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Downsizing and Change Management
In any organization, the only permanent reality is change if the firm wants to thrive and succeed in the global economy. In times of extreme hardships, companies will some times have to make decisions, which are fairly harsh but are immensely important for survival of the firm. Downsizing is one such decision and while it appears unfair to some, it is actually the only way a company can reduce its overall costs, improve productivity, gain a sense of focus and possibly improve its financial health. We-based our downsizing process on Kurt Lewin change management theory and kept it as close to the three stages of change described by Lewin as possible.
At our firm, we needed to make this change because it appeared that in harsh economic times, this would the best option in order to stay afloat. However we had heard so many horror stories connected with downsizing and the ultimate result that we kept postponing it for a year till it became crystal clear that some people would have to leave in order for the rest to prosper. We didn't really think it was the best solution to our current financial problems but after trying everything else, we knew we couldn't do anything else and hence started focusing on the process of downsizing. In order to start and then implement downsizing though, we needed to study the previous cases of downsizing in the industry and outside to see how companies fared after they reduced their workforce. We also needed to know about the actual preparation required for downsizing and finally of course came the change management process.
We did not want to go into this blindly and later suffer like so many other organizations. We learned that many organizations had failed to improve even after the workforce was reduced significantly and it was horrifying to learn that some actually went bankrupt while others faced even more difficult times. But it was encouraging to find out that most of these organizations had randomly started the process of downsizing without studying its repercussions, without preparing their employees for it and without learning anything about change management. Hence we decided to do it more systematically and properly by studying the main facets of downsizing process and change management. This report presents our findings on the subject and how we decided to proceed with it while managing change in our organization.
Downsizing is not as simple as firing a few people and keeping others. For one the main purpose of downsizing needs to be clearly defined. In our organization, the purpose was to reduce our fixed costs and improve productivity by focusing on training and retraining of some of our key employees. We also needed to restructure some of our departments and hence downsizing was required. Downsizing can lead to two major kinds of problems i.e. process-related issues and people problems.
Process problems are those issues, which are closely connected with the actual process of workforce reduction. By failing to study the process of downsizing, a firm can make numerous mistakes like failing to develop a thorough plan for downsizing, change management issues, restructuring troubles etc. People problems are much easier to understand but much more difficult to handle. They are connected with the fear of losing their jobs, insecurity and psychological barriers, which can cause resistance, friction, hostility and overall low morale.
The main purpose of downsizing is to see some improvement in productivity and hence profitability. For this we needed our workforce in higher spirits than before because lack of morale could lead to serious productivity issues which we had to avoid at all costs in order to make downsizing a success. We thus began focusing on the ways in which downsizing process may affect our workforce. Failure to study process and people problems was the main reasons for downsizing failures in many organizations (Abrahamson, 2004).. Some of the key issues that arise in this case are summarized below:
Breach of unwritten contract:
Employees have a right to believe that if they are performing well, they cannot be fired. In order words, performance is equated with the assurance of job continuity. But if that doesn't happen, it can have a negative psychological impact and may breach the unwritten contract between the employee and management. This can generate a feeling of distrust caused by perceived betrayal.
Low spirits: morale of employees is seriously affected with downsizing begins as the ones who remain wonder if they are the next to go. (Miris 1997)
Leadership issues: Leadership in an organization is successful only when employees respond to it in a positive manner. But when the morale is low and employees start feeling betrayed by the management, the leadership loses its magic touch and hence can no longer exercise a positive influence on the employees. If leaders cannot motivate the employees, their leadership is rendered useless.
Culture breakdown: in a firm that relies heavily on its culture for success, things can do dramatically wrong after downsizing as culture breaks down. A culture is a set of traditions and practices that people have come to believe in but if the management hurts the trust of the people, those practices and traditions are considered empty promises and hollow words alone. This can cause the culture to crumble completely.
Employment insecurity: when people join a firm, they believe they would stay as long as they are doing well. But when they see a colleague being fired for no fault of his own, it generates a serious sense of insecurity about their own jobs. People naturally fear that if the colleague could go, they could be the next one in the line. This causes insecurity, fear and stress which affects performance.
Workload issues: when workforce is reduced, the work that was previously being done by the ones who were fired now fall on the shoulders of the remaining employees. This can cause workload problems that may even change job responsibilities for some. Additional workload can cause additional stress (Devine, Reay and Stainton 2003).
Once we realized that all these problems could arise due to downsizing, we also learned that the best way to address them was by developing a comprehensive plan for downsizing that will allow us to divide downsizing into three parts. This would help us focus on what is truly urgent and what is not. The three parts were hence called before downsizing, during-downsizing and after-downsizing.
This step is critical for the while process to be successful. The firms first need to decide if they actually want to downsize and what is their main reason for wanting this change. Many firms have failed in this process because they downsized when there was no real need for reduction in workforce. (Tourish and Hargie, 2004). If a financially healthy company is reducing its staff only to become more profitable, it is making a serious mistake that can have many negative consequences.
In our case we knew we were not profitable to start with and secondly we had to introduce some technological changes in our two main departments and hence downsizing was important. Our goals were higher profitability and greater efficiency. We had slept on the idea for one whole year before it was allowed to materialize as the last resort. There was little else that could be done. Defining the purpose and desired goals was important in the pre-downsizing stage.
Once we knew our purpose and had a vision in mind, it was important then to take our employees into confidence. This is called the communication part of before-downsizing stage. In this stage, we needed to let our employees know of the intentions of the management. We also needed to tell them exactly why reduction was needed and how many people are likely to be asked to leave.
Successful communication requires taking people into confidence and assuring them that downsizing is not only in the best interest of the firm but also in the best interest of the employees themselves. If people can truly connect with the purpose of downsizing, they can see its long-term positive effects and can feel more at peace once the process actually begins.
The third sub-stage was to select the ones who will have to leave. An employee must be given precise reasons why he is no longer needed by the firm. There must be a good and highly fair system at work, which would allow for only the redundant staff to leave while the critical ones stay. If the firm can explain this clearly, people would generally leave without any negative feelings towards the firm and its management. We for example knew that most of our downsizing would occur in the accounts and IT department because this is where new technology was being introduced which could significantly reduce manual work and also the need for excess staff. Some people from other departments had to go too but the main areas of reduction were Accounts…[continue]
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