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

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

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

Outline Downsizing Change Separations as a result of Downsizing and Change

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!

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

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

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

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

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

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

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

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.

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.

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?

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

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

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)

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

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

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

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

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

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

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

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

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

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

Changes in Job Design Transfers Relocation Job sharing Demotions

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