straits and may not survive even after severe labor cutbacks. For other companies, such measures are undertaken in order to improve their "bottom line" and increase their attractiveness to investors, some of whom are likely to be senior managers of the corporation.
Downsizing at AT&T
When businesses face short-term downturns, they can engage in short-term austerity measures that range from hiring freezes to minimizing purchasing office supplies, and that include many measures in between. When the downturns become long-term, however, companies must engage in cost reductions that may be severe, and could make the difference between the company surviving or not. This analysis considers the issue of downsizing--laying off workers--and examines the benefits to an organization that may make downsizing a difficult, but ultimately beneficial.
There are typically three reasons that companies engage in downsizing:
• immediate financial crisis;
• short-term improvement of financial statements;
• and long-term strategic decision
Immediate financial crisis occurs when a company faces a severe financial problem, perhaps because a major customer has withdrawn business or because an anticipated contract does not come through.
In recent years, much attention has been given to downsizing, rightsizing, trimming the fat and other euphemisms for laying off workers. Generally, companies suggest that they are "forced" to lay off workers in order to cut costs and remain competitive. The financial community likes downsizing because it reduces the short term labor costs that companies must bear. Management likes downsizing for the same reason.
We will take AT &T as an example. “ In 1992, AT &T downsized to remain competitive in the global market. They released 18,000 human operators and replaced them with automated machines.”
During the 1990s, threats have emerged in AT&T's external environment in the form of likely new laws, probable competition new rivals, and rapid changes in technology (Arnst, Spiro, & Burrows, 1995). The company also faces a threat within its in its internal environment in what AT&T management view as laggard performance in comparison with the company's major competitors ("AT&T's Three-Way Split," 1995). These factors were major motivations for the company's decision to initiate a downsizing strategy. AT&T management was beginning to become aware of some of the symptoms of decline that precede the collapse of major corporate institutions (Luffman, Lea, Sanderson, & Kenny, 1996).
The performance problem by human resource management is simply poor planning. Management did not realize the potential problems that lay ahead for the company as a whole. If downsizing is not effectively planned, managed or implemented it can cause a number of consequences. The consequences up for discussion are:
In recent years, much attention has been given to downsizing, rightsizing, trimming the fat and other euphemisms for laying off workers. Generally, companies suggest that they are "forced" to lay off workers in order to cut costs and remain competitive. The financial community likes downsizing because it reduces the short term labor costs that companies must bear. Management likes downsizing for the same reason.
We will take AT &T as an example. “ In 1992, AT &T downsized to remain competitive in the global market. They released 18,000 human operators and replaced them with automated machines.”
During the 1990s, threats have emerged in AT&T's external environment in the form of likely new laws, probable competition new rivals, and rapid changes in technology (Arnst, Spiro, & Burrows, 1995). The company also faces a threat within its in its internal environment in what AT&T management view as laggard performance in comparison with the company's major competitors ("AT&T's Three-Way Split," 1995). These factors were major motivations for the company's decision to initiate a downsizing strategy. AT&T management was beginning to become aware of some of the symptoms of decline that precede the collapse of major corporate institutions (Luffman, Lea, Sanderson, & Kenny, 1996).
The performance problem by human resource management is simply poor planning. Management did not realize the potential problems that lay ahead for the company as a whole. If downsizing is not effectively planned, managed or implemented it can cause a number of consequences. The consequences up for discussion are:
1. Downsizing causes resentment and resistance in surviving employees
2. Downsizing if not handled carefully will cause financial set backs
HR management must handle employees, both survivors and former, with kid gloves. Downsizing means more than passing out pink slips. Steps must be taken to ensure that the remaining staff feels comfortable so that performance levels do not drop. It is also important to keep the loyalty of former employees simply because they now have become potential customers.
Remaining employees may show signs of inadequacy. They are faced with new responsibilities and positions. They may feel as though they are next to be fired if they can not perfectly done their job well.
Closely examine the impact that downsizing will have on the employees, on the competition, and on the costs and the future profitability of the company. Top management support, communication and commitment are critical for the successful development and implementation of the downsizing plan and for the smooth integration of HR planning into the company’s strategic and operational plans.
Reiterate communication throughout the downsizing process. Termination announcements should be made to the entire group, however no employee should be named specifically. HRM should communicate on a private and personal level each employee’s situation.
To minimize the trauma of separation, various programs to assist displaced employees should be put into place, such as counseling seminars, job search workshops, and placement services.
The performance to outcome expectancy area, an employee may have an idea of the outcome of poor task performance. They may feel that either they will be fired for doing poorly on the job. On the other hand the employee that does well at a task may expect to keep his or her job as long as they do well. Either way they are unsure of the outcome, yet they perform the task to their ability. Employees may do the task according to what they feel the outcome will be at the time. The valence level will depend on the outcome. If a survivor realizes that after a few weeks of training they can accomplish the job then their valence will be of a positive nature. A feeling of security may come over them. Losing their jobs doesn’t seem like reality anymore. Most companies just announce downsizing, they never tell you why they are downsizing. So a person my feel insecure because in his or her mind the people let go were downsized because of poor work performance. The more confident they feel on the task at hand the more confident they will feel to continue on and expect better thing from themselves. This gives motivation to keep moving. It all boils down to having the right attitude about your job once downsizing has occurred. That attitude can be influenced by what management does to enhance it.
Remaining employees may show signs of inadequacy. They are faced with new responsibilities and positions. They may feel as though they are next to be fired if they can not perfectly done their job well.
Closely examine the impact that downsizing will have on the employees, on the competition, and on the costs and the future profitability of the company. Top management support, communication and commitment are critical for the successful development and implementation of the downsizing plan and for the smooth integration of HR planning into the company’s strategic and operational plans.
Reiterate communication throughout the downsizing process. Termination announcements should be made to the entire group, however no employee should be named specifically. HRM should communicate on a private and personal level each employee’s situation.
To minimize the trauma of separation, various programs to assist displaced employees should be put into place, such as counseling seminars, job search workshops, and placement services.
The performance to outcome expectancy area, an employee may have an idea of the outcome of poor task performance. They may feel that either they will be fired for doing poorly on the job. On the other hand the employee that does well at a task may expect to keep his or her job as long as they do well. Either way they are unsure of the outcome, yet they perform the task to their ability. Employees may do the task according to what they feel the outcome will be at the time. The valence level will depend on the outcome. If a survivor realizes that after a few weeks of training they can accomplish the job then their valence will be of a positive nature. A feeling of security may come over them. Losing their jobs doesn’t seem like reality anymore. Most companies just announce downsizing, they never tell you why they are downsizing. So a person my feel insecure because in his or her mind the people let go were downsized because of poor work performance. The more confident they feel on the task at hand the more confident they will feel to continue on and expect better thing from themselves. This gives motivation to keep moving. It all boils down to having the right attitude about your job once downsizing has occurred. That attitude can be influenced by what management does to enhance it.
The lack of motivation is one of the dysfunctional employee behaviors. “The expectancy theory is a process motivation theory based on the idea that work effort is directed toward behaviors that people believe will lead to desired outcomes.”5 Employees feel that their level of performance depends on their past experience. If they have never encountered a particular task before than they might experience a slight decrease in self-confidence where the task is concerned. The individual’s effort is the key element in this theory. The effort level depends on effort to performance expectancy, performance to outcome expectancy and outcome valences. Employee motivation is influenced by all three of these and if one of them weakens then motivation is weakened. In the effort to performance expectancy area, an employee may feel that even their best efforts to learn a new job, position or task, may not be good enough after downsizing. The employees have a low expectation of their own ability to do the job. In the
Affected employees are dealt with in a humane and equitable manner. Reassurance of surviving employees and control of all information is necessary to keep peace.
http://www.referenceforbusiness.com/management/De-Ele/Downsizing-and-Rightsizing.html
http://sbaer.uca.edu/research/sbida/1994/pdf/26.pdf
http://www.humax.net/econ.html
http://www.wisegeek.com/what-is-downsizing.htm
