Downsizing and the Management of Change :1 Downsizing and the Management of Change MBA 642 Management of Change Thornhill et al Chapter 9 Robin Snell


Coverage of Chapter 9 (first part): pp. 247-259 (top) :2 Coverage of Chapter 9 (first part): pp. 247-259 (top) A. Introductory Points B. Case: Downsizing at British Telecom C. Downsizing and its Risks D. Potential Adverse Survivor Reactions E. Alternative Strategies for Downsizing Proactive versus reactive downsizing F. Methods for Implementing Downsizing G. The need to Respect Employees’ Dignity


Coverage of Chapter 9 (Second Part): pp. 259 (Top) - 271 :3 Coverage of Chapter 9 (Second Part): pp. 259 (Top) - 271 H. Another look at survivor reactions to downsizing Moderating variables Changed ‘psychological contracts’ I. Managing the people side of downsizing Overall guidelines Overall strategies Change management principles Distributive justice Procedural justice Interactional justice Improved communication Job redesign (& protean psychological contracts) Provide organisational support


A. Introductory Points :4 A. Introductory Points Downsizing seems, superficially, to be a simple idea but is actually very complex Downsizing may contribute to other organisational change strategies Successful downsizing requires the use of other HR strategies in order to prevent negative effects In order for downsizing to succeed, it is necessary to understand the human aspects of change


B1. Downsizing at British Telecom (1) :5 B1. Downsizing at British Telecom (1) BT was created as a state-owned monopoly in the early 1980s 51% of shares were floated in 1984, and duopoly competition introduced to UK industry. In 1991, wider competition introduced, but government price regulation has remained.


B2. Downsizing at British Telecom (2) :6 B2. Downsizing at British Telecom (2) Since then, the industry has undergone globalisation, massive technological transformation, and consolidation All this has meant not only pressures to cut operating costs, but also structural and cultural changes affecting the entire BT workforce.


B3. Downsizing at British Telecom (3) :7 B3. Downsizing at British Telecom (3) In 1989, BT’s workforce was nearly 250,000 people, working in an environment of ‘high security, certainty & predictability’. ‘Project sovereign’, introduced in 1990, aimed to introduce a more ‘customer focused’ culture through restructuring, de-layering & downsizing


B4. Downsizing at British Telecom (4) :8 B4. Downsizing at British Telecom (4) There was a reduction of 6000 managers, through a targeted but voluntary release (redundancy, layoff) scheme. Few of those who were targeted resisted the offer to leave. This, and ‘natural wastage’, achieved a reduction in headcount to 215,000 by 1991.


B5. Downsizing at British Telecom (5) :9 B5. Downsizing at British Telecom (5) In April 1992, BT introduced ‘Release 1992’, an unfocused voluntary redundancy programme Everyone was informed about the scheme, and, if interested, were given an estimate of the terms of their severance package Line managers were trained in how to promote the scheme and manage its implementation


B6. Downsizing at British Telecom (6) :10 B6. Downsizing at British Telecom (6) Terms were ‘generous’, and depended on age, service & pension contributions. Leavers were offered outplacement services, support for retraining, financial advice, temporary work, & counselling BT anticipated 20,000 leavers, but 46,000 applied. While 30,000 applications were accepted, many were refused, because BT wanted to retain expertise


B7. Downsizing at British Telecom (7) :11 B7. Downsizing at British Telecom (7) Negative reactions among those who ‘survived’: Anger if one’s application to leave was refused If excellent performers aren’t allowed onto the scheme, there’s a lack of incentive for excellent performance ‘Survivor guilt’ Loss of close colleagues and friends Having to cope with increased workloads and targets Extra uncertainty & job insecurity Higher stress Lower morale and commitment


B8. Downsizing at British Telecom (8) :12 B8. Downsizing at British Telecom (8) From 1991-95 the UK workforce fell from 215,000 to 137,000 ‘Release 93’ did not permit volunteers Redundancies were ‘staggered’ Eventually, the company learned how to handle redundancies (layoffs)


C1a. Downsizing and its Risks :13 C1a. Downsizing and its Risks What is ‘Downsizing’? From the company management's point of view Downsizing = an organisational strategy that involves reducing the size of the workforce. Redundancy (layoff) is an operational issue, one of the methods for implementing downsizing


C1b. Downsizing and its Risks :14 C1b. Downsizing and its Risks What is ‘Downsizing’? From the point of view of those affected (p. 254), downsizing is ‘a constellation of stressors related to workforce reductions which require processes of coping and adaptation’.


C2a. Purposes & Risk of Downsizing (1) :15 C2a. Purposes & Risk of Downsizing (1) PURPOSE = Improve financial performance through Cost-cutting, while also achieving long-term effectiveness, efficiency, productivity, competitiveness DILEMMA of Downsizing Short term cost cutting may lead to negative psychological reactions that HARM the long term aim of increased competitiveness.


C2b. Purposes & Risk of Downsizing (2) :16 C2b. Purposes & Risk of Downsizing (2) Downsizing may successfully induce a ’mindset shift’ and ‘culture change’ among employees (e.g. no longer believe in ‘a job for life’), but if managed ineffectively, it may self-destruct by causing industrial unrest and/or lack of commitment to organisational goals.


C3. Failures of Downsizing :17 C3. Failures of Downsizing Only between 25% and 50% of downsizing companies meet their financial targets (improved productivity, higher returns on investment, higher profits, etc.) Even these mediocre results do not consider psychological and behavioural reactions from survivors which are likely to be negative and further impair financial performance


D. Potential Adverse Survivor Reactions to Downsizing :18 D. Potential Adverse Survivor Reactions to Downsizing Anger Anxiety Guilt Stress Insecurity Dissatisfaction Low morale Low org commitment Perceived unfairness Remorse Uncertainty EMOTIONS, PSYCHOLOGICAL STATES & WORK ATTITUDES Absenteeism Turnover intention Risk aversion Resistance to change Less effort Poor performance BEHAVIOURAL REACTIONS


E1. Alternative Strategies for Downsizing :19 E1. Alternative Strategies for Downsizing 1. Workforce Reduction (reactive) - just cutting headcount. This tends to have adverse long-term effects on organisational effectiveness 2. Organisation Redesign (proactive) - cutting headcount through planned delayering, redesigning jobs, reducing work by cutting operations 3. Systemic change (proactive) - promoting employee involvement, and continuous improvement while reducing numbers


E2a. Proactive Downsizing (1) :20 E2a. Proactive Downsizing (1) Proactive downsizing tends to be more than just workforce reduction, and involves organisation redesign and/or systemic change It is integrated with the business strategy It targets areas for downsizing carefully It anticipates, and tries to forestall, the potential adverse consequences of workforce reduction


E2b. Proactive Downsizing (2) :21 E2b. Proactive Downsizing (2) Change Trigger Spotted Environmental Scanning Need for Downsizing Identified Downsizing Intended Changes Unintended Changes Proactive facilitation Poor or absent facilitation Reactive or Corrective Facilitation


F. Methods for Implementing Downsizing :22 F. Methods for Implementing Downsizing Natural Attrition Freezing recruitment Natural wastage Early retirement Voluntary redundancy Redeployment (& retraining) Induced Involuntary Compulsory redundancy with outplacement without outplacement


G. Respecting Employees’ Dignity :23 G. Respecting Employees’ Dignity It is important that employees perceive that they have some influence over the downsizing change process, and that the management achieves its aims by means of persuasion and bargaining rather than by force.


So far we have covered Chapter 9 (first part): pp. 247-259 (top) :24 So far we have covered Chapter 9 (first part): pp. 247-259 (top) A. Introductory Points B. Case: Downsizing at British Telecom C. Downsizing and its Risks D. Potential Adverse Survivor Reactions E. Alternative Strategies for Downsizing Proactive versus reactive downsizing F. Methods for Implementing Downsizing G. The need to Respect Employees’ Dignity


Activity :25 Activity Compare the Towngas Case with the BT case in the textbook. Justify your answers to the following questions: 1. Which company has had most control over the downsizing process? 2. Which company, has had the more proactive approach to downsizing? 3. Why have there been adverse reactions by employees? 4. Why, in practice, are companies often unable to prevent negative consequences of downsizing?


Coverage of Chapter 9 (Second Part): pp. 259 (Top) - 271 :26 Coverage of Chapter 9 (Second Part): pp. 259 (Top) - 271 H. Another look at survivor reactions to downsizing Moderating variables Changed ‘psychological contracts’ I. Managing the people side of downsizing Overall guidelines Overall strategies Change management principles Distributive justice Procedural justice Interactional justice Improved communication Job redesign (& protean psychological contracts) Provide organisational support


H1a. Additional Likely Adverse Effects on Survivors’ Psychological Contracts - 1 :27 H1a. Additional Likely Adverse Effects on Survivors’ Psychological Contracts - 1 The traditional psychological contract was ‘relational’ employee loyalty was rewarded by security & steady promotion progression Poorly managed downsizing and delayering, by reducing career opportunities, increasing felt insecurity, and increasing workloads, breach this old psychological contract, especially among middle managers


H1b. Additional Likely Adverse Effects on Survivors’ Psychological Contracts - 2 :28 H1b. Additional Likely Adverse Effects on Survivors’ Psychological Contracts - 2 Adverse Effects ‘Transactional’ psychological contract Instrumental approach to the work Absence of citizenship behaviour Reduced organisational commitment Increased turnover intention


H2. Influences on Survivor Reactions to Downsizing :29 H2. Influences on Survivor Reactions to Downsizing Moderating variables Extent of Application of Appropriate Change Management Principles Psychological Environmental Survivors’ reactions to... THE ORGANISATION LAID OFF INDIVIDUALS Negative Positive Unsympathetic Sympathetic Organisational


H3. Sympathy or Otherwise of Survivors with those Laid-off :30 H3. Sympathy or Otherwise of Survivors with those Laid-off Sympathetic Belief that those selected for redundancy were unfairly treated Unsympathetic Belief that those selected for redundancy did not deserve to hold onto their jobs This relates to perceived equity of the downsizing and layoff decisions


H4. Moderating Variables Affecting Survivor Reactions to Downsizing :31 H4. Moderating Variables Affecting Survivor Reactions to Downsizing ENVIRONMENTAL labour market conditions mobility of those made redundant ‘economic neediness’ of those made redundant PSYCHOLOGICAL prior self-esteem prior organisational commitment tolerance of insecurity individual coping resources expectation that ‘its me next’ perceptions of (in)equity, mgt. incompetence, lack of care ORGANISATIONAL prior work interdependence with the redundant staff shared values & attitudes with the redundant staff


I1a. Managing the People Side of Downsizing – Guidelines - 1 :32 I1a. Managing the People Side of Downsizing – Guidelines - 1 Management should… understand the perspective of those at the bottom (or ‘front line’) of the organisation be sensitive to the psychological aspects of downsizing aim to prevent, and to alleviate, the incidence and strength of negative survivor reactions


I1b. Managing the People Side of Downsizing – Guidelines - 2 :33 I1b. Managing the People Side of Downsizing – Guidelines - 2 Management should… aim to provide as much employee discretion and influence as possible during and after downsizing strive to ensure that survivors perceive all aspects of the downsizing to have been acceptable


I2. (Recap) Alternative Strategies for Downsizing :34 I2. (Recap) Alternative Strategies for Downsizing 1. Workforce Reduction - just cutting headcount. This tends to have adverse long-term effects on organisational effectiveness 2. Organisation Redesign - cutting headcount through planned delayering, redesigning jobs, reducing work by cutting operations 3. Systemic change - promoting employee involvement, and continuous improvement while reducing numbers No. 3, and to some extent no. 2, address the people side of downsizing


I3. Change Management Principles :35 I3. Change Management Principles Increased perceived equity Provide organisational support Distributive justice Procedural justice Interactional justice Principles for preventing or reducing negative survivor reactions Relevant, specific official communication Decreased felt insecurity (less panic) Job redesign & job enrichment Job & career satisfaction Stress tackled by problem focused coping


I3a1. Principle: Distributive Justice – 1 :36 I3a1. Principle: Distributive Justice – 1 This relates to survivors’ perceptions of the fairness or otherwise of the outcomes of the downsizing. The mgt may judge layoff decisions to be right, based on ‘business efficiency’ criteria, but survivors may judge the downsizing to be wrong if those who are laid off suffer economically if their view of effective performance does not match the management’s view if the management themselves are seen to be ‘immune’, safe from losing their own jobs


I3a2. Principle: Distributive Justice - 2 :37 I3a2. Principle: Distributive Justice - 2 RELATED PRINCIPLES Minimise suffering Use criteria for judging employability that are accepted as fair and reasonable Avoid ‘us and them’ divisions between mgt and workforce: mgt must bear its share of the cuts


I3b. Principle: Procedural Justice :38 I3b. Principle: Procedural Justice This relates to survivors’ perceptions of the fairness or otherwise of the procedures to make decisions about layoffs and downsizing RELATED PRINCIPLES Arrange employee ‘voice’ and involvement consultation about the process voluntary rather than compulsory layoffs. options about redeployment/relocation outplacement services let survivors develop their own work-related adjustments to the downsizing effects Provide justifications (genuine) why downsizing is necessary: education through explanation


I3c. Principle: Interactional Justice :39 I3c. Principle: Interactional Justice This relates to survivors’ perceptions of the fairness or otherwise of the way they and the leavers are treated during the implementation of the layoffs and downsizing RELATED PRINCIPLES Give advance notification of downsizing decisions, along with full explanations of these. Train line managers to treat leavers with respect and sensitivity during their notice period


I3d. Principle: Relevant, Specific Official Communication :40 I3d. Principle: Relevant, Specific Official Communication Employees should get clear information through official organisational channels official information must address people's specific concerns, otherwise employees will remain feeling powerless and insecure advance notification of who will be directly affected, will reduce insecurity for those who are not directly affected leavers need advance information about how they will be treated during their notice period. Otherwise they may fear the worst, basing their impressions and reactions on Clues from organisational actions Rumours (the ‘grapevine’)


I3e1. Principle: Job redesign :41 I3e1. Principle: Job redesign As part of an organisational redesign strategy for downsizing, the organisation should: Reduce the QUANTITY of work to be done in the downsized organisation Redesign survivors’ jobs so that they provide JOB ENRICHMENT and EMPOWERMENT. (Not in the textbook) Aim to replace the old ‘relational’ psychological contract, not with a transactional contract, but rather with a ‘protean’ * psychological contact What's a ‘Protean’ Psychological contract? See next 2 slides


I3e2a. ‘Protean’ Psychological Contracts - 1 :42 I3e2a. ‘Protean’ Psychological Contracts - 1 THE ORGANISATION… gives access to environments rich in know-how provides information and learning support fosters developmental relationships between colleagues


I3e2b. ‘Protean’ Psychological Contracts - 2 :43 I3e2b. ‘Protean’ Psychological Contracts - 2 EMPLOYEES… are expected to take opportunities to avoid obsolescence engage in lifelong individual learning, share individual know-how contribute to collective knowledge development. HALL, D. T. & MOSS. J. E. The new protean career contract: Helping organizations and employees adapt. Organizational Dynamics, 1998, 26 (3), 22-37.


I3f. Principle: Provide Organisational Support :44 I3f. Principle: Provide Organisational Support PROBLEM FOCUSED COPING Survivors attempt to tackle and control work challenges & problems EMOTION FOCUSED COPING Survivors attempt to escape from, avoid work challenges & problems THREAT Stress Appraisal by survivor Support provided Support not provided Orgaisational support = the org, displays a high level of concern and care for the people affected


We covered Chapter 9 (Second Part): pp. 259 (Top) - 271 :45 We covered Chapter 9 (Second Part): pp. 259 (Top) - 271 H. Another look at survivor reactions to downsizing Moderating variables Changed ‘psychological contracts’ I. Managing the people side of downsizing Overall guidelines Overall strategies Change management principles Distributive justice Procedural justice Interactional justice Improved communication Job redesign (& protean psychological contracts) Provide organisational support