Corporate Downsizing

.. we were a bunch of children and that we couldn’t handle the truth. Extensive follow-up meetings could have also been essential in relieving fears and anxieties. It is imperative that companies maintain trust, keep the lines of communication open, and develop a strategic plan for its employees to follow after the initial downsizing. Taking these steps will enable the company and the workforce to prepare for the challenge of working with fewer resources and begin meeting the new challenges they may face in their new structured environment.

At this point the Human Resource department should be highly involved in the decision-making process. After all, they are largely responsible for the high wages and often times over-hiring of the workforce. They are the department to implement, not to create in a lay-off situation. They also direct the employee as far as labor laws, fair compensation, employee information and act as a go-between for management. Their mission is to protect the interests of the employee, while carrying out the needs of management.

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It is a proven fact that 80% of companies that downsize suffer from low morale among the workforce, which in turn creates lower productivity and often lower profits. Organizations must make strategic plans to carryout downsizing in order to have its effect be a positive one. It must weigh out all of its options before planning such a desperate move. Will the downsizing be profitable to the company? Will employee morale be lowered by the cutback? Have all other options been exhausted before the lay-off was decided upon? What strategic plan has been developed to ensure that the survivors feel confident in their employment and that they understand what their new focus should be. Alternative strategies should be exhausted before the final decision to downsize. Ways to reduce the payroll without having to have a lay-off is in the company’s best interest. Long before the need to downsize, an organization should consider a hiring freeze as an option.

This option consists not only of the new hire option, but also means that those employees who quit, get terminated, or retire will not be replaced in the workforce. If these positions are needed to support the business before a reduction in workforce, a temporary position may be a good idea at this point. This will eliminate a lay-off in this position later and save the company money since benefits will not be necessary for the temporary employee. This method is not obstructive to organizational morale and commitment. Another technique to defer downsizing is a reduction in hours of operation. Hewlett Packard participated in what it Called a fortnight work schedule.

That is, every two weeks(a fortnight) employees do not work for one day. When it was used during a slow sales period in August1985, wages were cut 10%. To help employees ease the crunch, they were allowed to use vacation so there was no immediate loss in pay. In Europe, the giant auto-maker Volkswagon, has been climbing back to profitability after having put 100,000 of its workers on a four-day week. The company estimated that it has avoided laying off as many as 30,000 employees by using the reduced workweek.

A third way to eliminate downsizing could be to reduce the pay for all employees. However, this method is known to cause low morale and sometimes employees reduce their production output to match the reduction in pay. One way to avoid this productivity reduction is to make the pay-cut temporary. A voluntary severance package can sometimes trigger a reduction in the workforce. This means of downsizing may be all that some employees need to start their own business, go back to school, or find another job. Oftentimes this method will enhance the workforce and get rid of disgruntled employees. One of the easiest and least harmless methods to the employee is early retirement.

Consider what would have happened to a 50 year old, $50,000-a-year employee with 25 years of service at DuPont when it offered early retirement in 1992. Normally, if this employee retired early he or she would receive only $7,512 a year. But since DuPont waived the actual reduction for those who leave early, the pension jumped to $18,756 a year. As you can see, this option would be an excellent incentive to the semi-retirement age employee. No one gets hurt, no disruptive feelings or negative responses are felt, in fact, the early retiree is quite happy and will display positive attitudes.

As we look at the reasons for downsizing, it is easy to justify the needs from an organizational and business point of view. When considering the needs of employees and the affects of downsizing on them, the picture looks very different. While a company has to do what is necessary to stay alive in the competitive world of business, it also has a moral obligation to its employees and the community. Whether or not it chooses to consider the needs of its employees and the community during a downsizing phase will greatly affect the outcome of the process and alter the benefits of the lay-off. While the company’s profits are its main concern, it must be careful of the way it implements the downsizing in order for the outcome to be adaptive and positive. If the profitability is the only criteria for downsizing and the company has disgruntled and non-focused employees, the outcome of the downsizing will apparently be disruptive, causing low morale in the workforce, which breeds lower productivity.

If the employees can see the efforts of the company to exhaust all other possibilities before the lay-off and consider the needs and feelings of the employee and the affects on the community, they may be able to look upon the company with trust and security. A developed plan or focus for their future may allow survivors of the downsizing to adapt to the change in a more positive manner. Involvement by the Human Resource department should ease the pain of those affected by the lay-off. Counseling, job placement programs, and benefit options are all concerns for the laid-off employee. It is the responsibility of the HR department to ease the pain and keep the lines of communication open between the employee and management. Management is responsible for the decisions, but the HR department should insure that the management follows all moral and legal obligations to the employee.

In order for this new change in American business to be adaptive, complete and thorough plans should be carried out in the process of downsizing in order for the company and employee alike to accept new ideas and focus on the new direction brought about by the change. Survivors of the downsize process must have confidence in the company’s honesty and its ability to secure their jobs. They must outline a strategic plan to keep morale and productivity on an upward trend. Bibliography Bibliography Big payoffs from layoffs. Business Week, G.Koretz p.30 Feb. 24 1997.

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