PA2

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5

Downsizing

Runze Du

BUS 700 Leadership and Creative Solutions Implement

Dr. Chee Piong

Jan. 17, 2021

What were the key frontline experiences listed in relation to your chosen change?

Downsizing is whereby the labor force of a company is reduced via the elimination of some unproductive employees or divisions (Susskind, Moore & Kacmar, 2018). These reductions of the labor force have become increasingly common as firms seek to enhance their effectiveness and efficiency. This has further been increased by the ongoing Covid-19 pandemic which rendered most of the employees jobless especially in 2019. Downsizing is usually achieved through various managerial actions which are inclusive of layoffs, freezes, or induced or normal attrition. The main objectives of downsizing are to improve a firm’s productivity, efficiency, competitiveness; to reduce costs and enhance communication as well as increasing innovation.

It is quite clear that downsizing is a multifaceted and complicated phenomenon with many possible causes. Even though some scholars have justified different causes, drivers, and driving forces of downsizing, none of these can truly account for and explain the emergence and spread of the phenomenon. There are classical causes of downsizing which are some forms of efforts of cutting costs to deal with different forms of crises and external factors over which the company or management has almost no control. For instance, United Airlines had a plan to reduce thousands of its employees in May 2020 in order to remain solvent during the Covid-19 pandemic. This is because, most governments including the U.S. government provided guidelines and recommendations for not traveling in order to prevent a further spread of the virus particularly internationally (Kelly, 2020, July 8). Other causes of downsizing include failure of adoption to changing technology, insufficient managerial skills and niche dynamics, and different types of crises response.

Some of the key frontline experiences related to downsizing are the generation of adverse performance results like the failure to mitigate costs, the deficiency of a considerable or large increase in ROA and the return on the common stock, reduced level of workforce commitment as well as the development of 'dirty dozen' which refers to the negative characteristics related to the organizational reduction. Moreover, the communication within the company whether formal or informal are disrupted by these activities. For instance, the remaining labor force may experience some difficulties in identifying how to get information about the ongoing operations, knowing who is in charge of projects, or developing a new chain of command. All these interfere with the decision-making process as well as the internal exchange of ideas.

Another negative experience is the retention of knowledge often lost during the downsizing process by the eliminated employees. This is inclusive of some methods of solving problems, operational processes, customer preferences, and company history. Even though firms may be able to ensure documentation or exchange of important information before the downsizing announcement, some critical skillsets and information may still be lost.

Elimination of employees during downsizing also causes stress on the remaining employees as they are given more requirements and responsibilities that can affect the amount of work they are needed to perform. Even though these employees can be motivated at first since they still have their jobs, the stress can eat into their original productivity boost.

How do they relate to those listed in Chapter 4 (Goodman & Dingli, 2nd ed.)? 

This chapter enlightens us about the evaluating the PCA performance, sexism, personal creativity audit, and the Beijing Express Problem solution. The PCA assessment can utilize dimensionality reduction to enhance machine learning which is essential in the development of new technologies that can reduce costs while enhancing efficiency. With regard to change execution especially with the ever-changing marketplace, it is essential for people to maximize their potential of thinking. There is a need for reason and intuition as well as order and adventure. Creative thinking is also important in innovating new solutions to problems while critical thinking helps to effectively analyze the impact of these new ideas or solutions. It is important for the management to think things through and properly weigh the benefits against the downsides. Each organization experiences problems and challenges that require solutions that can only be achieved via total thinking by the use of the right- and left side of the brain. This form of thinking can probably reduce downsizing, its communication in case of unavoidable circumstances, or even reduce its adverse effects (Susskind, Moore & Kacmar, 2018).

Did you identify new ones confronting change managers?

Yes, I did. The managers’ ability to initiate change could be influenced by the change process. For example, they could be going through the serious effects of these new implementations themselves. Managers cannot basically assume that the good intentions that may be behind the specifics episodes of downsizing are sufficient to ensure widespread comprehension, compliance, or support from the labor force. Also, misunderstanding, suspicion, and hostility may be unavoidable in any context of downsizing. In situations where downsizing is inevitable such as where it is meant to deliver a huge social benefit, a lot of attention should be paid to the communication processes to reduce the harmful consequences. This is a process that was clearly not followed by Uber when it decided to lay off its workers via an online Zoom call (Kelly, 2020a, May 19). I am pretty sure that no one would like to be laid off like this since privacy is very key. Airbnb for example handled the downsizing due to covid-19 in a humane manner where the employees in the United States received a base pay of 14 weeks, etc. Managers should factor in the fact that such situations are not permanent, and the same employees might be required in the future. The managers have the responsibility of treating their employees even those facing termination with kindness to maintain and enhance their image and reputation. However, there is no sure way of communication that can completely cut off the adverse effects of downsizing.

How would you prioritize these experiences? 

It would be quite complex to prioritize the experiences from different changes. On the other hand, I would go about the prioritization process based on the benefits that they have on an organization. For instance, the short-term welfare of the employees would not be a priority.

Do any standout as “deal breakers”? Why?

Yes. The negative experiences that emerge from downsizing definitely outweigh the benefits. In fact, evidence shows that there exists a gap between the expected intentions and the actual results of downsizing. Therefore, these negative effects or experiences serve as bad signs for any actionable plans and it would not be reasonable to continue with the downsizing.

What new insights into implementing this type of change emerge from this?

Some of the new insights that emerge from the implementation of downsizing are:

· The importance of employee welfare – it is essential for companies to realize that employees are crucial whether they are currently working for the organization or are potentials for elimination. They should be treated with care especially when they are fired as they carry the company’s name which can affect the public’s perception of the firm.

· The ability to properly review situations – before any layoff, the advantages and disadvantages should be weighed before implementing downsizing. Since downsizing’s results do not always match expectations, it might be advisable to avoid it all the same.

· The real impact on profit margins – evidence shows that downsizing does not have a substantial effect on the profitability on an aggregate level. The market return on assets and return on equity increase by about 1% while EBIT reduces by the same amount during the first three years after the announcement. Each company should therefore thoroughly assess what it stands to gain by reducing the workforce.

· The importance of efficiency in the processes – the implementation of this change may happen during periods of stress and a decline in revenues and thus it can help create leaner and more efficient businesses (Shoulberg, 2020, September 25). 

References

Kelly, J. (2020a, May 19). Uber Lays Off 3,500 Employees Over A Zoom Call—The Way In Which A Company Downsizes Its Staff Says A Lot About The Organization.

Kelly, J. (2020, July 8). United Airlines Got Billions from The Government, Paid Executives Millions And Now Could Downsize Almost Half Of Its U.S. Workforce. 

Shoulberg, W. (2020, September 25). Macy’s, Target, Ikea and Others Are Getting Smaller Stores; Mall Operators Are Getting Worried. Forbes.

Susskind, A. M., Moore, O. A., & Kacmar, K. M. (2018). Organizational Downsizing: How Communication Networks Connect with Employee Performance.