Downsizing: The fiscal diet of corporate america

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Downsizing The fiscal diet of corporate america

• BUS 341
• Professor Henle

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Downsizing defined

• The reduction of expenditures in order to become
  financially stable.

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Why downsize?

• Reduce Expenses
• Workforce Reduction/Efficiency
• Restructuring

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scope

• History
• Importance to Corporations
• Implementation Strategies
• Case Study General Motors
• Psychological/Social Impact

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History trends

• Baby boomer generation expanded the population
  and in later years flooded the workforce.
• In the early 80s downsizing became a legitimate
  tool for management to refocus organizational
  direction, also adapt to changing technology and
  globalization.

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significance

• Mergers and Acquisitions pose the biggest threat
  of downsizing.
• In a fierce competitive environment, management
  may look for any tools necessary to gain market
  share.
• Main purpose is to cut administrative costs while
  retaining skilled workers.
• Most economic benefits are not fully realized.

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Economic trends

• In the early 80s the first waves of layoffs hit
  the young, less educated, blue-collar citizens in
  the mid-west.
• Nearly a decade later a shift of mass layoff
  moved to the coasts and claimed jobs of older,
  more educated, white-collar citizens.
• Two primary factors contributed to downsizing in
  these time periods.
• 1. Growth of technology (IT) and automation in
  manufacturing and retail.
• 2. Globalization worldwide market expansion.

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Alternatives to layoffs

• Reduction of Overtime.
• 4 day work week cycle opposed to a 5 day work
  week.
• Early retirement for veteran employees.
• Eliminate policies such as paid sick time or
  vacation time.

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Layoff considerations

• Keep lines of communication between the employer
  and the employee open.
• Honesty is crucial in keeping employees trust and
  upholding the organizations reputation.
• Being employed is a privilege not a right.

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How to Fire

• Large Companies - Hold group meetings, review
  financial status and future goals, employees
  should understand that performance evaluations
  will guide managers to layoff decisions.
• Small Companies - Hold one-on-one conferences,
  employer expresses individuals importance, review
  criteria and considerations behind termination,
  maintain healthy, open communication throughout
  the downsizing process.

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Managing the survivors

• Reemphasize how vital each survivor is and how
  they will impact the survival of the company.
• Make morale a priority to increase productivity
  and profitability.
• Manage the redistribution of work load to the
  smaller workforce.

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Pros to Downsizing

• Reduction of expenses.
• Once employees start losing their jobs, the
  quality of the performance of the employees
  increases along with productivity.
• Downsizing can be good for the economy and in
  some instances has proven to raise stock prices.
• For example, upon announcing their plans to
  downsize, the stocks of IBM Corporation rose by
  almost 8.

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Communicating with employees

• Management should provide clear and concise
  reasons for change as early as possible.
• While acknowledging the negative aspects, leaders
  should present the change as an opportunity to
  improve the organization.
• Managers need to remain visible and accessible
  during the process

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Communicating with employees

• Top executives must understand that employees
  consider a destabilized environment threatening
  to their careers.
• There is a direct correlation between efficiently
  managing the downsizing process and maintaining
  the viability of the company.

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Case study General Motors
Recent Attempts at Downsizing

• In the 4th quarter of 2006, GM cuts 30,000 of its
  blue-collar workers
• In January of 2008, General Motors offered
  buyouts to 46,000 employees, equivalent to
  roughly two-thirds of its hourly workforce. A
  month later that number was raised to 74,000, its
  entire U.S workforce.
• On Wednesday, April 22nd, there have been
  numerous rumors and reports in which states that
  General Motors could keep these factories closed
  for up to nine weeks, starting on July 1st and
  lasting into the early weeks of September

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Case study general motors

• Management should provide clear and concise
  reasons for change as early as possible.
• While acknowledging the negative aspects, leaders
  should present the change as an opportunity to
  improve the organization.
• Managers need to remain visible and accessible
  during the process

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Effects of downsizing
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Studies of unemployment

• Study of unemployment began during the Great
  Depression.
• Marie Jahoda, social psychologist studies of
  well-being focused on the unemployed.
• Outlines four types of post employment distress.

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scenarios

• Scott was recently laid off from a high paying
  position at a well known accounting firm. He was
  given four weeks pay as severance and will
  receive roughly 60 of his weekly salary through
  unemployment benefits. Since being laid off,
  Scott has kept his house clean and spent much of
  his free time searching for a new job. He is
  optimistic that he will find replacement
  employment quickly and believes that he was let
  go due to organizational issues, not his lack of
  ability.

Which stage of Jahodas unemployment model is
Scott currently in?

• Household Maintenance
• Optimism/Hope for the future.
• High Self-Efficacy
• Moderate financial relief

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scenarios

• Glen was recently laid off from his job with a
  major insurance company. Due to his recent work
  history, Glen is ineligible for unemployment
  benefits. The layoff has affecting him
  negatively, as he feels like his abilities
  contributed to him being selected for layoff. He
  has begun to isolate himself from friends and
  family. His home is a mess, littered with beer
  cans, overflowing trash cans and bills are
  beginning to pile up on the kitchen table. Glen
  has become so depressed that rarely gets out of
  bed prior to noon and has all but given up on
  searching for a new job.

Which stage of Jahodas unemployment model is
Glen currently in?

• Lack of household maintenance.
• Isolation from friends family.
• Depression / Feeling of futility.
• No active job search.

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Survivors syndrome
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Employer vs employee

• 1991 Survey of Managers proctored by Louis Harris
  and Associates (Cappelli, 80, 1997)
• 1994 Survey of Human Resources Managers proctored
  by American Management Association (Cappelli, 81,
  1997)

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summary