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MANAGING A

DOWNSIZING PROCESS
Reference: Cascio, W. F., & Wynn, P. (2004). Managing a downsizing process.
Human Resource Management, 43(4), 425-436.

PABLO EXPÓSITO CAMPOS


GAPS BETWEEN RESEARCH ON THE
EFFECTS OF DOWNSIZING AND PRACTICE

qIndiscriminate downsizing boosts profits


• Two ways of making money in business Cut costs OR Increase revenues
• Future costs are more predictable than future revenues
• Cutting payroll Reduced expenses Higher profits
• Cascio & Young (2003)
• Changes in employment for 500 companies over 18 years (1982-2000)
• 7 categories ¿Financial performance?

Change in employment x Change in plant and equipment (assets)


Employment Downsizers Employment Upsizers
Assets Downsizers Asset Upsizers
Combination Downsizers Combination Upsizers
Stable Employers
GAPS BETWEEN RESEARCH ON THE
EFFECTS OF DOWNSIZING AND PRACTICE

qIf downsizing becomes necessary, don’t bother getting employee input

Adequate time to participate


Uncertainty, powerlessness,
Fail to involve perceived lack of control Relevant issues
employees in any conditions
decision Negative personal & organizational Ability to participate
consequences
Organization’s culture supports involvement

qThe psychological contract is broken


• Unwritten rules between employer and employee à expectations about relationship
• Diminished loyalty
• Stress
• Reduced satisfaction & commitment
• Decrease in intentions to stay
• Distorted perceptions of trustworthiness, honesty and care
GAPS BETWEEN RESEARCH ON THE
EFFECTS OF DOWNSIZING AND PRACTICE

qIt doesn’t matter if an organization treats its employees fairly


• Perceptions of procedural justice have important attitudinal/behavioural
consequences

Perceptions of Theft, sabotage,


unfair treatment violence

Reduced stress,
Perceptions of increased Organizational
procedural fair performance, Citizenship
treatment commitment, job Behaviours (OCBs)
satisfaction, trust
BRIDGING THE GAP BETWEEN THEORY
AND PRACTICE

AGILENT TECHNOLOGIES, INC. – Palo Alto, California


• Maker of test and measure equipment
• To face financial losses…
• Hiring freeze
• Letting go of temporary workers
• Cuts in travel expenses and equipment purchase
• 10% across-the-board pay cut
• Eventually…
• Layoff of 8,000 full-time employees à NO across-the-board job cuts
• 10% pay cuts on 1,800 senior managers
BRIDGING THE GAP BETWEEN THEORY
AND PRACTICE

• How did they manage?


• Information provided by division direct manager
• Each employee’s performance was thoroughly reviewed
• Continuous interaction between employees and the CEO
• Honesty and integrity

High Share-the-pain
morale philosophy
BRIDGING THE GAP BETWEEN THEORY
AND PRACTICE

XILINX CORPORATION – San Jose, California


• Supplier of programmable logic solutions
• The year before the downturn…
• Hiring of 1,000 new employees
• 50% growth rate
• Six months later, in 2001…
• Revenues plummeted 50%

Avoid short-term actions


TEAM
MEETINGS Maintain productivity and
reduce expenses
BRIDGING THE GAP BETWEEN THEORY
AND PRACTICE

• How did they manage?


PHASE I: FIRST RESPONSE
• Pay cuts + two weeks shutdown = no layoffs
20% for the CEO
0% for the lowest-level employees

• Ongoing financial worsening


• Focus groups with employees
• Further pay cuts (7,5%)

Employees developed
Importance of
suggestions regarding the
CHOICE
pay cut
BRIDGING THE GAP BETWEEN THEORY
AND PRACTICE

• 9/11 Fear and confusion


• Senior managers and investors start questioning the company’s strategies
• Further expenses reduction needed
• Frustration among employees

PHASE II: REASSESSMENT AND FURTHER ACTIONS

• Mid-term performance reviews


Full executive
• Stock options to 85% employee population
staff meeting
• Message of performance improvement to
new employees
BRIDGING THE GAP BETWEEN THEORY
AND PRACTICE

• Implementation of 2 programs:
1. Voluntary resignation & voluntary retirement
2. Sabbatical Leave
• First quarter of 2002…
• Significant improvement
• In 2003, Xilinx had overtaken all his three major competitors
• Pluses of this downturn:
1. Large financial knowledge
2. Better management of performance
3. Employee loyalty
AVOIDING COMMON MISTAKES

ØIndiscriminate downsizing boosts profits


ØEmployee input is not necessary
ØBroken psychological contract
ØFair treatment is not important
ENHANCEMENT OF THE EFFECTIVENESS
OF EMPLOYMENT DOWNSIZING EFFORT

1. Consider the rationale behind employment downsizing

2. Consider the virtues of stability

3. Executives should make their concerns known to employees and seek their input

4. Top management should lead by example, and use downsizing as a last resort

5. If employment downsizing is unavoidable, act fairly and make decisions in a consistent


manner
6. Communicate regularly and in a variety of ways

7. Give old employees a reason to stay – give new hires a reason to join

8. Train employees and managers in new ways of operating

9. Examine management systems when the firm’s strategy or environment change

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