Downsizing in simple terms can be said to be as the process of reducing the number

of employees from an organization or firm by the way of terminations, spinoffs,

retirement and so on. This situation occurs when the organizations faces economic
slowdown and the company needs to reduce its operating costs in order to maintain
their level of profitability. Downsizing also occurs in the case of mergers and
acquisitions, or to restructure the company for maximizing the profits and efficiency
(Jones 1998).

Downsizing also results the layoff of the employees which are associated with the
restructuring changes i.e. the closing of the branches, consolidation of branches,
cutting of the pay expenses and so on. In several of the cases employees are not
terminated instead they are kept as part time workers or temporary workers in
order to minimize or trim costs. This also includes the permanent or temporary
suspension of the workers or employees or a group of employees when some
positions are not necessary for the business processes or when some slow down in
the business occurs. Downsizing has become the fact of the corporate life as the
organizations struggle to cut their costs and adopt the changes in the market and
the demands. Downsizing is generally taken as the action in the economic
slowdowns as a reactive action. In the airline industry organizations are facing a
heavy slow down and are taking action like downsizing to face their increasing costs
(McCormick 1998).

The HR can play a vital role in managing the downsizing of the workforce in the
airline industry; the HR of the Singapore airline can take several measures to
manage this situation and can attain maximum benefit of the problem. The HR can
take several alternatives to the downsizing, the HR can also analyze the need of
downsizing by looking that the economic scenario and plan the proactive actions to
be takes in order to manage the condition of downsizing of the employees or work
force.

The roles that can be played by the HR in managing the downsizing of its workforce
can range from becoming a communicator of the organization to becoming the
representative of the company to announce the decision and so on.

Roles

Role of a Decision Maker: The HR can play the role of the effective decision maker in
order to manage the downsizing of the work force and take decisions related to the
downsizing activity and also whether to downsize of not. The HR is responsible for
the decisions related to the downsizing as he has recruited the employees and he
can effectively take decisions as to which employee will be fruitful to the
organization and who can be downsized (Employment Downsizing and its
Alternatives 2012).

Role of a Representative: The HR can also play the role of the representative of the
organization in declaring the downsizing activity of the employees and declare the
decision. The HR can act as the person who will provide with all the answers to the
employees regarding their downsizing.

Role of a Justifier: The HR can also play the role of the justifier and give explanation
to the downsized employees about the decisions taken and also provide justification
to the employees staying in the company and boosting their morale and to keep fait
on the organization (Anderson 2012).

Role of a Communicator: The HR can also play the role of the communicator about
the decision taken and can represent the company to the external world and
provide a justification of the decision taken. The HR can also act as a communicator
and keep contacting the employees in the period of economic downfall and keep a
continued communication with the employees in order to develop their morale. The
HR can also act as a morale builder of the employees and can motivate them to
perform more in order to get out of the adverse situation and reach the level where
the option of downsizing does not stays anymore (Anderson 2012).

Role of a Trainer: The HR can also act as a trainer in the period of economic
slowdown and can invest in training their employed to develop their skills and
showing the employees that they are important part of the company and building
their morale.

Morale builder: the HR can also play the role of the morale builder of the employees
in this adverse situation. The HR should not leave the employees to believe on the
rumors and degrade their morale, the HR should keep regular contact and let them
know the real condition of the company and involve the employees in the decision

making and develop their morale and increase the performance of the company
(McCormick 1998).

Issues and challenges of downsizing

Effects on the survivor employees: There are several impacts of the downsizing
activity on the employees who are remaining in the organization. They often feel
depressed and guilty. From several studies it has been analyzed that the morale,
trust and loyalty of employees decreases after the downsizing decision of the
organizations, the organizations also faces the issues and challenges of low
performances by the existing employees. The job satisfaction level and job
involvement of the remaining employees is also decreased extremely (Employment
Downsizing and its Alternatives 2012). The level of stress, the intention of
employees to quit or switch to other organizations increases and this has been
named as the survivor syndrome. Facing the first downsizing is one of the worst
experiences for both the lay off employees and the survivors. The organization
faces a low performance by the employees as the employees also keep a level of
expectation from their employers including the fair treatment of themselves and
their colleagues (Uhlig 2012).

Effect on the organization: With the downsizing of the employees may decrease
their costs and expenses by simultaneously they also decreases the morale of their
employees who are existing in the organization and they also decrease the
production capacity of the employees. The organization faces large fall in the
capabilities and performance of the employees, due to the decreased morale. The
firm overall performance, productivity, profitability and the stock prices are
decreased. It has been analyzed from the studies that the organizations that have
downsized their employees have seen a significant decrease in their share prices
and level of productivity and profitability (Anderson 2012).

Decision to layoff: This is also one of the crucial issues and challenge for the HR
related to the downsizing activity for the HR as to who should the organization keep
and whom to layoff. This is the crucial decision on which the future of the
organization depends, as the organization needs to keep the most productive
workers or employees. The organization future productivity is also dependent on
this decision. In the airline industry the HR needs to take the decision based on the
performance of the employees. Looking at the current events in the airline industry
and some examples of the airlines that have downsized their employees in the

recent times has been faced with high challenges and aggression of the employees
(Employment Downsizing and its Alternatives 2012).

Strikes: The organizations have to face the strikes and aggression of the employees
and take back their decisions to lay the employees off. The working of the
organization or airline has been affected for long term and has to face the loss of
stoppage of the work for long and this has resulted into more operating cost for the
company related to flight cancellations and payment of the ticket cancellation
values to the passengers (Giovanni 2012).

Impact on Employees and innovation: The organization also faces the challenges
related to innovations in the organizations, when the downsizing drags for over long
period of time, the employees and their enthusiasm for innovation also fades off
and they also reduces providing cooperation to their co workers (Employment
Downsizing and its Alternatives 2012).

Issues related to the Government policies: The HR also have to face the issues
related to the government policies for the retrenchment or downsizing of the
employees. There are several government policies related to the downsizing of the
employees the organization has to bind with the rules and perform the downsizing
activity. This includes the severance pay in lieu of the notice of downsizing given to
the employees, the payment of the supplemental employment benefits, the
organization also has to pay the pensions and the benefit payouts and bear the
administrative processing costs. All these are the issues which the HR of the
organization has to bear during the downsizing activity (Giovanni 2012).

Issues related to the direct and indirect costs: The HR also has to bear the several
direct and indirect costs during the downsizing activity. The HR has to face these
issues of indirect cost like the cost associated with the recruitment and employment
costs, the reduced morale of the risk-averse survivors, increase in the employment
tax rate and the lack of the staff during the economy renounce and also to face the
start up costs of recruitment (Employment Downsizing and its Alternatives 2012).
The opportunity costs of the lost sales. The direct costs associated with this issue
include the payment of accrued vacations and sick pays. Outplacement costs, the
cost of rehiring the former employees are also some of the issues which need to be
faced by the HR of the organization (Employment Downsizing and its Alternatives
2012).

Downsizing is an extremely relevant issue to organizations today in that it has

become the most prevalent dilemma in recent years. The current tendency of
organizations to restructure and ultimately to downsize has a major negative impact
on the organizations themselves, on their surviving and terminated employees, on
the government, and on society as a whole. In fact, it is everyone's problem, and it
seems to have become more the rule than the exception that it used to be in the
not too distant past. The current adverse economic climate has been persistent and
long-lasting. As a result, many organizations that were operating inefficiently have
been driven out of business, and most of those that have survived were forced to
restructure in order to streamline their operations and achieve operating cost
savings that would ensure their continued competitiveness both on the local and
global markets. More often than not, this meant downsizing the organization and, in
many cases, the downsizing was conducted in multiple phases or on an on-going
basis. The direct result on the organization was a marked drop in employee morale
and productivity which prevented organizations from realizing their strategic
objectives.

What is Downsizing?

A downsizing strategy reduces the scale (size) and scope of a business to

improve its financial performance (Robbins & Pearce, 1992).

A reduction of the workforce is one of only several possible ways of improving

profitability or reducing costs.

Why do Firms Downsize?

Reduce costs

 Reduce layers of management to increase decision making speed and get closer
to the customer

Sharpen focus on core competencies of the firm, and outsource peripheral

activities

Generate positive reactions from shareholders in order to improve valuation of

stock price

Increase productivity

Downsizing effects:

Mixed effects on firm performance: some short-term costs savings, but long-term
profitability & valuation not strongly affected.

Firms reputation as a good employer suffers. Example: Apple Computers

reputation as good employer declined after several layoffs in 1990s.

Downsizing forces re-thinking of Employment Strategy. Lifelong employment

policies not credible after a downsizing. Example: IBM abandoned lifelong policy
after several layoffs in early 1990s.

Employee motivation disrupted: increase in political behaviors, anger, fear which is likely to negatively impact quality of customer service

 Violation of psychological contract, leads to cynicism, lowered work commitment,

fewer random acts of good will

Survivors experience more stress due to longer work hours with re-designed
jobs, and increased uncertainty regarding future downsizings

Many senior employees leave due to application of early retirement incentives:

result is loss of institutional memory.

The use of voluntary workforce reductions (buyouts) results in the most

marketable employees leaving (stars) -- difficult to control since all employees
must be legally eligible to qualify.

Early retirements & voluntary reductions often result in too many people quitting,
and some are hired back as consultants at higher cost to firm.

Downsizing Works Best When:

Changes in Strategy, Organization structure and Culture accompany job cuts of

downsizing

Weak business units and plant closures are used as basis of reductions, rather
than across the board cuts affecting all units (including healthy ones).

Critical Thinking Questions:

1. Which is a better criterion to use as the basis for downsizing employees:

seniority or performance? State your reason.

 2. Should employers give future notice to downsized employees, or tell them on

the day they are expected to leave the firm?

3. Separation pay is voluntary. What benefits do firms get when they give
separation pay to employees in a downsizing?

4. Is there a set of best practices to let an employee know she/he has been
downsized?

5. Under what circumstances might a companys managers prefer to use layoffs

instead of early retirements or voluntary severance plans as a way to downsize the
workforce?

Some Local Companies Undergone Downsizing:

It is said that the only thing that is constant in this world is change. This particular
maxim is clearly manifested in the ever-changing business organizations we have
today. While some companies choose to be conservative and follow the same boring
traditional procedures, many of the companies that emerge as leaders in business
industries choose to reengineer itself and adapt to global trends scenarios.

Hammer and Champy, as cited by Rafael Rodriquez and Jasmin Acua in the article
entitled Reengineering: A Path to Change, talk about two companies, namely
Hallmark and Ford Motors that undergone the reengineering process. For Hallmark,
before a greeting card is perfected it has to pass through several segments of the
company. Any revisions, no matter how small it seems, create a huge delay for the
companys processes. The management, after recognizing the problem, then
decided to put up independent teams that will be focus in the creation of a new
greeting card. In Management Accounting, they refer to such teams as a
Responsibility Center. The reengineering procedure that was adapted by the
Hallmarks management worked perfectly as reflected by a more efficient and cost-

effective means of production. The same reengineering procedure was also adapted
in the For Motors Company thereby increasing its efficiency.

San Miguel Corporation, a local example of a company that has reengineered itself
was pictured by Rodriguez and Acua as an entity that was able to down size the
number of its employees by adapting its own reengineering procedures. An example
that was given would be that of a particular bottling department in San Miguel that
was able to downsize its employees from 300 to only 24 upon the acquisition of new
equipments that would speed up its operation and the adoption of new procedures.
Another example that was given was the implementation of a pull system in San
Miguel where many functions that require many employees before is now single
handedly operated by only one salesman whom the company provided a lap top
with a data base management software and a van to take orders from independent
customers. Such procedure reduced the need for warehouses and redundant
employees since the software was able to create an optimized route for the delivery
of the ordered goods.

Edgar Schein on the other hand, talks about six procedures to achieve
organizational effectiveness. They are 1) sensing the external and internal
environment, 2) Importing information, 3) changing processes and procedures, 4)
stabilizing internal change, 5) exporting products and services and 6) getting
feedbacks. Following Scheins procedures, a company would be able to adapt to
global trends.

Colgate-Palmolive in terms of restructuring itself was able to promote a lower

hierarchy structure for its employee. Ms. Annette Santiago, the HR head of SMART is
also proud to say that they were able to do the same since a lower hierarchy
structure promotes openness to its employees. A lower hierarchy also promotes
transparency since the gap between management and employees are bridged and
the employees can easily open up questions pertaining to the company.

The IBM Sales Executive for the Asia-Pacific Region announce the bold move IBM is
about to under take by instituting a new procedure in database storage, this is in
line with their own reengineering schemes. Thus, most companies now are open to
change, those that are not maybe gone by now or maybe inexistent by tomorrow.

References:

http://www.tigweb.org/express/panorama/article.html?ContentID=2096
http://www.questia.com/googleScholar.qst;jsessionid=KWWM2XgGdwLVmQpy03yLM
rknyG7Y0hSkgydPPJMnkN0JqNMXTh1L!-2050619229!766828861?
docId=5001676706
http://www.authorstream.com/presentation/edwinlee-111819-downsizing-hrbusiness-finance-ppt-powerpoint/