Organizational Change, Downsizing, and Separations
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1 Organizational Change, Downsizing, and Separations MGTO 231 Human Resources ManagementDr. Jeroen KUILMAN
2 Moving to the Final Part of the Course... Part I: Introduction and HRM FoundationsPart II: Acquiring Human ResourcesPart III: Developing Human ResourcesPart IV: Assessing Human ResourcesPart V: Compensating Human ResourcesPart VI: Separating Human Resources
3 Who was your favorite Guest Speaker? 1. Dana Breitenstein2. Sara Duckworth3. Charles Caldwell4. 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 199085 percent of the ‘Fortune 1000’ downsized between 1987 and 2001Objectives: 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 changeChange in organizational structureChange in organizational culture
7 Benefits of ChangeCompetitive environment changes all the time so firms need to be flexibleFirms 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 ChangeRegardless of the outcome, the process of change itself can be so disruptive that it will elevate the risk of failureLoss of accountability and reliabilityLoss of identityOpportunity costs
10 Job Withdrawal Behavior changes Change the condition – lodge complaintsWhistle-blowingBring a lawsuitPhysical job withdrawal – Examples?Psychological withdrawalDecrease in job involvementDecrease in organizational commitment
11 Why People Resist Change Recall Ocean Park…An individual’s predisposition to changeSurprise and fear of the unknownClimate of mistrustFear of failureLoss of status or job security
12 Why People Resist Change (cont.) Peer pressureDisruption of cultural traditions or group relationshipsPersonality conflictsLack of tact or poor timingNonreinforcing 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 SeparationsHigher turnover rate (the (annual) rate of employee separations in an organization, create higher costsLoss of human capital, firm specific skills, and the investments in these skillsSome organizations may organize exit interview and outplacement assistance after employees’ separationsGiven that separations need costs, why are they so common?
17 Some Benefits of Employee Separation Reduces labor costsReduces “slack”The salary savings may outweigh the separation costsReplaces poor performersThe increase in productivity and performance after replacement may outweigh the separation costs
18 Some Benefits of Employee Separation Increases innovationOpening a possibility of “fresh mind” joiningCarrying new approaches to old systems or problemsIncreases diversity within a firmEmployees 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 TurnoverTurnover initiated by an employer (often with employees who would prefer to stay)
22 Voluntary separations QuitsCould be due toEmployee is not satisfied with the present jobThere are other attractive alternativesRetirementsOccur at the end of an employee’s careerEarly retirement incentives
23 Involuntary separations DischargesManagement decides that there is a poor fit between the organization and the employeeLayoffsEmployees lost their jobs because a change in the company’s environment or strategyRightsizingThe process of reorganizing a company’s employees to improve their efficiency
25 Key Issues in Implementing a Layoff Notifying employees1 week, 1 month, or 3 months of notifying, depending on the employment statusGive compensation if less than that periodDeveloping layoff criteriaSeniority (last in, first out)Employee performanceTo 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 officeComplete a firing session within 15 minutesProvide written explanations of severance benefitsProvide 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’tsDon’t leave room for confusion. Tell the individual in the first sentence he or she is terminatedDon’t allow time for debateDon’t make personal comments; keep the conversation professionalDon’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 receivesInteractional justice – a judgment that the organization carried out its actions in a way that took the employee’s feelings into account
30 Test Your KnowledgeA 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 injusticeLow outcome fairness; high procedural justiceLow interactional justice, high outcome fairnessLow 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 turnoverHiring freezeCut part-time employeesInternshipsReducing working hours
33 Changes in Job DesignTransfersRelocationJob sharingDemotions
34 Pay and Benefits Policies Salary freezeCut overtime payUse vacation and leave daysPay cutsProfit sharing or variable pay