Downsizing
Changing the organisation may necessitate the separation of some of its current workforce as a proactive and deliberate strategy to increase productivity and effectiveness, to improve profits and share price, to gain competitive advantage, or to influence work processes leading to work redesign.89 Often, at the same time that firms are retrenching some employees they are hiring new staff, presumably with the skills and potential to execute new strategies.
Downsizing — the reduction of workforce numbers to improve the bottom line — has been widely used in Australia, the United States and Britain. It involves the term in ation of a number of employees for commercial reasons.90 It can often be about reducing costs or taking protective action.91 The need to cut workforce numbers may be precipi¬tated by a combination of factors, such as mergers or acquisitions, major or minor restructuring and redesign of the organisation, the introduction of new technologies, or an internal crisis. Alternatively, downsizing may be due to external factors, such as a downturn in the economic environment, a loss of business confidence, the changing value of the currency, or an external crisis of some kind. Recent trends in downsizing indicate that a large percentage of Australian organisations have employed this strategy on more than one occasion.92 Between 1993 and 1995, 57 per cent of Australian and 48 per cent of New Zealand organisations cut their workforce numbers.93 The use of downsizing in Australia increased in the late 1990s, with 62 per cent of organisations reporting downsizing during 1997-1998. Some 36 per cent of these organisations had downsized once, 30 per cent had done so on two occasions, and 34 per cent had done so three or more times.94 Moreover, of all employees who held a job in the three years to 30 June 1997, an estimated 7 per cent (or 685,400) employees had been retrenched or made redundant on one or more occasions during this period.95 A marked relationship has been found between downsizing and deskilling — it disadvantages specific groups of vulnerable workers such as older employees, supporting the proposition that down¬sizing leads to a loss of skills and knowledge within organisations.'96
Approaches to downsizing
Organisations may adopt a variety of methods to reduce the number of their employees. Cameron has identified three types of downsizing strategy: workforce reduction, work redesign and systematic change.97
Workforce reduction usually is adopted as the first choice. It is a short-term directional strategy aimed at cutting the number of employees through transfers, attrition, early retire¬ment or voluntary severance packages, lay-offs and terminations. While some of these approaches permit a relatively quick workforce reduction, they often are used indiscrimi¬nately, and the impact and benefits often are short term. The danger is that the organisation may lose core competencies and valuable human capital. To operate effectively, this strategy needs sound human resource planning and needs analyses as a basis for the reductions.98
Work redesign is a medium-term strategy that focuses on reducing the work through work design and work processes, rather than cutting the number of employees. It requires an assessment of whether specific functions, hierarchical levels, departments or divisions, products or services could be changed or eliminated. This strategy often is used in tandem with workforce reduction. It too requires sound human resource planning and takes time to implement. It avoids, however, the problem of the organ¬isation simply carrying on with fewer employees (as well as the attendant problems of employee dissatisfaction and possible work overload).
Systematic change is a long-term strategy requiring considerable human and financial commitment. It includes widespread and deep organisational cultural change and trans¬formation, right down to the levels of values and attitudes. This strategy takes considerable time to implement and its main focus is continuous improvement. It is dependent upon a skilled and empowered workforce assuming responsibility for continually searching for improved methods and practices while the organisation maintains work processes that are meaningful and satisfying. It is also consistent with the human resource philosophies of high-commitment, high-performance organisations and best practice.
There is a large body of evidence that many downsizing efforts have failed to meet organisational objectives and bring the expected benefits.99 The reasons for failure include; poor preparation and poor management of downsizing projects; lack of under¬standing of downsizing issues such as employee resentment and concern, loss of morale, lack of innovation and creation100; the inability of organisations to look beyond a tra¬ditional approach to management101; failure to foresee or manage the extent of resistance to change and its impact on productivity, efficiency and competitiveness102; a reduction in productivity and quality of work, and lost business opportunities as a result of the lack of resources to take on new work103; and the increased mobility of the workforce due to broken psychological contracts.104 Research in the United States indicates some benefits from the use of downsizing or lay-offs in high-performance work systems over time, such as increased overall employment level, reduced employment of managers and reduced use of contingent workers. The focus of this research, however, was on firm performance, and the promised ‘mutual gains’ in employee rewards were not evident.105’
In light of the research that demonstrates the long-term impact of downsizing on the organisation, its employees and other stakeholders, alternatives should always be thoroughly examined before an organisation adopts this strategy. Top management must plan the downsizing activities with the human resource function addressing such issues as the desired outcomes, the targeted workforce, redundancy or severance pack ages, the processes for the transition, and redeployment systems.106 In addition, as we have argued throughout this book, leading and managing the change effort is a critical component. In the event of downsizing, the organisation’s leaders must be visible and provide direction and overall vision. They also have clear and open, honest and timely communication strategies, communicating the reasons for the downsizing to all members of the organisation and its stakeholders.107 An example of this openness can be seen in the announcement by the US photographic company, Kodak, that it was going to close its Melbourne manufacturing plant in nine months, and cut its workforce by more than 600 staff as a result of the worldwide introduction and rapid adoption of digital cameras and the decline in the use of film.108
Finally, the organisation must ensure that it manages all its workers appropriately through the downsizing and change process. The organisation must make sure that those who are to leave the organisation are provided with guidance and outplacement advice as well as being treated with respect and dignity, while at the same providing support and communication on the future for the survivors.109 Many of these notions, and more, are encapsulated in advice on thinking strategically and humanely on down¬sizing from Wayne Cascio in the 'Perspectives’ box.110