1. Organizational Change, Downsizing, and Separations
MGTO 231 Human Resources Management
Dr. Jeroen KUILMAN

2. Moving to the Final Part of the Course...
Part I: Introduction and HRM Foundations
Part II: Acquiring Human Resources
Part III: Developing Human Resources
Part IV: Assessing Human Resources
Part V: Compensating Human Resources
Part VI: Separating Human Resources

3. Who was your favorite Guest Speaker?
1. Dana Breitenstein
2. Sara Duckworth
3. Charles Caldwell
4. Brian Ho

4. Outline Downsizing Change
Separations as a result of Downsizing and Change

5. Downsizing Trend towards smaller firms
In the US, the average business size went from 51 employees in 1960 to 31 employees in 1990
85 percent of the ‘Fortune 1000’ downsized between 1987 and 2001
Objectives: cost reduction, replacement of labor with technology, m&a’s, shift to more economical locations
** From research it is not clear that downsizing really improves performance!

6. Organizational Change
Downsizing and mergers as specific instances of organizational change
Change in organizational structure
Change in organizational culture

7. Benefits of Change
Competitive environment changes all the time so firms need to be flexible
Firms that don’t change will do poorly (or fail)
E.g. IBM

8. Change and Risk of Firm Bankruptcy
Risk of Bankruptcy
(Source: Barnett and Carroll, 1995)

9. The Risk of Change
Regardless of the outcome, the process of change itself can be so disruptive that it will elevate the risk of failure
Loss of accountability and reliability
Loss of identity
Opportunity costs

10. Job Withdrawal Behavior changes
Change the condition – lodge complaints
Whistle-blowing
Bring a lawsuit
Physical job withdrawal – Examples?
Psychological withdrawal
Decrease in job involvement
Decrease in organizational commitment

11. Why People Resist Change
Recall Ocean Park…
An individual’s predisposition to change
Surprise and fear of the unknown
Climate of mistrust
Fear of failure
Loss of status or job security

12. Why People Resist Change (cont.)
Peer pressure
Disruption of cultural traditions or group relationships
Personality conflicts
Lack of tact or poor timing
Nonreinforcing reward systems

13. Overcoming Resistance to Change
Education and Communication: This method is best when employees either have no information or incorrect information. Once persuaded, people will help implement the change but it can be time consuming.
Participation and Involvement: This method is best if managers initiating the change don’t have the information to design change or if people have the power to resist. People who participate will be committed to get the change rolling and they will share any information they have relevant to the change. This approach can be time consuming especially if an inappropriate change is implemented.
Facilitation and Support: This is best to use when people are having difficulty adjusting to the change so they resist it. No other approach works as well for employees with adjustment problems. It can be time consuming and expensive and the method could still fail.

14. Overcoming Resistance to Change
Negotiation and Agreement: If a group will obviously lose if the change is implemented and this group has the power to resist change, then this method is best, It is a relatively easy way to avoid resistance. It might also be expensive and if those resisting catch on to your negotiation tactics, they may try to negotiate to avoid the change all together.
Manipulation and Co-optation: This approach is best if everything else fails or is too expensive to implement. It can be a quick and inexpensive way to solve problems. It might lead to more problems if people feel manipulated.
Explicit and Implicit Coercion: If speed is of the essence than this approach is best. It works quickly and can overcome resistance. It can however be risky if people become angry at the initiators of change.

16. Cost of Separations
Higher turnover rate (the (annual) rate of employee separations in an organization, create higher costs
Loss of human capital, firm specific skills, and the investments in these skills
Some organizations may organize exit interview and outplacement assistance after employees’ separations
Given that separations need costs, why are they so common?

17. Some Benefits of Employee Separation
Reduces labor costs
Reduces “slack”
The salary savings may outweigh the separation costs
Replaces poor performers
The increase in productivity and performance after replacement may outweigh the separation costs

18. Some Benefits of Employee Separation
Increases innovation
Opening a possibility of “fresh mind” joining
Carrying new approaches to old systems or problems
Increases diversity within a firm
Employees within an organization may become more homogenous as time goes by

20. Managing Turnover Voluntary Turnover Involuntary Turnover
Turnover initiated by employees (often when the organization would prefer to keep them)
Involuntary Turnover
Turnover initiated by an employer (often with employees who would prefer to stay)

21. Juniper Networks (Asia-Pacific)
1200 employees
Annual turnover 200 employees (17 percent)
100 voluntary (regrettable)
100 involuntary (non-regrettable)

22. Voluntary separations
Quits
Could be due to
Employee is not satisfied with the present job
There are other attractive alternatives
Retirements
Occur at the end of an employee’s career
Early retirement incentives

23. Involuntary separations
Discharges
Management decides that there is a poor fit between the organization and the employee
Layoffs
Employees lost their jobs because a change in the company’s environment or strategy
Rightsizing
The process of reorganizing a company’s employees to improve their efficiency

25. Key Issues in Implementing a Layoff
Notifying employees
1 week, 1 month, or 3 months of notifying, depending on the employment status
Give compensation if less than that period
Developing layoff criteria
Seniority (last in, first out)
Employee performance
To maintain perceived justice for the layoff decisions

26. Do’s Give as much warning as possible for mass layoffs
Sit down one-on-one with the individual, in a private office
Complete a firing session within 15 minutes
Provide written explanations of severance benefits
Provide outplacement services away from company headquarters

27. Be sure the employee hears about his or her termination from a manager, not a colleague
Express appreciation for what the employee has contributed, if appropriate

28. Don’ts
Don’t leave room for confusion. Tell the individual in the first sentence he or she is terminated
Don’t allow time for debate
Don’t make personal comments; keep the conversation professional
Don’t rush the employee off-site unless security is really an issue

29. Principles of Justice Principle of justice include:
Outcome fairness – a judgment that the consequences given to employees are just.
Procedural justice – a judgment that fair methods were used to determine the consequences an employee receives
Interactional justice – a judgment that the organization carried out its actions in a way that took the employee’s feelings into account

30. Test Your Knowledge
A company whose earnings are very low has to reduce the amount given in raises to avoid laying people off. The amount of the raise for each employee is determined objectively based on their performance. An employee working for this company will most likely feel ____________ and _________________.
High outcome fairness; high interactional injustice
Low outcome fairness; high procedural justice
Low interactional justice, high outcome fairness
Low outcome fairness, low procedural justice

32. Employment polices Reduction through attrition Hiring freeze
Attrition: an employment policy designed to reduce the company’s workforce by not refilling job vacancies that are created by turnover
Hiring freeze
Cut part-time employees
Internships
Reducing working hours

33. Changes in Job Design
Transfers
Relocation
Job sharing
Demotions

34. Pay and Benefits Policies
Salary freeze
Cut overtime pay
Use vacation and leave days
Pay cuts
Profit sharing or variable pay