Download DOWNSIZING: LAY-OFFS IN A CHALLENGING ECONOMIC

DOWNSIZING: LAY-OFFS IN A CHALLENGING ECONOMIC
SITUATION; STRATEGIES AND ALTERNATIVES
GABRIEL NWOKEAFOR
Outline
o Introduction
o 2016 Global Economic Outlook
o 2016 Nigerian Economic Outlook
o Why Downsize in This Economy?
o Best Practice for Downsizing
o Downsizing Methods
o Common Mistakes
o Alternatives to Downsizing
Introduction
 Trends and changing economic patterns are constantly shaping the world
 The contracting global economy has forced many organizations to re-evaluate their relationships with the external
environment, business opportunities and long-term business sustainability. This is resulting in radical changes
to many operating models and strategies
 Organizational downsizing has become a feature of a number of organizations who are seeking to maintain profit
levels to meet the global competitive workplace
 Where layoffs have been identified as the necessary action to maintain operations and meet business objectives, it is
important that the process is executed in a fashion that supports employees who are both exiting and remaining with
the organization
2016 Global Economic Outlook
 The Global Economic outlook for 2016 is bleak
 The IMF estimates that the World GDP is estimated to grow at 3.6%
 Growth in advanced economies is projected to rise to 2.1%, while it is estimated to rise to 4.3% in developing
economies.
Top 5 Largest Economies
GDP Growth
(%)
Unemployment
(%)
Inflation
(%)
United States of America
2.3
4.8
1.7
China
6.7 Slowdown
4.0
2.1
Japan
0.4 Slowdown
3.3
0.3
Germany
0.4
4.4
1.6
United Kingdom
0.7
5.8
0.7
Nigeria
3.1
10.5
10
2016 Nigerian Economic Outlook
• The push towards cost cutting strategies has
been fuelled partly by the economic downturn
in Q4 2015 and the bleak 2016 outlook for the
country.
• Growth within Nigeria was robust until Q4,
2014. Between 2001 and 2014, the economy
grew at an average rate of 6.4%.
• During the same period, Nigeria increased in
GDP rankings, coming up to 21st with a GDP
of $594.26
• The declining revenue from the fall in oil
prices has slowed down growth. Any hopes
for growth recovery will have to be driven by
a projected sharp increase in government
expenditure.
POLITICAL
- Intense fight against corruption
- Money hoarding by the political/
business class
- Full implementation of the
change program
ECONOMIC
- Drop in oil prices
- Exchange rates
- Delay in implementation of the
budget
- Introduction of TSA, etc
SOCIAL
- Continued insurgence in the
North
- Resurgence of oil pipeline
vandalism in the Niger Delta
TECHNOLOGY
- Planned investment into ICT
- Capacity of the IT infrastructure
2016 Nigerian Economic Outlook (2)
Economic Growth:
A more stable political environment and
increase in government infrastructural
spending is expected to spur growth in 2016.
Exchange Rate:
The declining price of oil may force CBN to
rethink their stance on devaluing the Naira.
Giving the forecasts and current over
production of oil, CBN might be compelled to
devalue the Naira.
Fuel Subsidy:
Nigeria has spent $35bn on fuel subsidy
between 2011 and 2014. Despite calls for the
removal of the subsidy, the 2016 budget has
allocated N 63.29bn for fuel subsidy.
Security:
Following the directive by the President to eradicate
terrorism, the Army has stepped up its fight against
insurgency in the North. This is evidenced by Boko
Haram’s recent focus on soft targets.
Fiscal Policy:
The proposed N6.077tn budget is 35% higher than
the 2015 budget of N4.493tn.
Part funding is expected to come from concessionary
loans of $3.5bn from the World Bank and African
Development Bank.
Inflation:
The CBN’s determination to keep inflation at as
single digit may not be sustainable. Inflation
increased from 9.3% in October 2015 to 9.6% in
December 2015. In addition, the current FX
restrictions may cause a rise in inflation.
Why Downsize in This Economy?
•
Downsizing itself is defined as a set of activities, undertaken to reduce the size of an organization. This can be
done by reducing employee numbers and/or divisions within the organization.
•
The current economy means higher operating costs for businesses and lower margins
•
Due to changing market demands and in a bid to cut costs and adapt, employment downsizing has fast become
the prominent solution for companies.
ADVANTAGES
DISADVANTAGES
•
Cost savings
•
Decrease in Staff Morale
•
Eliminate Waste
•
Skill and Knowledge Loss
•
Improved Efficiency
•
Negative Corporate Image
•
Collective Focus
•
High Levels of Distrust
•
Labor Mobility
•
Excessive Cautiousness
Best Practice for Downsizing
1.
◦
◦
◦
◦
Plan in Advance:
Bring together a cross-functional team of people, plan and guide the initiative.
The planning team should represent the needs of your organization.
Make the cuts as quickly as possible.
Create an inventory of employee skills and performance levels to help management make informed decisions.
◦
◦
◦
◦
◦
Be Strategic:
Take a strategic approach rather than a mere cost-cutting approach.
Decide what is essential to your organization’s core products and services.
Analyze jobs impact and criticality to the actualization of organizational objectives
Merge and/or Cut jobs NOT staff
Discharge employees whose performance do not meet standards.
2.
3.
4.
Use Multiple Techniques:
◦
Consider the different options available to your organization.
◦
Downsizing through compulsory termination or forced resignation/retirement should be the last option.
Do Not Neglect Survivors:
• Communicate. Engage. Communicate.
Downsizing Methods
The following are four (4) broad methods for downsizing:
Employee Attrition:
• Employees have the right to decide whether
to stay or leave or leave an organization.
Voluntary Termination:
• Gives employee the choice to leave the company,
thus reducing some of the stigma associated with
leaving a company.
• However, this is unplanned and
uncontrollable, thus posing a serious threat
to the business
• Company would typically have to offer some sort
of monetary compensation as a buy-out.
Early Retirement:
• A company offers a more generous retirement
benefit package in exchange for the
employee’s commitment to leave at a certain
time in the near future.
• Early retirement options can be staggered to
prevent a huge skills gap as well as an
effective succession handover.
Compulsory Termination:
• Most unappealing form to employees,
however, senior level managers who make the
decision often use this as an opportunity to
design and develop criteria based on the
needs of the business.
• This could be across the board cuts or identify
specific departments/functions based on
strategic importance.
Common Mistakes
Though downsizing is considered one of the most appropriate tools within the current economic climate, the following
mistakes should be avoided:
 Failing to change the way that work is done
 Failing to evaluate mistakes and learn from past mistakes
 Underestimating the damage to a strong company culture
Alternatives to Downsizing
Compensation & Benefits:
Business Process/Operations:
- Re-design compensation and benefits model to align with
the economic perspective of your organizational downsizing.
Solutions to business problems can often be found in the
system, not the individual
- Make the pay structure to be more performance based.
- Adopt digital/online processes to reduce operational processes
and reduce overhead costs
- Increase the efficiency of the administration of the benefits
without resorting to a reduction in staff headcount.
- Use Lean Six Sigma techniques to increase operational
efficiency and reduce waste.
Organizational Re-Structuring:
Complex organizational structures are more costly than
streamlined structures
- Re-design structure based on the mission, strategic goals
and growth projections of the organization
Revenue Enhancement:
(Notably in line with the economic perspective)
- Sell Assets and move employees to revenue generating
positions.
- Postpone or eliminate bonuses.
- Delay promotions and pay rises
Conclusion
 The current economic climate makes downsizing a reality in many organizations today and will continue to be
so in the foreseeable future
 Though there are times when downsizing is necessary and appropriate, there are also times when downsizing
is not the best option
 Companies that simply reduce headcount without making other changes rarely achieve the long term success
that they desire.
Many thanks!