Download Downsizing

Downsizing
Downsizing: Why?
• Domestic competition
• Foreign competition
• Technological change
• Change in firm strategy
• Too often…Bad Management
Sources: Cascio, 2002; Fox & Bernasek, 2003
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MGMT 412 | Downsizing
Fall 2008
Downsizing Trends
3.00
Millions of People
2.50
2.00
1.50
1.00
0.50
0.00
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: DoL, Bureau of Labor Statistics
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MGMT 412 | Downsizing
Fall 2008
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
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MGMT 412 | Downsizing
Fall 2008
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
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Attrition
Early retirements
Layoffs (temporary)
Voluntary severance
MGMT 412 | Downsizing
Fall 2008
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
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MGMT 412 | Downsizing
Fall 2008
Early Retirement
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How and where
• Financial incentives to retire
• FedEx
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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
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Disadvantages
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Cost
Lack of control
May not attract enough people
May attract too many people
MGMT 412 | Downsizing
Fall 2008
Temporary Layoffs
• How and where
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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
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MGMT 412 | Downsizing
Fall 2008
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:
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Cost
Lack of control
Too many people may accept
Not enough may accept
Source: Cascio, 2002
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MGMT 412 | Downsizing
Fall 2008
Responsible Downsizing
• Think through what you’re doing and why
• Weigh the long-term advantage of keeping people,
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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
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MGMT 412 | Downsizing
Fall 2008