ADITI BAKSHI

02-MBA-09
THE BUSINESS SCHOOL
JAMMU UNIVERSITY.

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 “Next to death of relative or a friend,
there's nothing more traumatic than
loosing a job .Corporate cutbacks
threaten the security and self esteem of
victims alike. They cause turmoil and
shatter morale inside the organization
and they confirm the view that profits
always come before people”

-Laura Rubach
Famous
industry analyst

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WHAT IS DOWNSIZING?
It is a set of activities undertaken on part
of the management and designed to
improve organization structure.
A downsizing strategy reduces the
scale(size) and scope of a business to
improve its financial performance.
A reduction of workforce is one of only
several possible ways of improving
profitability or reducing cost.

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WHY DO FIRMS
DOWNSIZE?
Reduce costs.
Reduce layer of management to
increase decision making speed and get
closer to customers.
Sharpen focus on core competencies of
the firm, and outsource peripheral
activities.
Declining profits
Generate positive reaction from
shareholders in order to improve
valuation of stock
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price
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 Introduction to new technologies
Business downturn or increased
pressure from competitors
increase productivity
Mergers and acquisitions
Getting rid of employee
“Deadwood”


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DOWNSIZING TACTICS
DOWNSIZING CHARACTERISTI EXAMPLES
TACTICS
Workforce reduction CS Aimed at headcount Attrition
Organization reduction
Aimed at transfer and
Eliminate functions
Short term
redesign
System redesign organization change outplacements
Aimed at cultural Eliminate
Change layers
implementation
Modern term Retirement
Eliminate products
change responsibility
implementation incentives
Redesign
Long term Involve alltasks
Lay offs
implementation Merge units
constituents


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BENEFITS OF DOWNSIZING
Gain new skills.
Increase in efficiency.
Increase profit.

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APPLICATION STAGES OF
DOWNSIZING
1.IMPLEMENTATION STAGES
 Reduction in workforce
2. SURVIVOR SYNDROME
 Behavioral implications of remaining
workforce
3. ORGANISATIONAL RENEWAL AND
GROWTH
 New or modified strategies

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DOWNSIZING EFFECTS
1.OVERALL EFFECT:
Mixed effect on firm performance-
some short term cost savings ,but
long term profitability and valuation
not strongly effected
Firms reputation as a good employer
suffers.
 E x a m p le : APPLE Computer’s
reputation as good employer
declined after several lay offs in
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 Downsizing forces rethinking of
employment strategy .Lifelong
employment policies not credible
after a downsizing.
 Example: IBM abandoned
lifelong policy after several layoffs
in early 1990’s.

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2. EFFECT ON EMPLOYE


MORALE:
Employee motivation disrupted-increase in
political behaviors, anger, fear, which is
likely to negatively impact customer
service.
Violation of physiological contract, leads to
cynicism, lowered work commitment, fewer
random acts of goodwill
“Survivors” experience more stress due to
longer wok hours with redesigned jobs and
increased uncertainty regarding future
downsizing.
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3. WORKFORCE QUALITY:


Many senior employees leave due to

application of retirement incentives:-
result is loss of institutional memory.
The use of voluntary
reductions(buyouts)results in most mark
able employees leaving (i.e. "stars”)
Early retirements and voluntary
reductions often result in too many
people quitting and some are hired back
at higher cost to firm.
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4. DOWNSIZING WORKS BEST


WHEN:
Changes in strategy ,organization
structure and culture are accompanied
by job cuts of downsizing.
Weak business units and in plant
closures are used as basis of reductions,
rather than across the board cuts
affecting all units(including healthy
ones)
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ALTERNATIVES TO
DOWNSIZING
1. EMPLOYMENT POLICIES:


Attrition
Hiring freeze
Out interns
Out temps
Voluntary time off
Reduced work hours


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2. CHANGE IN JOB DESIGN:


Transfers
Relocations
Job sharing
Demotions


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3. PAY/BENEFIT POLICIES
Pay freeze
Out overtime pay
Use vacations and leave days
Pay cuts
Profit sharing or variable pay.
4. TRAINING

Retraining


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 THE DELTA
DIFFERENCE

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DELTA AIRLINES-A CASE
STUDY
3rd largest U.S. airline
Industry pushed over the edge post
9/11
Major U.S. carriers cut costs by $14
B
Over 70,000 or 16% of workforce
was lay off.
267 aircrafts were grounded

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DOWNSIZING EFFECTS AT
DELTA
Direct dealing between management and
employees.
HR was outsourced
A core team was set up lead by CLO
A war team was set up
Build a workforce reduction program to
manage crisis
DWP-a set of 3 programs
 Enhanced early retirement
 Leave of absence
 Severance
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Employees provided with 6 voluntary
programs-1-5 year leave programs.
Added flight privileges, pension credit
times, and ability to bid for their jobs
while on leave.
Intended to keep connectivity of
employees.
Involuntary severance program also
created
98% of employee reduction created
through voluntary leave program
Open
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CHANGE MANAGEMENT
Tools were developed to assist
managers to evaluate their process ,job
designs and organization structure
Identify and implement changes in
management with reduced staff levels
Training programs
New “LEADER-LED” communication
strategy
HR being viewed as a support ares
websites

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CORPORATE EXAMPLES:
 IBM:
Most firing company for IT
professionals.
Company fired 20% employees.
Reason being performance issues.
No strategic plans at HR policies
regading employee security.

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  DLF :
Retrenched around 300 employees
across all its centers and
subsidiaries as it decided to slow
down its project execution,
especially in tier II cities.
Tough time in real estate forced the
company to rationalise manpower
and bring down costs.
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  Aviation industry:
Aviation recently was under several
financial pressure due to which
Kingfisher had downsized 300 staff
whereas, Jet downsized around
650 jobs.

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CONCLUSION
Downsizing in the strategic
management plan can increase
organizational efficiency by
maintaining a focus on core
competencies that promote
competitive advantage and
potentially increase market share.

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