Rohan VishwasraoeMBA 9140

Downsizing

Introduction

Downsizing or restructuring refers to interventions aimed at reducing the size of the organisation. This typically is accomplished by decreasing the number of employees through layoffs, attrition, redeployment, or early retirement or by reducing the number of organisational units or managerial levels through divestiture, outsourcing, reorganisation, or de-layering.

Cummins & Worley 2005 reveal, in practice, downsizing generally involves layoff when a certain number or class of organisation members is no longer employed by the organisation.

Distinction between Downsizing and De-layering

Downsizing is random reductions in employee numbers, often based on those who offer volunteer redundancy. De-layering, on the other hand is characterised as a much more systematic process involving the removal whole tiers of management in the hierarchy. Both activities remain a popular managerial action and make the operation more cost efficient and competitive. Downsizing increases work load and stress level of retained staff and de-layering empowers the staff down the hierarchy.

Techniques and strategies of downsizing

Attrition: The natural process of reduction in the workforce of the organization by the way of retirement, death or resignation.

Voluntary Retirement and Buyout benefits: It encourages employees to retire early with full or reduced pension benefits before stipulated retirement age. Buyout is a similar technique that offers employees lump sum amount to encourage employees leave the job.

Involuntary Separation / Layoffs: Terminating the employees from the job without giving proper reasons for it.

Leave without Pay: Employees are asked to go on a long leave with reduced benefits, but guarantees jobs when they return.

Important Consequence

An important consequence of downsizing has been the rise of the contingent workforce. In companies like CISCO or MOTOROLA, less expensive temporary or permanent part-time workers are often hired by the same organisations that just laid off thousands of employees.

Factors effecting organisation’s policies

According to Stone J.R. (1998) a lean and hungry organisation rather than a fat and comfortable one is the goal. Increased domestic and international competition, deregulation, mergers and acquisitions and pressures for increased profitability and performance have all played a part in forcing organisations to cut jobs. Even successful companies such as IBM, KODAK and XEROX, long renowned for their no lay off policies, are now use downsizing as a standard business practice.

Response of Downsizing

Downsizing is generally a response to at least four major conditions.

It is associated increasingly with mergers and acquisitions. One in nine jobs cuts during 2008 was the result of the integration of two organisations.

It can result from organisation decline caused by loss of revenue and market share and by technological and industrial change.

Downsizing can occur when organisations implement one of the new organisational structures, for example, outsourcing.

Downsizing can result from beliefs and social pressures that smaller is better. Organisation may downsize for their own sake and not think about future growth. They may lose key employees who are necessary for the future success. In such situations, it is questionable whether downsizing is development.

Successful interventions of downsizing

Successful downsizing interventions tend to proceed by the following steps:

Clarify the organisation’s strategy Assess downsizing options and make relevant choices Implement of the change Address the need of survivors and those who leave Follow through with growth plans

Methodology

Successful Downsizing requires managers to:

Evaluate the overall impact of Downsizing. To evaluate the total cost of downsizing, both financial and non-financial factors must be taken into account. Managers must calculate the present value of all costs and benefits associated with the cuts—including severance packages, lower employee productivity due to disorder or talent loss, eventual rehiring expenses and future rightsizing costs. The value created should exceed the effects of lower employee morale and the potential damage to the firm’s reputation.

Develop a smooth Downsizing process. It is crucial that managers aggressively invest in upfront planning of the job cuts. Firms typically form committees to determine the appropriate level of Downsizing and to create a process that takes into account the

firm’s and the shareholders’ best interests. Other important activities are training managers how to conduct layoffs and assisting ex-employees in their job searches.

Strengthen the remaining firm. Communicate to remaining employees, clients, shareholders, and the media the extent of, and the reasoning for, the Downsizing. Additionally, take steps to ensure that remaining employees feel a sense of job security and have the training necessary to take on any new responsibilities resulting from the Downsizing.

Common Uses

Companies use downsizing to:

Reduce costs; Right size resources in relation to market demand; Signal that the company is taking proactive steps to adjust to

changing business needs; Take advantage of cost synergies after a merger; Release least productive resources.

The Long Term Effects of downsizing

To counter-act the long term effects of downsizing, managers need to understand how organizations slip into "down cycles".

An organizational down cycle can be characterized as a long-term process where the organization becomes progressively more depressed, insular, protective and confused. The important thing to note is that this process occurs slowly, sometimes imperceptibly, and that if the process is allowed to continue unchecked, it gets worse. The down cycling organization loses its positive momentum and enthusiasm. A vicious circle is formed. It snowballs. Bad feelings and depression become the norm rather than occasional, until, in extreme cases, the organization becomes unable to move effectively, and the work climate can become intolerable for everyone. Because the process tends to be gradual,

managers tend to assume that the problems that occur early in the down cycling will solve themselves without attention. It is easy to assume that staff will "get over" the effects of downsizing over time. This may be the fatal mistake, because if the process is left unmanaged, there is a good chance that staff will become more demoralized.

Some Prescriptions

1. Proactive management activities are always required when downsizing occurs. Managers must realize that they "can pay now or pay later", and that delaying actions designed to revitalize the organization will result in a huge cost down the road.

Managers should consider that the period immediately after downsizing is critical. Action or inaction during this period will determine whether the organization moves into a depressed down cycle, or makes the commitment to move forward. Downsizing time should also be a time when the organization's mandate and vision are revisited. It should be a time when the manager dedicates him/herself to the long-term health of the organization by clarifying, supporting and building trust. Above all, this is the time where the manager's prime responsibility is to communicate, both with staff, and with executives. One focus of communication should be clarifying mandate, vision, priorities and commitment levels.

2. Proactive long-term approaches should also be applied by any central agencies charged with "helping" downsizing organizations. Support should be offered to those that are displaced, but, in the long term, help offered to "survivors" will be much more important in determining organizational health. As a manager, ask, or demand that these services be made available by central agencies, or procure them from private vendors, if the central agency won't do the job.

3. If you are in the unfortunate position of managing an organization that is "downcycling", you need to be aware of two things. First, it will get worse if neglected. Second, interventions to turn the cycle around must

be considered as long-term projects. One shot consulting or training isn't going to do much, and it may be damaging. Remember that your organization may have been moving downward for a year or two, and that it is going to take a substantial period of time to reverse the process. Positive change will require a consistent effort on your part, and may require consulting help over a period as long as a year.

Conclusion

Downsizing is an important tool through which organisations tend to cut expenses at a larger scale. Going through this we need to understand that there is a fine line difference between downsizing and de-layering and it is not important that downsizing could be implemented every where. Downsizing could help organisations reduce costs in the short run but results negatively in the long run because of the fact that it automatically leads to organisations paying overtime extra benefits to the staff kept and this very quickly leads to decrease in employee’s performance. Downsizing could be applied to reduce costs especially in the crisis period but it will leads to various employee and organisation problems in the future and will impact negatively to the society

Business process reengineering

INTRODUCTION

Business processes are simply a set of activities that transform a set of inputs into a set of outputs (goods or services) for another person or process using people and tools. We all do them, and at one time or another play the role of customer or supplier.

You may see business processes pictured as a set of triangles as shown below. The purpose of this model is to define the supplier and process inputs, your process, and the customer and associated outputs. Also shown is the feedback loop from customers.

Business process reengineering (BPR) is a management approach aiming at improvements by means of elevating efficiency and effectiveness of the processes that exist within and across organizations. The key to BPR is for organizations to look at their business processes from a "clean slate" perspective and determine how they can best construct these processes to improve how they conduct business.

Business process reengineering is also known as BPR, Business Process Redesign, Business Transformation, or Business Process Change Management.

BPR relies on a different school of thought than continuous process improvement. In the extreme, reengineering assumes the current process is irrelevant - it doesn't work, it's broke, forget it. Start over. Such a clean slate perspective enables the designers of business processes to disassociate themselves from today's process, and focus on a new process. In a manner of speaking, it is like projecting yourself into the future and asking yourself: what should the process look like? What do my customers want it to look like? What do other employees want it to look like? How do best-in-class companies do it? What might we be able to do with new technology?

Such an approach is pictured below. It begins with defining the scope and objectives of your reengineering project, then going through a learning process (with your customers, your employees, your competitors and non-competitors, and with new technology). Given this knowledge base, you can create a vision for the future and design new business processes. Given the definition of the "to be" state, you can then create a plan of action based on the gap between your current processes, technologies and structures, and where you want to go. It is then a matter of implementing your solution.

In summary, the extreme contrast between continuous process improvement and business process reengineering lies in where we start (with today's process, or with a clean slate), and with the magnitude and rate of resulting changes.

DEFINITIONS

Different definitions can be found. This section contains the definition provided in notable publications in the field.

Hammer and Champy (1993) define BPR as

"... The fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical contemporary measures of performance, such as cost, quality, service, and speed."

Thomas H. Davenport (1993), another well-known BPR theorist, uses the term process innovation, which he says

”encompasses the envisioning of new work strategies, the actual process design activity, and the implementation of the change in all its complex technological, human, and organizational dimensions”.

BPR derives its existence from different disciplines, and four major areas can be identified as being subjected to change in BPR - organization, technology, strategy, and people - where a process view is used as common framework for considering these dimensions

Business strategy is the primary driver of BPR initiatives and the other dimensions are governed by strategy's encompassing role. The organization dimension reflects the structural elements of the company, such as hierarchical levels, the composition of organizational units, and the distribution of work between them. Technology is concerned with the use of computer systems and other forms of communication technology in the business. In BPR, information technology is generally considered as playing a role as enabler of new forms of organizing and collaborating, rather than supporting existing business functions. The people / human resources dimension deals with aspects such as education, training, motivation and reward systems. The concept of business processes - interrelated activities aiming at creating a value added output to a customer - is the basic underlying idea of BPR. These processes are characterized by a number of attributes: Process ownership, customer focus, value-adding, and cross-functionality.

NEED FOR RE-ENGINEERING – WHEN AND WHY:

Each organisation must determine itself when it is appropriate for them to reengineer. Reengineering should be done only if it can help in achieving

an enhanced strategic position. Some strategic indicators that require reengineering include

1. Realisation that competitors will have advantage in cost, speed, flexibility, quality or service

2. New vision or strategy: a need to build operational capabilities.

3. Need to re-evaluate strategic options, enter new market or redefine products/services.

4. Core operating processes are based on outdated assumptions/technologies.

5. Strategic business objectives seem unreasonable.

6. Change in market place in the form of

Loss of market share New basis of competition/new competitors

New regulations Shorter product life cycles New technologies in play.

So, if the company is at the cutting edge of an industry that has just undergone major changes reengineering might not be appropriate.

However, if the organisation operates with old models instead of new technologies and approaches used by others, reengineering may be urgently needed. Even if technical performance is adequate, other improvements may be needed – such as training, organisational change, leadership development etc. In such circumstances also reengineering is required.

METHODOLOGY:

Although the names and steps being used differ slightly between the different methodologies, they share the same basic principles and elements.

1. Envision new processes 1. Secure management support 2. Identify reengineering opportunities 3. Identify enabling technologies 4. Align with corporate strategy

2. Initiating change 1. Set up reengineering team 2. Outline performance goals

3. Process diagnosis 1. Describe existing processes 2. Uncover pathologies in existing processes

4. Process redesign 1. Develop alternative process scenarios 2. Develop new process design 3. Design HR architecture 4. Select IT platform 5. Develop overall blue print and gather feedback

5. Reconstruction 1. Develop/install IT solution 2. Establish process changes

6. Process monitoring 1. Performance measurement, including time, quality, cost, IT

performance 2. Link to continuous improvement

CONCLUSION:

To be successful, business process reengineering projects need to be top down, taking in the complete organization, and the full end to end processes. It needs to be supported by tools that make processes easy to track and analyze. The most direct benefit that companies derive from reengineering is significant in the process improvement (50 to 100%).

Costs are lowered while speed, quality and service are dramatically improved. Unfortunately, reengineering seldom makes a significant impact on the organization’s bottom line (only 20% of the time.) Reengineering has a greater chance of success if it is viewed as leading to growth and value creation. In addition, there are costs to reengineering that must be considered before deciding for such a right strategy for an organization.