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Downsizing

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Downsizing

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  1. Downsizing

  2. Downsizing: Why? • Domestic competition • Foreign competition • Technological change • Change in firm strategy • Too often…BadManagement Sources: Cascio, 2002; Fox & Bernasek, 2003 MGMT 412 | Downsizing

  3. Downsizing Trends Source: DoL, Bureau of Labor Statistics MGMT 412 | Downsizing

  4. Downsizing: Cases For and Against • Benefits of downsizing • Reduced costs • Symbolism of cutting jobs • Costs of downsizing • Costs associated with downsizing • Potential lawsuits • Public image of firm • Decreased loyalty of current employees • Danger of losing the wrong people • Difficulties in recruitment MGMT 412 | Downsizing

  5. Alternatives to Pure Downsizing • Prevent the need… • Staff with contingent workers • Treat employees as assets… • Reassign workers to different jobs within firm • Retrain workers in new technologies • Shorten hours / pay cuts • When there’s no alternative….some less painful options • Attrition • Early retirements • Layoffs (temporary) • Voluntary severance MGMT 412 | Downsizing

  6. Attrition • How and where • First, a hiring freeze, then reduce workforce as employees quit or retire on their own • Usually, the first step in most firms • Advantages • Managers not forced to make difficult decisions • Employees leave voluntarily • Disadvantages • May not work quickly enough • No control over which workers leave MGMT 412 | Downsizing

  7. Early Retirement • How and where • Financial incentives to retire • FedEx • Advantages • Less painful • Older and/or more senior workers are often paid more than younger workers, so fewer people affected • Older workers may not have skills needed for new technologies • Disadvantages • Cost • Lack of control • May not attract enough people • May attract too many people MGMT 412 | Downsizing

  8. Temporary Layoffs • How and where • Workers placed on furlough • Seasonal industries (i.e., agricultural workers, IRS) • Heavy industry (automobiles, steel) • Temporary downturns (airlines...) • Advantages • Firm can decide which jobs to eliminate • Laid-off workers can be recalled if needed • Disadvantages • Decreased loyalty and commitment • Workforce may look for permanent work Source: Zimmerman, 2001 MGMT 412 | Downsizing

  9. Voluntary Severance • How and where: • Generous severance packages offered to employees who voluntarily leave the company • More and more, today (in Memphis, at FedEx) • Pro: • Less painful • Con: • Cost • Lack of control • Too many people may accept • Not enough may accept Source: Cascio, 2002 MGMT 412 | Downsizing

  10. Responsible Downsizing • Think through what you’re doing and why • Weigh the long-term advantage of keeping people, versus short-term benefits of layoffs • Seek employee input • It’s not a quick fix • Make the process fair • Communicate • Give survivors hope • Assist employees to cope with change • Examine HR policies Sources: Barnes, 2003, Cascio, 2002 MGMT 412 | Downsizing