Downsizing Decisions Decision Making in the Face

Downsizing Decisions

Decision Making in the Face of Downsizing and Acquisitions

In the period of financial instability that has defined the last decade, labor realities have been unpredictable at best and downright cruel at worst. Downsizing and Acquisitions have become two of the watchwords for employee insecurity, signaling the often shifting needs of corporations either struggling for survival or seizing growth opportunities. For those with the unenviable task of decision-making in the face of these realities, an array of data, factors and approaches will enter into the ultimate process of laying off employees and bolstering the morale of those who will be retained. The discussion hereafter considers many of the conditions that drive this decision-making process and that shape its consequences.

Supporting Information:

It should universally be the case that financial imperatives provide the information from which decisions will be made. Downsizing is rarely engaged without an economic pressure or opportunity at hand. According to Pablo et al. (1996), the best way to optimize personnel and productivity is to provide clear financial rationale both for the positions to be eliminated and the procedure that will produce this elimination. Here, the risk and return of downsizing or acquisition will be measured by financial analysts either internal to the company or, as the discussion will show hereafter, more frequently from outside consulting firms. According to Pablo et al., "finance and strategic management scholars have conducted most of the prior work that has addressed risk in relation to acquisitions. The central focus in most of these empirical studies has been on the risk/return relationship in which risk, operationalized as variation in post-acquisition performance, has been linked to acquisition type." (p. 1)

Decision-Making Factors:

The major factors which drive decision-making will often be a combination of external and internal conditions. Whether a company is engaged in downsizing, acquisition or some combination of the two, the impact on personnel will be based on factors such as the fiscal performance of the company, redundancies in positions occupied, corporate mergers, broader economic recession and patterns of globalization which have moved many jobs overseas. The result is a potential for job-loss in either acquisition or downsizing. According to Heil (2005), "for example, the database developer Oracle Corporation reduced its number of employees by 5,000 after acquiring rival PeopleSoft. Downsizing is certainly not limited to the U.S.; Jamaica Air cut 15% of its workforce in an effort to trim expenses and anticipated revenue shortfalls." (Heil, p. 1) The demonstrates that the factors which enter into such decisions may be related either to company growth or retraction, suggesting that personnel interests are typically a byproduct of larger corporate interests.

Commonly Employed Approaches:

One of the most commonly employed approaches for corporate downsizing and the decision-making the corresponds with this process is the hiring of an outside firm. According to Church (1996), "Many firms are jumping on the bandwagon by establishing their own business process improvement (BPI) and/or reengineering practices. Moreover, though some authors (e.g., Harrington, 1991) recommend gaining employees' trust and commitment during these types of improvement efforts by an establishing a no-layoff policy, a common perception of such efforts by many people not integrally involved in the process, as one of our suppliers so aptly put it, is that 'The reengineering department is another name for the firing department.'" (p. 2)

Rationale for Adopted Approaches:

Church denotes that there are several distinct advantages to this approach, not the least of which is that managers who will remain on board following layoffs will not be branded by personnel as being personally responsible for the decisions leading to firings. Moreover and perhaps most importantly, outside consultants may be capable of rendering purely objective decisions which eliminate positions according to redundancies and productivity realities. Outside firms will often bring an array of metrics that allow for a more empirical set of bases for determining whether an employee should be retained or dismissed.

Effectiveness Evaluation:

One of the best ways to evaluate the effectiveness of the process used to execute downsizing, acquisition or both is to engage retained personnel in scheduled interviews 6 months, one year and two years after the process in question. The interviews should be used to reaffirm job security and to gain a general knowledge of employee sentiments regarding the execution of the process and the repercussions of the process to their respective experiences.

Workforce and Productivity Implications:

The processes of both downsizing and acquisition will typically have a direct impact on company culture and the morale of workers. Especially in the context of downsizing, the understanding that some will lose their jobs and others will keep them can promote an atmosphere of fear and suspicion, necessitating a process that is as equitable and concise as possible. This is a reality which impacts not just those who must be laid off and not just those who will remain employed by the organization, but also by those who must engage in the downsizing itself. According to Hoffman (2001), "the May 10, 2001 edition of USA Today asked managers how they felt about being involved in downsizing their organizations. The majority of respondents indicated that exposure to the downsizing decision was the most demoralizing and stressful aspect of their managerial role. Downsizing tends to create confusion, mistrust, frustration, low morale, poor productivity, grieving, and organizational strife." (Hoffman, p. 1)

This suggests a universally negative experience where downsizing is concerned, underscoring a part of management, leadership and decision-making which is highly unpleasant but frequently necessary. This suggests though that downsizing occur only out of necessity, whether financial or organizational in nature. Where downsizing does not produce an optimal economic or organizational condition -- such as the improvement of productivity or profitability -- it should be considered as a last resort.

It bears noting that worker orientation will also be impacted during acquisitions, with insecurity arising from a fear that 'redundancies' will lead to widespread dismissals. Acquisitions can often lead to 'house-cleaning,' in which personnel needs are re-evaluated and dismissals made accordingly. In both the cases of downsizing and acquisitions, the importance of communicating intentions clearly with personnel cannot be overstated where the maintenance of morale is concerned.

Recommendations:

The Church text provides us with some basic recommendations which are of use in preemptively avoiding the need for massive downsizing. According to Church, using effective recruitment, interviewing, hiring, training and evaluating processes can help to prevent the internally developing need for downsizing, Church remarks that "we should begin by educating senior management about the economic and employee-related benefits associated with progressive human resource management practices. Our cumulative base of knowledge in this area is substantial, and we should not hesitate to make use of it. Here are some places to start: using valid staffing procedures, implementing organizational cultures that emphasize team orientation and respect for people, involving employees in decision making, linking compensation to firm or worker performance, and training. A large body of evidence indicates that such practices are usually associated with increases in productivity (defined as output per worker), and also with a firm's long-term financial performance." (p. 11)