Introduction

As organizations struggle to enhance their competitive positions, employment

downsizing continues as a preferred part of a restructuring strategy. Its objective is to
reduce operating costs as a way of increasing earnings and stock prices. However, casts
serious doubt on the long-term payoff of this approach. In contrast to employment
downsizing, a strategy that regards people as costs to be cut, a responsible restructuring
strategy focuses on people as assets to be developed. This focus recognizes that people
are the source of innovation and renewal, especially in knowledge-based organizations,
and that the development of new markets, customers, and revenue streams depends on
the wise use of a firms human assets.

1.1 Objectives of Assignment:

1.1.1 Broad Objective:

The prime objective of this assignment is to understand what is Downsizing and how it
can be done effectively for organization and how retruturing the organization after that.
1.1.2 Specific Objective:

To understand concept of Downsizing and Restructuring

To understand the importance of Downsizing
To understand the circumstance where organization adopts Dowsniszing
To familiar with Downsizign decisions and financial performance of it.
To get reconnized with the available best effective downsizing strategy
To realize the consequence of the downsizing

1.2 Methodology:
For preparing this assignment, we have collected our information from secondary
source. Following are some categories of secondary source those we have used;
Text book and recent report of some renowned person and organization
Some research reports

1.3 Limitations of Assignment:

The following are some other limitations;

Limitation of time was one of the most important factors that shortened the
present study. Due to time constraints, many aspects could not by discuss in the
present study.
As, I had more dependence on the secondary sources, so there might be some
level of inaccuracy with those collected information.
Insufficient books, publications, Facts and figures narrowed the scope of best
accurate analysis.
Lack of statistical report
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Downsizing and Restructuring

2.1 Meaning of Downsizing:
In a business enterprise, downsizing is reducing the number of employees on the
operating payroll. Some users distinguish downsizing from a layoff , with downsizing
intended to be a permanent downscaling and a layoff intended to be a temporary
downscaling in which employees may later be rehired. Businesses use several
techniques in downsizing, including providing incentives to take early retirement and
transfer to subsidiary companies, but the most common technique is to simply
terminate the employment of a certain number of people.
Downsizing refers to the reduction of a company's labor force. Some employers may
also try cutting employees' hours, or instituting unpaid vacation days as less devastating
alternatives. Employers who downsize must still follow state and federal notification
laws.
According to Kim Cameron

Downsizing is a set of activities undertaken on the part of management and design to

Improve organizational efficiency, productivity and competitiveness. It represents a
strategy implemented by managers that effects the size of the firms workforce , the cost
and the work process.
So finally we can say that, Downsizing are strategies to improve an organizations
efficiency by reducing the workforce, redesigning the work, or changing the systems of
the organization

2.2 Meaning of Restructuring:

Restructuring is a significant modification made to the debt, operations or structure of a
company. This type of corporate action is usually made when there are significant
problems in a company, which are causing some form of financial harm and putting the
overall business in jeopardy. The hope is that through restructuring, a company can
eliminate financial harm and improve the business.

Restructuring can be defined as bringing about a drastic or fundamental internal change

that alters the relationships between different components or elements of an
organization or system.

Restructuring is the corporate management term for the act of reorganizing the legal,
ownership, operational, or other structures of a company for the purpose of making it
more profitable, or better organized for its present needs. Other reasons for
restructuring include a change of ownership or ownership structure, demerger, or a
response to a crisis or major change in the business such as bankruptcy, repositioning,
or buyout
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2.3 Importance of Downsizing:

Downsizing in any business is generally not viewed by employees or management as a
positive practice, although it can result in many positives, such as staying in business,
cost savings and business strength. Managers are loathing being the ones to carry out
the process and typically leave this unwelcome duty to human resources professionals.
Company downsizing can cause rising stress levels and increased workloads for HR
departments. With knowledge and skill, however, HR can successfully navigate through
workforce layoffs.

Morale
More than at any other time, during periods of layoffs your HR personnel are tasked
with maintaining employee morale. As workers see others leaving the company, they
may need more attention and assurances about the security of their jobs. In
administering to departing employees, HR staff members must call on fairness and
compassion. Human resources professionals must also ensure there is equity in the
layoff selection to avoid the appearance of favoritism as some employees retain their
jobs while others do not. HR must take into consideration the percentages of those
being dismissed that are designated as part of legally protected minority groups.
Staffing
Human resources management is affected to a great degree with the issue of staffing
after layoffs. When business is short staffed, management may be tempted to
overscheduled employees. HR is charged with making sure there are enough employees
to cover shifts and adequately perform the tasks necessary to keep your business
running. This translates to overseeing scheduling, monitoring hours and regulating
overtime to remain in compliance with labor laws. Additionally, when union employees
remain employed, HR must maintain any job and safety restrictions imposed by the
union.

Compensation and Retirement

One avenue some businesses follow during the course of downsizing involves salary
freezes. HR personnel may be required to oversee and track such freezes, and
administer salary reductions. Some employees may be asked to take early retirement as
a business cost-saving measure, and human resources staff members manage these
voluntary terminations, which could involve the administration of increases in
pensions, continued health benefits and other payouts.
Unemployment and Reemployment
Employees departing as a result of layoffs may be eligible for state unemployment
benefits. Human resources staff members experience an increase in paperwork created
by maintaining accurate records supporting unemployment claims. As business levels
rise, HR is obliged to begin filling open positions by arranging for the rehire of past
employees, as well as engaging in new recruitment, interviewing and general hiring
activities.

Downsizing as a Balancing Act

Downsizing is essentially a balancing act: managing the legacy of the organization, its
reputation and its ongoing business performance. It is equally about skillfully managing
people, those who are retained by the organization and who will separate from it.

2.4 Why Do Organization Downsize?:

There are several reasons why organizations decide to downsize the workforce. Some of
the factors most commonly mentioned including the following:

Declining profits
Business downturn or increased pressure from competitors.
Merging with another organization, resulting in duplication of efforts.
Introduction of new technology.
The need to reduce operating costs.
The desire to decrease levels of management
Getting rid of employee deadwood

Many organizations engage in downsizing because managers believe that cutting people
will result in reduced costs and improve financial performance. In addition, Labor costs
are often seen as easier to adjust relative to other expenditure. Although executive often
perceive that reducing the number of people in the organization will lead to lower
overhead costs, reduced bureaucracy, better communications, improved decision
making, increased innovative activity and higher productivity, there is considerable
evidence that workforce reduction programs often fail to meet their objectives.

2.5 Downsizing Decisions:

Human resource managers should weigh in on several factors that influence downsizing
decisions. First, identify the specific problems downsizing is expected to solve, and then
assess the resources that can be devoted to it right now. Also consider how downsizing
will affect the company in the longer term. For example, the manager must determine if
and how strong performers with unique skills be replaced when things improve, and
what risks are involved in losing those individuals.
A performance effectiveness review would be beneficial to any business or organization
which is looking for ways of making employees more efficient and effective in their
roles, and to enable them to support the business in achieving its goals.
A performance effectiveness review can;

Identify appropriate job functions and accurate role competencies.

Identify potential role or process redundancies, efficiencies and performance
improvement areas
Capture field information on the current reality of the workplace.
Link directly to the design of learning systems, Employee job mastery or
business readiness models
Identify possible streamlining or creation of new processes
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In downsizing decision, we have to consider the alternative to downsizing, in placement

& outplacement issues, planning for downsizing and adjusting to job loss as following;
2.5.1 Alternatives to Downsizing:

HR departments are not immune to the effects of downsizing. HR managers who

implement their own workforce reductions also reduce their ability to maintain high
levels of productivity in traditional HR roles, such as hiring and compensation, and any
role in guiding corporate strategy. Thinning department resources may prompt HR
management to outsource traditional administrative functions is it shifts to making
strategy its core competency.

Studies have shown that most downsizings are not well planned and frequently ignore
the linkage between downsizing and the strategic direction of the organization, and
underestimate the impact of downsizing on the organization and its human resources.
Alternatives to Downsizing can be as following:

Hiring freeze
Mandatory vacation
Reducing the workweek
Reducing overtime
Reducing salaries (and extending if necessary)
Short-term facility shutdowns
Obtaining cost-reduction ideas from employees
Voluntary sabbaticals
Lending employees
Exit incentives

2.5.2 Outplacement and Inplacement Issue:

Outplacement means providing a program of counseling and job-search assistance for

workers who have been terminated

Inplacement means reabsorbing excess or inappropriately placed workers into a

restructured organization
2.5.3 Planning for Downsizing

HR is heavily involved in the strategic planning process of a downsizing. First, it must

analyze units and functions to determine which are critical and which employees are
critical to their implementation. HR also works with managers to establish and
document the criteria they'll use to decide whom to terminate, preferably according to a
funnel approach that considers critical skills before job performance. Wayne F. Cascio
writes in "If You Must Downsize, Do It Right," that no class of employee can be
disproportionately affected. He recommends subjecting all documents and
recommendations to attorney review. The process must be a just one at every level.

If an organization has decided to embark on a downsizing strategy, planning is essential.

Here are some key issues:
Determining how many people will lose their jobs

Determining who will be let go; and on what basis (seniority, performance, or
potential)

Determining how the reduction will be carried out; which methods will be used
(attrition, early retirement, severance, layoffs or termination)

Determining the legal consequences; will there be violations (wrongful dismissal,

employment standards collective agreement or human rights)

Designing current and future work plans (Represents a key challenge for the
organization and is frequently neglected)
Implementing the decision

Performing follow-up evaluation and assessment of the downsizing efforts (This

step is crucial, but is often ignored)

Downsizing and restructure has a huge impact on those employees left. Human
Resources and the perception employees have. Personally I had to downsize several
employees in 2011 and the impact on HR was very negative. Though most employees
understand it may be required it still has a negative impact on the HR department and
how other sees us.
2.5.4 Adjusting to Job Loss

The following organizational interventions and practices have been identified as helping
previously employed workers adjust to job loss and secure new employment:
Advance notification of layoffs, which gives employees time to deal with the
reality of job loss and seek future employment
Severance pay and extended benefits, which provide an economic safety net

Education and retraining programs, which give individuals time to acquire

marketable skills

Outplacement assistance to inform employees of new job opportunities and to

improve their ability to "market" themselves
Clear, direct, and empathetic announcement of layoff decisions

Consideration of HR planning practices that represent alternatives to large-scale

layoffs

2.6 Financial Performance of Downsizing:

One would anticipate that organizations engaging in downsizing expect that their
financial performance will improve. So the organizations reduced their workforces to
perform better than other firms.
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While some analysts suggest that downsizing will improve the value of firms stock,
investors generally respond negatively to the announcement of a layoff, particularly if
the reduction is due to financial factors or involves a large scale permanent cutback of
employees. A Canadian study that examined the effects of a layoff announcement on
stock market prices found that shareholders generally reacted negatively to the
announcement, particularly when a large percentage of the workforce was let go.

When we look at financial performance outcomes, the research results do not paint a
very clear picture. One study of the financial performance of fortune 100 firms revealed
the firms engaging in layoffs continued to perform much more poorly than
organizations not lying off employees. Another study, involving major Canadian firms,
found no consistent relationship between downsizing and profitability. A third study, of
250 large U.S corporations, indicated that workforce reduction was associated with
improved financial performance, particularly in the short term.
Why the conflicting results? In examining the various studies, it is difficult to make
comparisons because authors dont use similar measures of performance and each
defines downsizing somewhat differently. In addition, the research tends to look at
workforce reduction behavior without considering the overall downsizing strategy.
However, there is some U.S. evidence supporting the position that improved return on
assets and common stock may be related, at least in part, to the downsizing strategy
employed by the organization. Firms following a pure employment downsizing (a
workforce cutback of at least 5% but little change in plant and equipment expenditure)
did not outperform other firms in their industry. However, asset downsizers (firms
that cut at least 5% 0f the workforce accompanied by a decline of at least 5% in
expenditures on plant and equipment) generated higher returns relative to other
industry competitors.
So based on our discussion we can formulate the financial performance of downsizing
as following;
A downsizing strategy is typically implemented to improve the bottom line

Evidence suggests that some companies improve profits while others do not

Investors usually respond negatively to downsizing if it is financially motivated

Companies that offer incentives for voluntary resignations are viewed more
favorably

2.7 Effective Downsizing Strategies:

Downsizing strategy is strategy to improve an organizations efficiency by reducing the
workforce, redesigning the work, or changing the systems of the organization
Some organizations are not lean and mean, and downsizing may be an appropriate
strategic response. However, cutting the number of people in an organization is not a
quick fix remedy. Prior to embarking on any workforce reduction effort, firms should
carefully consider the consequences. Considerable care and planning must go into the
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decision, and the reasons for the reduction must be effectively communicated to
employees. Organizations tend to focus on workforce reduction while ignoring the
critical aspects of redesigning the organization and the implementation of cultural
change. In addition, managers frequently have little experience or training with regard
to downsizing and restructuring.
Change in organizations is a frequent event for many people working in the public
sector today. Many theorists have argued that when organizations are downsized, here
is a negative impact on all those employed there, both those directly affected by the
change exercise and those who survive and continue in their jobs.

Some theorists have used the concept of the psychological contract to explore how
workers might perceive downsizing and change as a breach of that contract and a
betrayal of trust. Such a view may well create resistance to change from those
continuing their employment with the organization and reduced performance and
commitment.
From a strategic perspective, an important decision involves answering such questions
as these: Should we downsize? When should we do it? How should we do it? The focus
should be on rightsizing, which involves establishing a shared version of the
organization and a clearly stated strategy supported by management, understood by
employees, and involving a sense of ownership by members of the firm.
It is critical that the HR department play a very active role in the early stage of
formulating a downsizing strategy. There is evidence that negative outcomes associated
with downsizing could be mitigated by increased communication and employee
participation and systematic analysis of task and personnel requirements. In addition
the management must take an aggressive, visible, and interactive role in formulating the
downsizing strategy. However, the identification, development, and implementation
procedure should involve the employees. In, many instances, the identification of
inefficiencies and areas where improvements are possible is best left to employees, who
typically are in a better position to make such judgments.
An effective downsizing is dependent on comprehensive planning for change; proper
communication of the plan; credibility of the organization with employees, customers,
suppliers, and other stakeholders; and consideration and compassion for both
employees who are terminated those remaining with the organization.

One study compared the effect of the three downsizing strategies on two performance
outcome measures. It was found the workforce reduction strategy was negatively
related to the organizational performance while the organizational redesign and
systematic change strategies were associated with improved performance. In other
words, firms that simply focus on reducing the number of employees typically will find
the results fail to meet organizational objectives.
Before selecting the downsizing strategy, organization should ensure the following
terms as prerequisite of effective downsizing;
Increased communication
Increased employee participation

Systematic analysis of tasks and personnel requirements

Visibility of senior management
Focus on rightsizing
Establish a sense of ownership
Active role for HR department
Monitor downsizing and link to organizational strategy
Train management with downsizing techniques

Kim Cameron's 3 types of downsizing strategies:

1) Workforce Reductions - short-term strategy to cut the number of employees

through attrition, early retirement or voluntary severance packages, and layoffs
or termination.
2) Work Redesign - medium-term strategy in which organizations focus on work
processes and assess whether specific functions, products and/or services
should be eliminated.
3) Systematic Change - long-term strategy that changes the organization's culture
and attitudes, and employees' values, with the goals of reducing costs and
enhancing quality.

Of particular relevance is whether the organization follows a strategy in which

downsizing drives redesign or whether redesign drives downsizing.
Five key issues associated with more successful downsizings were as follows:

1) An expressed higher commitment to job security: A number o successful

organization met with supervisors of workforce reduction and assured them that
they were an important component of the restructured organization.

2) An ideology based on progressive decision-making and a culture that focuses on

human resources: Again, organizations with these attributes were over
whelming more likely to have higher economic performance and overall
employee satisfaction scores.

3) An entrepreneurial spirit within the organization: organizations that performed

better after a workforce reduction were more likely to underscore the
importance of both innovation in the development of new products or services
and the presences of an entrepreneurial culture.
4) Investment in training, new technology and a quality management focus: while
there is often a tendency to cut training and investment in new technology,
organizations with lower investment in these two areas tended to be less
successful in their workforce reduction strategies.

5) The manner in which the workforce reduction was carried out: while there was
little evidence that aspects of the severance arrangement provided to employees
who were let go was associated with enhanced performance, the results
indicated that more successful reductions were characterized.
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Merely cutting staff is usually insufficient to achieve organizational objectives and

therefore, organizations look to restructure. There are 3 types of restructuring:
1) Portfolio restructuring - involves changes to the business portfolio

2) Financial restructuring - financial changes such as reducing cash flow or

increasing levels of debt

3) Organizational restructuring - any major reconfiguration of internal

administrative structure that is associated with an intentional management
change program

2.8 Consequences of Downsizing:

Downsizing often causes poor morale, high levels of stress and even guilt among
employees who retained their jobs. HR should implement measures to instill confidence
the company and its employees will ultimately benefit from the changes. HR should also
maintain contact with terminated employees it would like to rehire at a later date as
employees or as consultants.
For making best downsizing practice the following terms should be consider to get a
good and profitable consequence from downsizing;
Downsizing should be initiated from the top

Workforce reduction must be selective in application and long-term in emphasis

Special attention should be paid to both those who lose their jobs and to the
survivors who remain in the organization
Decision-makers should identify where inefficiencies and costs exist

Should result in the formation of small, semi-autonomous organizations within

the broader organization
Must be a proactive strategy focused on increasing performance

Consequence of Downsizing can be categorized under the following two categories;

2.8.1 Psychological Impact

When an employee is told that he is losing his job as part of a downsizing process, he
may become despondent. He may compare himself unfavorably to colleagues who will
remain with the company and lose confidence in his skills and abilities. Alternatively, an
employee may become angry at the company for making the decision to dismiss him.
Over time, that anger can turn to bitterness. To deal with the psychological effects of
downsizing on departing employees, many companies offer counseling support.
2.8.2 Financial Impact

Employees construct a lifestyle based on receiving a regular income. This includes

taking on debts and mortgages based on their ability to make monthly payments. Losing
a job can be a financial blow for the departing employee if he cannot find alternative
10

employment quickly. Severance pay and unemployment benefits may not cover his all of
his expenses for more than a few weeks. Even if he finds a job, it may pay a lower salary
than his previous job. If this happens, his lifestyle may have to change to accommodate
his lower earnings.
Firms reputation suffers

Rethinking of employment strategy

Change in employee behavior

Violation of psychological contract: Leads to cynicism, lowered work

commitment, fewer random acts of good will.

Supervisors experience: Supervisor experiences more stress due to longer

working hours with re-designing jobs and uncertainty of for organizational
downsizing.
Early retirements: Many employees go for early retirement for getting early
retirement incentives and organization losses its institutional memory.
Best employee leaving organization

Employee motivation disrupted: Increase in political behaviors, anger, fear

which is likely to negatively impact quality of customer service.

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Conclusion
Employment downsizing is not a cost-cutting cure-all, nor does it guarantee that shortterm savings will exceed long-term costs. At the same time, cash flow is the lifeblood of
any organization, and some level of employment downsizing may be necessary to
preserve it. Business leaders, however, must always be mindful of the short- and
longterm costs of layoffs. Before making a decision to downsize, managers should
consider the variety of effective alternatives available. When downsizing is the best
solution, organizations should use the guidelines suggested throughout this report to
treat employees humanely and with dignity, and to be proactive in dealing with the
reactions and needs of survivors.

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References
Book
Author Name

Book Name

Kenneth J. McBey and Monica

Strategic Human Resources Planning
Belcourt

Report

Organization or Researcher
Name
Kim S. Cameron

Report Headings
Strategies for Successful Orgnanizational Downsizing

How to Achieve Successful Downsizing: Human Resource

Ms. Deborah Simpson and Dr.
Strategies to Prevent Organisational Disruption and
Martyn Lowe
Resistance to Change
SHRM Foundation
Management

Wayne F. Cascio

Right Employment Downsizing and its Alternatives : Strategies

for Long-Term Success

Internet or Website
Author or Website Name
MGMT4001winter2012
Slide Share.com
Wikipidia.org

Software

Software Developer
Microsoft

Strategies for responsible restructuring

URL Address

https://mgmt4001winter2012.wikispaces.com/Chapter+1
0+Downsizing+and+Restructuring

http://www.slideshare.net/cheryl_fernandes/organisationrestructuring-and-downsizing-on-an-interview-taken-by?
https://en.wikipedia.org/wiki/Downsizing

https://en.wikipedia.org/wiki/Restructuring
Software Name
Microsoft Office Excel 2007

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