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Strategic HRM in Downsizing

The application of organizational development values to organizational downsizing can help the organization to avoid changing from regenerative to a degenerative environment. As organizations compete to position themselves in an increasingly competitive environment which constantly threatens their survival, they must plan strategically to recruit and retain the best, most productive employees while working at top efficiency.

A 1991 article by Kilpatrick outlines numerous management recommendations when one considers organizational downsizing. The first consideration is “when in doubt, don’t” The costs outweigh the benefits for short term solutions. Beyond this caveat, the most important prescription is to plan, plan, plan particularly with those involved and affected. Planning should include long range strategic planning, ongoing tactical planning and implementation of a lessons learned strategy for continuous self assessment.

Downsizing as a part of organizational re engineering or restructuring and in keeping with the goal of the organization is called proactive downsizing. Proactive downsizing is far better than reactive downsizing.

Objectives of downsizing are as follows:

  • Automation of hitherto manual processes
  • Spiralling cost of labor calling for more capital intensive strategy
  • Tough competition
  • Reduction of overheads
  • Alteration of organizational structure

Organizations are confronted with two options during downsizing:

Massive Layoff where a large number of employees are laid off in one shot

Gradual downsizing over a period of time

Organizations that are not sure about the number of employees to be reduced choose gradual downsizing. Another important issue is from where to cut the jobs. Organizations have various departments that employ an unequal number of people. It may cut jobs in the department or it may target a department in particular. In the latter case, things like internal politics and lobbying can crop up in the organization and disrupt the working environment in the organization. In order to avoid the unwanted situation, management may resort to across the board cuts wherein jobs in all departments irrespective of the size or importance of that department are cut. However, this may not be the best way to downsize. This may give employees in the high performing departments a sense of injustice in turn demotivating them.

Areas affected by downsizing are employee attitude and morale, quality, profitability, society and customer service.

Cameron identified four major attributes of organizational downsizing. First, downsizing is an intentional set of activities requiring organizational action; second reducing the number of employees;third improving efficiency to contain or decrease costs to enhance revenues or to increase competitiveness; fourth influencing work processes and leading to work redesign.

Cameron et al reported two major findings regarding implementation processes of downsizing. First and foremost they identified and differentiated between three distinct types of implementation strategies; that is work force reduction strategy, organization redesign strategy and systemic strategy.

The workforce reduction strategy often referred to as the “layoff” strategy concentrated basically on the elimination of head count and or reduction of employees in the workforce. The organization redesign strategy focuses predominantly upon the elimination of work rather than reducing the number of employees. The systemic strategy is fundamentally different from the former two strategies in the sense that the systemic strategy appears to embrace a more holistic system of organizational change. Cameron concluded that the three categories are not mutually exclusive and could be adopted and implemented simultaneously.

The economic perspective is the most frequently offered explanation for the great popularity of downsizing. The economic perspective argues that downsizing is motivated by the financial benefits that managers anticipate will flow from it. The institutional perspective emphasizes the importance of institutional rules. According to the institutional theory, the social norms of society or of a particular industry define appropriate organization structures and legitimate certain patterns of company behavior.

The sociocognitive perspective is a theoretical model elaborated to clarify the micro foundations of the institutionalization of downsizing.

HR has yet to be considered a full business partner in many organizations and as a result it is not often included in the downsizing plans in the early stage. But the earlier HR department is involved in the planning process, the more likely it will be that the downsizing is a successful one. To survive it, companies must rely on skills that are at the heart of the HR profession. By easing the downsizing process, HR departments can help their companies remain competitive.





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