Chapter 10
Downsizing and
Restructuring
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Learning Objectives
After reading this chapter, you should be able to:
 Appreciate the importance of defining “downsizing”
 Be familiar with the complexity of the downsizing
decision
 Recognize the need to address concerns of both the
victims and survivors of downsizing
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Learning Objectives
After reading this chapter, you should be able
to:




Be aware of the ethical issues and consequences of
downsizing
Understand what downsizing strategies are effective in
enhancing organizational performance
Comprehend the concept of the “psychological contract”
Develop an awareness of the importance of HRM in
managing the downsizing process
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The Downsizing Strategy

Downsizing - strategies
to improve an
organization’s efficiency
by reducing the
workforce, redesigning
the work, or changing the
systems of the
organization
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Survivor

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Survivor – an
employee remaining
with an organization
after a downsizing
Three Types of
Downsizing Strategies
Cameron identifies
three types of
downsizing
strategies:
1. Workforce reduction
2. Work redesign
3. Systematic change
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Definitions


Workforce reduction - a short-term strategy to
cut the number of employees through attrition, early
retirement or voluntary severance packages, and
layoffs or terminations
Work redesign - a medium-term strategy in which
organizations focus on work processes and assess
whether specific functions, products, and/or services
should be changed or eliminated
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Process Maps
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Definitions

Systematic change - a
long-term strategy that
changes the
organization’s culture,
attitudes, and employees’
values with the goal of
reducing costs and
enhancing quality
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Why do Organizations
Downsize?



Declining profits
Business downturn or
increased pressure from
competitors
Merging with another
organization, resulting in
duplication of efforts
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



Introduction of new
technology
The need to reduce
operating costs
The desire to decrease
levels of management
Getting rid of employee
“deadwood”
Human Costs of
Downsizing


As Cascio suggests, most workforce reduction
programs fail to meet their objectives:
“Study after study shows that following a downsizing,
surviving employees become narrow-minded, self-absorbed,
and risk averse. Morale sinks, productivity drops, and
survivors distrust management.”
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Ethical
Considerations




Downsizing may infringe on principles of distributive,
procedural and interactional justice
Communication during a downsizing may be
mismanaged
Managers may use and abuse information as a source
of power
Managers may choose to conceal or distort
information regarding the financial status of the
business
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Downsizing Alternatives
1.
2.
3.
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Cutting nonpersonnel
costs
Cutting personnel
costs
Providing incentives
for voluntary
resignation or early
retirement
Downsizing Alternatives
(Gandolfi, 2008)
Short-term
 Hiring freeze
 Mandatory vacation
 Reduce workweek
 Reduce overtime
 Reduce salaries
 Facility shutdowns
 Employee input for
alternatives to cutbacks
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Downsizing Alternatives
(Gandolfi, 2008)
Medium-term
 Extending reductions in salaries
 Voluntary sabbaticals
 Lending employees
 Exit incentives
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Inplacement and
Outplacement Issues

Outplacement providing a program of
counselling and job-search
assistance for workers
who have been terminated
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
Inplacement reabsorbing excess or
inappropriately placed
workers into a
restructured organization
Planning for Downsizing



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
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Determining how many people will lose their
jobs
Who will be let go
How the reduction will be carried out
Determine the legal consequences
Designing current and future work plans
Implementing the decision
Performing follow-up evaluation and assessment
of the downsizing efforts
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Adjusting to Job Loss



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Advance notification of
layoffs
Severance pay and
extended benefits
Education and retraining
programs
Outplacement assistance
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

Clear, direct, and
empathetic announcement
of layoff decisions
Consideration of HR
planning practices that
represent alternatives to
large-scale layoffs
Can Losing a Job Be a
Good Thing?
There are some benefits
of losing a job:
 Time to reflect
 Grow new ideas, direction
and career plan
 Get out of a job that was
substandard
 Spend more time with
family and hobbies
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The “Survivors” of
Downsizing

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Job insecurity feelings of concern
about the continuing
existence of a job
Perceptions of Justice
Three types of
justice warrant
consideration:
1.
2.
3.
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Procedural justice
Interactional justice
Distributive justice
Perceptions of
Justice



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Procedural justice – procedures or rules used to
determine which employees will be down-sized
Interactional justice – the interpersonal treatment
employees receive during the implementation of the
downsizing decision
Distributive justice – the fairness of the
downsizing decision
Survivor Reactions




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Negative attitudes and
behaviours
Reduced performance
capabilities
Lower organizational
productivity
Emotions: anger, anxiety,
cynicism, resentment,
retribution, hope
Financial Performance
and Downsizing




A downsizing strategy is typically implemented to
improve the bottom line
Evidence suggests that some companies improve
profits while others do not
Investors usually respond negatively to downsizing if
it is financially motivated
Companies that offer incentives for voluntary
resignations are viewed more favourably
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Effective Downsizing
Strategy

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
Increased communication
Increased employee
participation
Systematic analysis of tasks and
personnel requirements
Visibility of senior management
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
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


Focus on rightsizing
Establish a sense of ownership
Active role for HR department
Monitor downsizing and link to
organizational strategy
Train management with
downsizing techniques
Best Practices of
Downsizing
1.
2.
3.
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Downsizing should be initiated from the top
Workforce reduction must be selective in application
and long-term in emphasis
Special attention should be paid to both those who
lose their jobs and to the survivors who remain in the
organization
Best Practices of
Downsizing
4. Decision-makers should identify where inefficiencies and
costs exist
5. Should result in the formation of small, semiautonomous organizations within the broader
organization
6. Must be a proactive strategy focused on increasing
performance
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HRM Issues

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Managing the Changing
Psychological Contract
The “New Deal” in
Employment
Altering the Psychological
Contract
Downsizing and “HighInvolvement” HRM
Labour Relations Issues
New Terminology


Psychological contract – an unwritten commitment
between employers and their employees that historically
guaranteed job security and rewards for loyal service
High involvement HRM – a commitment to HRM
practices that treat people as assets
Downsized the Web Series Episode 1
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