HRM (Assignment 5)

DOWNSIZING! The very term strikes fear in the heart of many. But given today’s financial crisis, downsizing has become a nightmare turns to reality for many organizations.

What is Downsizing?

According to the common source which is the http://en.wikipedia.org/wiki/Layoff, downsizing is the ‘conscious use of permanent personnel reductions in an attempt to improve efficiency and/or effectiveness’ (Budros 1999, p. 70).

Another definition of downsizing by Huber & Glick, (1993) is "a set of activities ... undertaken on the part of management, designed to improve organizational efficiency, productivity, and/or competitiveness. It represents a strategy that affects the size of the firm's workforce and its work processes"(p.24).

Huber & Glick (1993) sites key attributes of downsizing :
(1) downsizing is intentional;
(2) downsizing usually involves, although is not limited to, reductions in personnel;
(3) downsizing is focused on improving the efficiency of the organization; and
(4) downsizing affects work processes knowingly or unknowingly.

In the corporate world or business enterprise, downsizing is reducing the number of employees on the operating payroll. It only means a loss of one’s job and workforce reduction of an organization. And there are number of corporations that undergone downsizing process. One to be named is the Colgate-Palmolive Company.

What is a Colgate-Palmolive Company?
http://www.colgate.com

Colgate-Palmolive Company is an American diversified multinational corporation focused on the production, distribution and provision of household, health care and personal products, such as soaps, detergents, and oral hygiene products (including toothpaste and toothbrushes). Under its "Hill's" brand, it is also a manufacturer of veterinary products. The company's corporate offices are on Park Avenue in New York City, across from the Waldorf Astoria.

Causes / Reasons of downsizing

Their aimed is to improve global competitiveness through cutting costs and improving efficiencies. During this time, 24 of Colgate's 112 global factories will be closed or reconfigured. Some 3,000 workers worldwide, which are 8.5 percent of their 36,000 workforce, will lose their jobs. For these restructuring and administrative changes, Colgate will take a $369 million after tax charge in the third quarter.The main reasons for Colgate's recent restructuring are:

(1) Reduced trade barriers in Europe and Latin America;
(2) The need for new technology in manufacturing to improve competitiveness;
(3) The trend toward more concentrated products such as laundry detergent, which requires less production; and
(4) Acquisitions that result in adding more plants.

Cameron and Associates found three implementation strategies: workforce reduction, organizational redesign, and a systematic strategy focused on changing the attitudes, values, and culture of the organization (Huber & Glick, 1993).

Workforce Reduction

The focus is mainly on headcount reduction and employs such tactics as early retirement, transfers and out-placement, buy-out packages, golden parachutes, attrition, job banks, and layoffs or firings. It is most often done by top-down directives, and almost always implemented across-the-board since the goal is to reduce headcount numbers quickly. The disadvantages of this method are it is difficult to predict who will be eliminated and who will remain, and impossible to determine what knowledge and critical skills will be lost to the organization. The advantages are it provides immediate reduction, captures the attention of members of the organization to the seriousness of conditions, motivates cost savings, and creates readiness in the organization for further change (Cole, 1995).

Organizational Redesign

This approach aims at cutting out work in addition to or in place of eliminating workers. Strategies include eliminating functions, hierarchical levels, divisions, or products; consolidating and merging units; and reducing work hours. These are medium-term strategies that require advanced analysis of the areas that should be consolidated or redesigned. The focus is on work reduction over manpower reduction (Cole, 1995).

Systemic Strategies

This approach focuses on changing the organization's systems, culture and attitudes of employees, not just the size of the workforce, configuration of the structure, or the magnitude of the work. It focuses on systems in two ways. First, on internal systems, values, communication, etc. and on external systems, i.e. the production chain including upstream suppliers and downstream customers. This strategy involves redefining downsizing as a way of life, as an ongoing process, as a basis for continuous improvement instead of a program or target. Downsizing is equated with simplification of all aspects of the organization. Instead of being the first target for elimination, employees are defined as resources to help generate and implement downsizing ideas in other areas. All employees are held accountable for reducing costs and finding improvements. Serving customers, meeting their needs, and exceeding their expectations remain a core goal of downsizing activity, not just size reduction.

This strategy is the most compatible with principles of Total Quality Management (Cole, 1995).

Common Outcomes of Downsizing

Positive:

Downsizing announcements usually lead to positive reactions at least for some surveys. Favorable reactions occurred because of a promise of cost savings, reduced expenses, and increased competitiveness. Stockholders and analysts continue to assume that downsizing produces desirable financial results. But it should be noted that this positive outcome of downsizing ( e.g increase in stock value), does not always occur at least in the short-term. Most of the companies felt they did a good job handling the change process and sufficiently attended to the needs of the remaining employees. Many also thought they did a good job in communicating with employees. However, in open-ended questions, communication was cited again and again as the greatest challenge during reorganization. (Right Associates, 1995).

Negative:

It is said that nearly 68% of all downsizing, restructuring, and reengineering efforts are not very successful (Clark & Koonce, 1995). In many cases, companies that downsized and restructured to become more profitable and efficient have not achieved either. Instead they have experienced tremendous fallout, especially in the areas of decreasing employee productivity and morale, and increasing levels of absenteeism, cynicism, and turnover. A look at the reasons for diminished productivity and morale in downsized organizations reveals a changing corporate machine.

CRITICISM OF DOWNSIZING

While companies frequently implement downsizing plans to increase profitability and productivity, downsizing does not always yield these results. Although critics of downsizing do not rule out the benefits in all cases, they contend that downsizing is over-applied and often used as a quick fix without sufficient planning to bring about long-term benefits. Moreover, downsizing can lead to additional problems, such as poor customer service, low employee morale, and bad employee attitudes. Laying workers off to improve competitiveness often fails to produce the intended results because downsizing can lead to the following unforeseen problems and difficulties:

• The loss of highly-skilled and reliable workers and the added expense of finding new workers.

• An increase in overtime wages.

• A decline in customer service because workers feel they lack job security after layoffs.
• Employee attitudes that may change for the worse, possibly leading to tardiness, absenteeism, and reduced productivity.
• An increase in the number of lawsuits and disability claims, which tends to occur after downsizing episodes.
• Restructuring programs sometimes take years to bear fruit because of ensuing employee confusion and the amount of time it takes for employees to adjust to their new roles and responsibilities.
  

Instead of laying employees off, critics recommend that companies eliminate jobs only as a last resort; not as a quick fix when profits fail to meet quarterly projections. Suggested alternatives to downsizing include early retirement packages and voluntary severance programs. Furthermore, some analysts suggest that companies can improve their efficiency, productivity, and competitiveness through quality initiatives such as Six Sigma, empowering employees through progressive human resource strategies that encourage employee loyalty and stability, and other such techniques.

Sources:
http://www.enotes.com/management-encyclopedia/downsizing-rightsizing http://en.wikipedia.org/wiki/Layoff
http://en.wikipedia.org/wiki/Colgate-Palmolive