Learning outcomes
By the end of this chapter you should be able to:
• explain the purpose of downsizing and analyse the problems associated with its use; • identify a range of organisational strategies to downsize and evaluate their implications; • discuss the significance of employee involvement and influence in relation to the
implementation of downsizing;
• describe the nature of survivors' reactions to downsizing and the existence of moderating variables affecting these, and evaluate their significance for organisations using this type of change strategy;
• discuss the role of organisational theories and human resource interventions to provide strategies to manage the process of downsizing more effectively;
• explore the implications of outsourcing for SHRM;
• analyse the role downsizing plays in contributing to organisational HR strategies and the interrelationships with other HR interventions such as performance management, employee involvement and commitment and training and development.
Summary
• Downsizing is an organisational strategy to reduce the size of an organisation's workforce. Its use is likely to generate a range of reactions from those who remain in an organisation, which may lead to adverse consequences.
• Three organisational strategies have been identified to achieve downsizing. These are: the workforce reduction strategy; organisation redesign strategy; and the systemic change strategy. An important distinction has also been drawn between the use of proactive and reactive approaches to downsizing. The use of a reactive, workforce reduction strategy has been found to impair, rather than improve, organisational performance. Even where this approach is not used there may still be a negative effect arising from the creation of negative survivors’ reactions and the loss of organisational competence.
• Where organisations use methods to implement downsizing that emphasise managerial control at the expense of perceived influence by employees, this will generate further negative survivors' reactions leading to adverse consequences for the organisation.
• The incidence and strength of survivors' reactions are affected by the existence of moderating variables. These highlight the scope for downsizing organisations to intervene to seek to minimise their incidence or manage their effects.
• A range of organisational theories, related to equity, organisational justice, job insecurity, job redesign and organisational stress, can be used to suggest appropriate human resource interventions to manage the process of downsizing more effectively, depending on the characteristics of the organisational context.
Teaching and learning suggestions
Comment
Downsizing was frequently in the news when we were preparing this chapter, the closure of MG Rover Cars Longbridge plant providing the case study. It is a major HR strategy used by organisations of all sizes. At a superficial level most students see downsizing as a reassuringly simple and inviting strategy to consider. Reducing an organisation's headcount is a more concrete idea to them than, say, realigning an organisation’s culture (Chapter 6) and appears to offer cost savings through fewer people being employed. However, although such a strategy may be easier for students to comprehend at this superficial level, in reality the process of downsizing is highly complex and can often generate a range of reactions that undermine the strategic objectives for downsizing. This chapter explores such reactions and their consequences for an organisation using this strategy. As a major organisational HR strategy, downsizing is also capable of promoting and contributing to other organisational strategies. Indeed, within the chapter we argue that the successful use of downsizing requires the implementation of and integration with other human resource strategies discussed in this book. Through doing this possible negative reactions to downsizing may be avoided or reduced and the greatest benefits from its use gained. The chapter therefore, focuses upon the human aspects of downsizing to maximise the positive and minimise the negative outcomes of using of this strategy.
Student preparation
Prior to the class, we believe it is essential that students read and make notes from the chapter. We have found that producing mind maps of the chapter content is a useful approach to note taking and encourages students to reflect on the internal integration of the subject content of the chapter.
We use a variety of vehicles to bridge student preparation and class-based activities to enhance their understanding of the chapter content and its overall relationship to managing human resources strategically. As standard, we would ask students to make a note of any queries arising from their reading and to come to the teaching session prepared to raise them. Sometimes this may be formalised by asking students to write down (as questions) the three issues addressed by the chapter where they would like further clarification and guidance.
Students may also be asked to do one or more of the following:
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• complete the self check and reflect questions and come to the session prepared to share and discuss their responses; and
• familiarise themselves with the chapter case study (or an alternative case supplied in advance) and come to the session prepared to tackle the case questions.
Our outline answers to both self check and reflect questions and case study questions follow in the next two substantive sections of this chapter guide. Pre-set questions that we have found useful for structuring student reading, preparatory activities and classroom discussion for the topic of downsizing include:
1. What do you understand to be the main differences between downsizing and redundancy? 2. Outline the range of strategies that an organisation may choose when downsizing and
the implications for both organisations and their employees.
3. What interventions may be used to help manage downsizing and how do these relate to equity theory, organisational justice, job insecurity, communication and the psychological contract?
In the classroom
Clearly the approach adopted to ‘student preparation’ can be followed through into the classroom. A starting point that we find useful is to surface and discuss the issues arising from students’ preparatory reading. This avoids providing lecture input that simply repeats what students have already grasped, reinforces the value of reading as an essential prerequisite for class-based discussion and provides a platform from which further class-based activities can be launched. However, when adopting this approach, we find it useful, once student queries have been exhausted, to provide a short summary of key issues.
Where preparing answers to self check and reflect questions has been set as part of preparation for the teaching session, at least two alternatives present themselves. First, students can be asked to contribute individual responses that are then subjected to plenary discussion. This is our preferred approach because it makes students more accountable for their personal learning and reserves any group work for case study analysis. Second, students can be formed into groups to share their individual answers and draw conclusions from their discussions. However, if preparing answers to self check and reflect questions was not part of preparatory work but consideration of the questions is to feature as part of the teaching session, we would favour the group approach as a more stimulating approach. In all cases student responses can be considered against our suggested answers which themselves can be usefully critiqued.
Where case study work has featured as part of preparatory activities, similar approaches to those suggested for self check and reflect questions can be adopted. If coming to the case afresh, there is unlikely to be time for groups to consider all questions. Here we would suggest that groups major on one of the case questions only moving on to others if they have time.
As already noted, downsizing is a strategy that most students will have heard about via the media. If at the time you are teaching this topic there is an organisational downsizing taking place, it may well be helpful to use this as an alternative case study. As part of this, students may wish to compare how the same events are reported by different media. Alternatively, you could obtain more recent newspaper reports to extend the case on MG Rover Cars at the end of the chapter.
Follow-up work
The pedagogic features adopted throughout this book are intended to offer up a number of alternatives for follow-up work while at the same time leaving the lecturer free to add or substitute their own ideas.
If they have not already been used as part of class activities, any prior preparation of answers to the self check and reflect questions and/or the questions suggested for student preparation and/or the chapter case ‘The demise of MG Rover Cars’? will serve as a useful reinforcement to chapter content. Our outline answers to both self check and reflect questions and case study questions follow in the next two substantive sections of this chapter guide.
There are also a number of follow-up study suggestions after the chapter summary that can be undertaken by students either individually or in groups and an extensive list of references provides many opportunities for directed further reading.
Answers to Self-Check and Reflect Questions
14.1 Using Shaw and Barrett-Power’s definition of downsizing (outlined earlier), which of the following events would you classify as downsizing methods: compulsory redundancy, early retirement, induced redeployment, job share, natural attrition, recruitment freeze, voluntary redundancy involuntary redeployment? Give reasons for your answer.
The short answer to this question is that all of them are downsizing methods as they will all result in a reduction in the size of the workforce. Each will place demands upon those remaining in employment (the survivors) requiring these employees to cope and adapt. As you continue with your reading of this chapter, you will learn more about the implications of using each of these methods for both employees and the employer.
14.2 Why might the requirement to adopt a proactive downsizing strategy in order to minimise its negative consequences be difficult to achieve in practice?
The literature on which this sub-section is based certainly points to the need for a proactive approach to downsizing as part of the means to minimise and manage negative survivors’ reactions that may adversely affect organisational objectives. However, the factors referred to in the literature (e.g. a strategic planning and environmental scanning capacity) that underpin a proactive approach may not be present in many organisations (Kozlowski et al., 1993). In addition, the existence of an integrated, HRM approach is more likely to exist in larger organisations or those that are part of a larger group of companies. Such managerial capability and competence may not be present in other organisations. These other types of organisations may have a tendency to muddle along and be more likely to adopt reactive approaches where environmental factors create pressures that cannot be ignored. This reactive approach may also be more symptomatic of organisations in decline.
14.3 Which factors related to the methods used to implement downsizing might affect managerial control and employee influence over the process?
Targeting those to be made redundant, or who will be offered some inducement to accept voluntary severance, is one way of increasing managerial control over the implementation of downsizing. Targeting relates to the ability of an organisation's management to focus workforce reductions in areas (i.e. a particular function or layer) requiring action to overcome the effects of technological obsolescence, reduced product demand or for some other reason. The alternative to a targeted approach to workforce reductions is to engage in either unfocused or across-the-
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board reductions, perhaps related to a general cost reduction strategy. Such an alternative approach has been associated with cost reduction strategies, short-termism and a low level of managerial control. This approach is likely to lead to the types of post-downsizing organisational problems discussed in the main body of the chapter.
The use of selection criteria offers a further means to exercise managerial control in relation to the downsizing process. Selection criteria may be used in relation to an ostensibly voluntary approach. While targeting (see above) may be used to identify work areas or groups for downsizing, the use of selection criteria, in relation to targeted areas, provides a check in relation to particular individuals whom the organisation wishes to retain. Selection criteria may also be used as the only filter where volunteers are sought from across the organisation. The alternative to any form of selection in relation to a voluntary approach to redundancy is made clear by Lewis (1993: 28): ‘the volunteer population may become an irresistible force and the pattern of volunteers may largely determine the distribution of actual redundancies’. The outcome of this lack of managerial control could be a mismatch between actual and required human resource profiles of the downsized organisation.
14.4 How would you react to the redundancy of colleagues in the organisation for which you work, or in an organisation for which you have worked? (Perhaps you have actually experienced this event. If you have, how did you react and why?)
Your response to this question will clearly be personal to a certain extent. However, if you are persuaded by the theory being advanced in this chapter you will have made connections to the approach of the organisation in terms of its downsizing strategy. You will have also reflected on the methods used to implement downsizing, or more precisely given the question, the method of redundancy. Where the organisation simply used a workforce reduction strategy, without much thought about those who survived, or who would survive, this event, you may be expected to experience fairly negative reactions. Where the organisation did not consider those made redundant you may be expected to experience fairly strong or strong sympathetic reactions to those so affected. This may not be the case where you feel that those selected for redundancy were appropriately selected. This may be even more the case where they are fairly treated. However, there may be a number of reasons related to your psychological characteristics; the prevailing employment circumstances and the need for your redundant colleagues to find work; as well as the closeness of your working relationships, beliefs and values etc. why you would have, or did have, sympathetic reactions towards your colleagues. You can see what a potentially complex picture can emerge from this type of event. We hope that you do not have to experience this! Where you have to manage this situation we hope that the ideas in this chapter provide at least some help!
14.5 Outline how perceptions of distributive, procedural, informational and interpersonal treatment may impact positively on downsizing survivors’ reactions.
Distributive treatment refers in this case to the outcomes of downsizing. It is therefore, related to employees’ perceptions regarding the outcomes downsizing decisions made. Where employees perceive that these outcomes are fair, such as in relation to individuals performance or in that they affect both employees and their managers equally they will perceive the downsizing more positively.
The possibility of fair outcomes also impacts upon perceptions of the procedures through which these decisions were reached. Where negative reactions are created by outcomes that are seen as unfair, these may be reduced if the procedures by which they were reached are considered fair. This is related to the amount of employee involvement in the process such as through consultation and communication as well as providing employees with options such as voluntary redundancies.
Interpersonal treatment, in particular by line managers has been shown to have considerable influence on employees’ perceptions. Where employees are treated sensitively by line managers they are likely to feel more positive about the downsizing. Sensitive treatment of those who are leaving has also been shown to impact positively on those who survive the downsizing (stayers).
Finally, the provision of clear information about both downsizing decisions and the reasons for these decisions has also been shown to impact positively on reactions to the downsizing.
Answers to Case study questions
One would hope that students will be answering these questions with the benefits of hindsight and other material, rather than just that contained in the three newspaper reports. However, from the extracts it is possible to develop answers to each of the four questions.
1. Outline the organisational downsizing strategy as adopted by Rover.
MG Rover went into administration after Shanghai Automotive Industry Corporation pulled out of collaboration talks. Approximately 3,000 employees at MG Rover were made compulsory redundant. These employees did not receive the statutory 90 day notice period because of the sped of the redundancies. A few hundred MG Rover staff were retained by the administrators to look after the Longbridge factory site.
As a result of the factory closure, a further 17,000 employees at suppliers of the factory also lost their jobs.
2. Outline the range of support offered to redundant Rover workers. Why do you believe this support was offered?
A range of support was offered to redundant workers. This was part of a £150m package pledged by the government to help the workers at MG Rover and their suppliers who had lost jobs. It included:
• redundancy payments averaging £5,000 each; • retraining courses for those who had lost their jobs;
• setting up an office on the Longbridge site and the distribution of information packs to redundant workers by JobCentre Plus, the government employment and benefits agency; • holding a jobs fair on parkland beside the site;
• setting up a register of manufacturing vacancies.
The reasons for this support were, according to the newspaper extracts: • statutory redundancy requirements;
• the large number of workers upon whom the closure impacted; • the impact upon the local economy.
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3. Why did the UK Government become involved in the downsizing at Rover?
One will never know for sure. It might be argued that as last UK owned major automotive manufacturer, MG Rover was of strategic importance. Others might feel it was due to the redundancies occurring when the Labour Government was campaigning for re-election and the marginal constituency of Redditch was close by!
4. What were the intended and unintended outcomes of the downsizing strategy adopted? Intended outcomes
• About 1,250 out of more than 5,000 workers who lost jobs when MG Rover collapsed in April had found new employment within 6 weeks of the downsizing.
• MG Rover workers signed up for training courses. Unintended outcomes
• The impact upon the local economy was less than expected due to the ‘tight labour market’ and the diversification strategy for purchasing components adopted by MG Rover’s previous owner, BMW.
• The Labour government, which was seeking re-election when MG Rover collapsed, pledged £175m and the EU put up £40m. That totalled almost £36,000 per worker.
• Workers who obtained employment were earning less in their new jobs than they did at the