Downsizing

1. Restructuring Trimming the fat Outplacing Rethinking Laid Off Downsizing Redundancy elimination Timesizing Rightsizing Re-engineering Workforce reduction Delayering Brightsizing

2. Background on Downsizing • 1800s-1930s emphasis on individual, self reliance, and laissez faire government • 1930s New Deal Legislation & regulation of employer dominated workplace • Healthy post-WWII economy • Korea, Viet Nam, Middle East Oil Embargo, 1987 Stock crash, S&L debacle, global competition 80% Self-employment • Age of Welfare America • unemployment compensation • Social Security • welfare • workplace standards (FLSA) • employer-employee long term commitment • insurance & health benefits • workers compensation & disability • retirement plans • education & training • salary steps & promotion 90% employees

3. Fiscal Stress & Immediacy of Downsizing Duration Short Long High Fiscal Crush Fiscal Crisis Great change: redefine mission, shed functions, temporary employees & volunteers All tactics, including layoffs, termination of programs, cancellation of equipment replacement, etc. Stress Fiscal Crunch Fiscal Squeeze Short-term budget balancing: reduce over time, freeze hiring & expenditures, defer maintenance, stall payments Anticipate budget cuts & plan appropriate action: change operations management, change size & mission Low

4. Downsizing • Change Drivers • Mergers & Acquisitions • Avoid bankrupcy • Prepare for privatization • Reduce costs to remain competitive • Goals • Reduce expenses (46%) • Increase profits (32%) • Improve cash flow (24%) • Increase productivity (22%) • Increase ROI (21%) • Increase competitive advantage (19%) • Reduce bureaucracy (17%) • Improve decision making (14%) • Increase customer satisfaction (14%) • Increase sales (13%) • Increase market share (12%) • Improve product quality (9%) • Advance technology (9%) • Increase motivation (7%) • Avoid takeover (6%) Wall Street Journal, 6-6-91

5. IBM Sears Xerox US West McDonnell RJR Nabisco DuPont 60,000 50,000 10,000 9,000 8,700 6,000 4,500 7.7% 3.6% 7.0% 4.6% 7.9% 4.0% 3.4% Checking the Numbers in Downsizing Percent of First Day Stock Change US News & World Report, 12-20-93

6. Downsizing Effects About 68% of all downsizing, restructuring, & reengineering efforts are not successful • Organizational Modifiers • method of termination* • advance notice • channels used • outplacement counseling • retraining availability • extended benefits • severance pay • Organizational Changes • changed job responsibilities • modified reporting relationships • new co-workers • new policies & procedures • fewer personnel for job • expanded role responsibilities • Additional (re)training • Personal Modifiers on Downsizing Effects • age • gender • financial position • social support • length of employment • level of education • previous occupational level • degree of satisfaction with terminated job • career status • individual stress-coping ability • Survivor Reactions • lower job satisfaction\ • lower commitment • lower job involvement • increased intention to turnover • decreased morale • mistrust (35% credibility drop) • anxiety • survivor guilt (depression)

7. The Dirty Dozen Attitudes Associated with Downsizing • Resistance to change-- threat rigidity • Loss of trust-- loss of confidence both ways • Decreasing morale-- infighting & mean mood • Lack of teamwork-- focus on individual protection • Non-priorized cutbacks-- across-the-board cuts • Centralization--top down deicsions, less power sharing • Politicized special interest groups-- fragmentation • Loss of innovation-- less creativity, low tolerance for risk • Short-term crisis mentality-- neglect long term strategy • Increasing conflict-- competition for scarce resources • Restricted communication-- only good news shared • Lack of leadership-- scapegoating, unclear priorities, siege mentality Cameron, Whetten, & Kim (1987).

8. 1 Downsizing Strategies • Workforce Reduction • early retirement • transfers • outplacement • buy-out packages • golden parachutes • attrition • lay-offs 3 2 • Systemic Strategies (TQM): • Redefine change as-- • as a way of life • ongoing process • continual improvement • simplification • enroll employees to generate • and implement • accountability • Organizational Redesign • eliminate functions • cut hierarchical levels • drop divisions or products • consolidate or merge units • reduce work hours • lengthen shifts

9. Legal Risks in Downsizing • Age discrimination-- Age Discrimination • in Employment Act (over 40) • Race & gender discrimination-- Title VII • of Civil Rights Act prohibits discrimination based • on race, color, religion, sex, national origin regarding • hiring & retention. • Handicap & disability discrimination-- Americans with • Disabilities Act • Breach of contract-- courts & legislatures have exceptions to • “at-will” doctrine of employment • Lack of advance termination notice-- Worker Adjustment • and Retraining Notification Act • Employee benefits-- Employment Retirement Income Security • Act; benefits improperly terminated or withheld • Tort claims-- Intentional infliction of emotional distress, • defamation, contract interference, invasion of privacy, fraud

10. Effective Downsizing: Best Practices • Top-down & bottom-up: employees • analyze jobs & tasks to reduce redundancy • and improve efficiency • Across the board and selective: • underline seriousness, status quo not acceptable • Target key internal & external elements: remove • blockages; include suppliers, customers, distributors in planning & • implementation • Small semi-autonomous & large well-integrated • structures • Means to end and end in itself-- improve productivity and • enhance competitiveness Huber & Glick, (1993)

11. Three Questions-- 1. For a company in or approaching a crisis, what should they consider in viewing downsizing as an option (what questions to decide go/no go)? 2. If downsizing is decided on, how can it best be implemented (how select, prepare, and transition people out)? 3. Following downsizing, what should be done to regain survivors as an effective work force?