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Downsizing

Downsizing

SECTION 1: PROBLEM IDENTIFICATION AND ANALYSIS

We will take AT &T as an example. " In 1992, AT &T downsized to remain competitive in the global market. They released 18,000 human operators and replaced them with automated machines."2

The performance problem by human resource management is simply poor planning. Management did not realize the potential problems that lay ahead for the company as a whole. If downsizing is not effectively planned, managed or implemented it can cause a number of consequences. The consequences up for discussion are:

1. Downsizing causes resentment and resistance in surviving employees

2. Downsizing if not handled carefully will cause financial set backs

HR management must handle employees, both survivors and former, with kid gloves. Downsizing means more than passing out pink slips. Steps must be taken to ensure that the remaining staff feels comfortable so that performance levels do not drop. It is also important to keep the loyalty of former employees simply because they now have become potential customers.

Remaining employees may show signs of inadequacy. They are faced with new responsibilities and positions. They may feel as though they are next to be fired if they do not perform well. Some employees may feel that being fired is inevitable so why even try. Some employees, however, may take this opportunity to step up and show their real skills. AT&T may face lost revenues or increased costs due to its downsizing. The performance problem that affects this is whether or not the survivors can handle their new responsibilities. The survivors left behind after downsizing might not be able to carry the workload left behind. Where there were three people doing a particular job, it is now left to one person to accomplish. It is possible then for the workload to fall behind, therefore costing the company more money. Training one person to do the job of three will take time out of the daily routine of actually getting the job done. By the time the employee actually learns the other jobs the workload will have piled up. It is then possible that management will have to hire someone just to catch the workload up. Finding and training them will take time and money as well. All of this will increase costs for AT&T. Loss of revenue comes in when the survivors cannot accomplish all of the work and customers suffer. Customers have a choice to stay or leave and if they feel they are not being treated fairly then they seek good customer service elsewhere. So now AT&T is spending money on marketing just to get the customers they lost back. Once the customers return, they’ll need adequate help to cover the volume of new customers. Increased spending will be focused on hiring back all of the people they just downsized. It is a vicious cycle. "Sometimes downsizing is a management tool. For example, managers may change corporate culture to improve competitiveness or to shake out complacency. But this sword must be wielded carefully, especially during a slowing economy. Management studies have pointed out the fallacy that layoffs or downsizing actually help a company. The American Association of Management, for example, found that about 60 percent of companies that downsize either see no increase in profits at all, or experience a decline in profits. We won't mention the other costs of downsizing. These are realized after the economy recovers, which it will. Costs like finding new labor to replace the employees let go. Costs like training, retaining your best employees, recapturing customers after your company has ticked them off because of poor service."1 The employee behaviors that cause this cycle from the beginning are just a sense of being overwhelmed by their new tasks. They just aren’t skilled for the new jobs set before them and so they suffer from poor task performance.

"In addition, survivors have seen their co-workers disappear, leaving them to wonder who is next. They also struggle to ascertain how to survive in hopes that they will not be next. And so they engage in efforts to secure another position without the knowledge of their current employer. As a result, morale, organizational commitment, and productivity are negatively affected. The announcements of layoffs may produce higher turnover, especially among employees that the company desires to keep. The highest quality employees often have little difficulty finding other employment opportunities. As a result the company may be left with fewer, less desirable and probably demoralized employees. The remaining employees may be unwilling to take important risks, for fear of being penalized."3 This assessment leads back to poor task performance by the survivors.

In the idea of Performance=Ability x Motivation x Opportunity to Perform, I feel that Ability and Motivation are the determinants of choice for this situation. The survivors simply don’t have the ability to perform the tasks at hand without the proper training. It is not that they don’t want to it is just that they can’t. They are being rushed into the situation and so they may not be trained correctly. A lack of motivation is also causing problems. What person is truly motivated to do any job after downsizing? Since the recent lay-offs in my department at Monsanto, I have noticed a significant change in my teammates performance. The recent downsizing has affected my teammates sense of job security. As a direct result it has had a negative impact on their overall performance and motivation. Their ability to do the job technically has not changed but their ability to perform up to their job has changed drastically. Teammates are scheduling more days off than before. I believe this is related to the increase in workload. The enthusiasm to perform their jobs is gone because they feel they are the next to go.

The lack of motivation is one of the dysfunctional employee behaviors. "The expectancy theory is a process motivation theory based on the idea that work effort is directed toward behaviors that people believe will lead to desired outcomes."5 Employees feel that their level of performance depends on their past experience. If they have never encountered a particular task before than they might experience a slight decrease in self-confidence where the task is concerned. The individual’s effort is the key element in this theory. The effort level depends on effort to performance expectancy, performance to outcome expectancy and outcome valences. Employee motivation is influenced by all three of these and if one of them weakens then motivation is weakened. In the effort to performance expectancy area, an employee may feel that even their best efforts to learn a new job, position or task, may not be good enough after downsizing. The employees have a low expectation of their own ability to do the job. In the

performance to outcome expectancy area, an employee may have an idea of the outcome of poor task performance. They may feel that either they will be fired for doing poorly on the job. On the other hand the employee that does well at a task may expect to keep his or her job as long as they do well. Either way they are unsure of the outcome, yet they perform the task to their ability. Employees may do the task according to what they feel the outcome will be at the time. The valence level will depend on the outcome. If a survivor realizes that after a few weeks of training they can accomplish the job then their valence will be of a positive nature. A feeling of security may come over them. Losing their jobs doesn’t seem like reality anymore. Most companies just announce downsizing, they never tell you why they are downsizing. So a person my feel insecure because in his or her mind the people let go were downsized because of poor work performance. The more confident they feel on the task at hand the more confident they will feel to continue on and expect better thing from themselves. This gives motivation to keep moving. It all boils down to having the right attitude about your job once downsizing has occurred. That attitude can be influenced by what management does to enhance it.

The Attribution theory runs along these lines as well. As mentioned previously employees may feel that another employee was fired due to his or her performance on the job, an internal factor. If the reasons for downsizing are not specified by the company then most people are apt to believe that a person was fired due to internal factors, when in fact external factors played a part. External factors ranging from loss of profit with the company to over capacity employment could be the cause for downsizing.

SECTION 2: RESEARCH RELEVANT TO THE PROBLEM

"As discussed previously the main performance problem that caused employee performance problems is the issue of poor planning on the part of HRM. Downsizing should be planned carefully. There is academic research to prove this point. HRM can address the problem with the following Ten Step Model:

1. Problem Recognition and Initial Decision

An analysis of all factors relevant to the organization’s performance should be done before the decision to cut back is made.

2. Strategic Planning

Closely examine the impact that downsizing will have on the employees, on the competition, and on the costs and the future profitability of the company. Top management support, communication and commitment are critical for the successful development and implementation of the downsizing plan and for the smooth integration of HR planning into the company’s strategic and operational plans.

3. Alternative considerations

All possible alternatives to downsizing should be considered. Termination should be viewed as a last resort. Hiring freezes, reduction in pay and voluntary retirement packages are just a few suggestions.

4. Preparatory Actions

Management should ensure their plan conforms to all laws, union agreements, and regulations. Further, a communication plan is recommended to notify the company’s employees, and investors of the downsizing plan.

5. Specific Action Plans

The downsizing team decides, who, what, when and where things should happen. Close communication should be kept in place between HRM and employees.

6. Downsizing Program Components

Affected employees are dealt with in a humane and equitable manner. Reassurance of surviving employees and control of all information is necessary to keep peace.

7. Communication and Implementation

Reiterate communication throughout the downsizing process. Termination announcements should be made to the entire group, however no employee should be named specifically. HRM should communicate on a private and personal level each employee’s situation.

8. Assistance to Displaced Persons

To minimize the trauma of separation, various programs to assist displaced employees should be put into place, such as counseling seminars, job search workshops, and placement services.

9. Follow-up and Rebuilding

The moral is damaged for the surviving employees and now it is clean up time. All efforts must be taken to ensure their loyalty and performance levels.

10. The Future

Effective monitoring and evaluation after the downsizing project is complete are two important determinants of its success."3

AT&T has learned that the downsizing of so many can cost more in the long run. It eventually had to hire new operators to fix the errors of the automated machines. A computer just can’t answer every question that a person has. And so spending money to hire new employees did the trick. Their HRM practice as of now is to simply assess the situation before following through with downsizing. At Monsanto the corporate culture didn’t seem to change. Monsanto has downsized many times with the same practices in place. I guess they feel it works but as mentioned previously it didn’t help the survivors of my team. They are avoiding work at all costs. Perhaps they should follow some part of this ten-step model. Perhaps they bring in so much money it doesn’t matter to them to lose a couple of people and hire a new set back.

SECTION 3: PROPOSED SOLUTION TO PROBLEM (THE "ACTION PLAN")

The performance problem can be resolved with honesty. The company and management should be up front at all times while downsizing is taking place. It is important for the employees, both former and survivors, to understand why the company is downsizing. Also, courtesy and respect are valued assets. The survivors are watching how you treat the outgoing employees. If you just hand employees a pink slip without care or tact in how it is done, the survivors will end up picturing themselves in that position. Discuss the situation of the company with each individual one on one. Take the time to communicate what is going on. Demonstrating to the survivors that they are valuable is key. They need to know why they were chosen to stay. They need to know that the company has faith in their abilities. Focusing on developing the survivor’s skills is necessary for building their self-esteem. "The people who report to you are worried for various reasons. Some are worried that they don’t have the knowledge and skills necessary to do their new or expanded jobs. If you are a manager, it is most important to reassure the people who report to you of their value to you and the organization."4

An alternative solution that was considered was to discuss the downsizing situation with everyone as a group and get feedback. I ultimately ruled that out because it may be embarrassing to discuss being fired in front of a group of peers. It is better to handle the situation in private.

SECTION 4: PROPOSED IMPLEMENTATION OF YOUR SOLUTION

To implement my solution would require going against the dominant or organizational culture of the company. Downsizing can be very messy and some people may want to just get it over with, but they don’t look at the big picture. The increase in cost and loss of revenue, as discussed earlier, is one of the direct results of downsizing. Downsizing should be taken very seriously. A new set of values and rules must be set in motion if the old rituals and ceremonies don’t work, a counterculture. Basing downsizing on a set of beliefs that the company has drawn from for years just isn’t going to cut it. "A counterculture may cause conflict among the staff, but ultimately the end result is worth it. Subcultures, particularly countercultures, can maintain the organization’s standards of performance and ethical behavior. They bring about the emerging values that keep the company aligned with the needs of customers, suppliers, society and others with interests in the company. They encourage constructive controversy and more creative thinking about how the organization should interact with its environment."5

The organization may use the same HRM practices because of artifacts; the observable symbols and signs of an organization’s culture. Corporate culture is shown in everything that is done, from a handshake to letterhead. Rocking the artifacts can be disastrous if changed too swiftly. Care has to be taken in how things are done. Changing even one aspect of the corporate culture can alienate people from the work environment. Remember, people don’t like change they like to feel safe and secure.

I feel resistance can arise from management. They may feel that the "norm" of the company already works. They must be shown the big picture. Downsizing can affect management positions also. Too many lay offs could reach higher the next time around if not done properly the first time. Management needs to understand this so that cooperation is given. This is not a threat it’s reality. Management may feel excluded from the decision making of how to downsize. Discussions about the upcoming downsize can be beneficial. This gives them an opportunity to be a part of the choices and change of the company. It also is an opportunity to see how they will handle the private talks with each employee and offer any pointers that might help them. If you expect your management to communicate with their group than communication with your management is important. Management may benefit from the existing practices by way of bonuses. At the height of downsizing there is a surge in profit. It is short lived, but it is enough to offer management a hefty bonus for "helping" the company. Overcoming their objections can be difficult but again, show them the big picture. Call in an expert on the effects of downsizing and have him or her give a seminar on it. Perhaps if management sees the true outcome of downsizing an adaptive culture will emerge. They will be more willing to do what will help the company, including changing the corporate culture.

Bibliography:

References

1Langnau, Leslie. "Perception isn’t reality." Material Handling Management. Pg. 22 (Sept. 2001).

2Anonymous. "Science and Technology: Answer Me." Economist. Pg.79-80

(July 25, 1992).

3Padilla, Rodrigo A. "Literature Review on Corporate Downsizing." URL: http://infinit.net/rodrigo/downsizing.html (March 11, 1997).

4Heathfield, Susan M. "Downsizing Survivors Part 1:Value, Self-Esteem, and Career Development." URL: http://humanresources.about.com/library/weekly/aa011401a.htm (no date listed).

5McShane, Steven L.; Von Glinow, Mary Ann. Organizational Behavior Emerging realities for the workplace revolution, 2nd edition. (New York, 2000)



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