Executive Summary
Organisational downsizing underscores the deliberate move by the senior management of an organisation to scale down its operations, often by reducing its workforce, to improve its efficiency, enhance costs, and increase productivity. This report was prepared at the request of the senior management of David Jones to provide a strong analysis of the strategy to downsize their organisation.
Therefore, this report begins by reviewing the slippery nature of downsizing coupled with the controversies surrounding the process. This report also reviews various procedures of downsizing. One of these procedures is the process of “deciding to downsize”, which involves understanding the subject well, its objectives, and the related implications. Second, this report looks at other viable options instead of downsizing.
Third, this report draws conclusions based on the reports and experiences of other organisations that have previously downsized their operations. Finally, this report concludes by giving a recommendation to the senior management of David Jones
Results from this report indicate that downsizing is primarily a business process that is concerned with business only. From the experiences of the organisations that have deliberated on this strategy, downsizing has short-term solutions to an underperforming economy but fails to actualise lasting financial expectations.
One factor attributed to this failure is the culture of management and tendency to ignore other alternatives, including those addressing the human factors. This report, thus, establishes that other factors, particularly those affecting the human element, are equally relevant when considering downsizing.
Therefore, this report recommends that before the senior management of David Jones decides to downsize the organisation, the stakeholders should seriously exhaust all other options available, and downsizing should be the last resort.
Introduction
Downsizing is increasingly becoming a popular and common strategic tool for organisations in the business world today to remain competitive and productive in the flexible and challenging market environment (Cooper, Pandey, & Quick, 2012). The occurrence of economic recession is one of the factors that may make organisations implement downsizing strategy.
Downsizing minimises the probability of an organisation experiencing financial constraints by cutting down the cost of maintaining a large human resource base (Huber & Glick, 1995). In addition to minimizing the cost of operation, effective implementation of downsizing strategy leads to an increment in an organisation’s level of productivity.
Numerous organisations in the United States and Europe undertook downsizing during the 2008 global economic recession (Cummings & Worley, 2008). Lessons from these experiences showed that organisations that downsized their employees in the right manner ostensibly reduced their spending thus recovering from the threatening economy. Despite its positive effects, there are costs associated with downsizing.
Purpose of the Report
This report analyses the organisational strategy adopted by David Jones Limited in an effort to downsize its processes. The firm’s goal in downsizing is to increase its efficiency and manage its costs. The firm’s top management team is already engaged in initial consultations to consider the strategy.
In the event that the management deliberates on downsizing, the weighty issue will be how the management will implement this strategy in an appropriate manner. Given the nature and weight of the issues involved in such a deliberation, the senior management has commissioned well-researched and informed advice on the appropriate direction and measures to take.
Therefore, this report begins by exploring some of the controversies that surround this strategy. It then defines organisational downsizing coupled with how the process relates to the circumstances under which it was coined.
Furthermore, this report looks at the procedures of downsizing and other viable options in lieu of downsizing or in the event that the strategy fails to produce the expected results. It then draws conclusions based on the reports and experiences of previous businesses that have downsized and finally gives recommendations to the senior management.
Downsizing Controversies
Despite David Jones’ objective to improve its operational and cost efficiency, the firm has to take into account its employees’ rights. Implementation of downsizing will adversely affect some employees through job loss (Baumol, 2003; Clegg, Ibarra-Colado, Bueno-Rodriquez, 1999).
In the event that the firm’s management team does not communicate to the employees about its downsizing objectives, some employees may consider suing the firm and thus the firm might incur significant financial costs.
Downsizing is a decision of a necessary creative destruction nature verses an unnecessary, disruptive, and unfortunate move by the management (Crenson& Stanton, 2004).
Most organisations that opt for downsizing tend to focus more on cost cutting rather than revenue growth, but ultimately, most of them do not actualise their financial expectations (Allcorn, 1996). Finally, there is the real issue of containing the remaining employees.
Downsizing is a traumatic event that affects both the surviving employees and those let go (Clegg, Hardy, Lawrence, Nord, 2006). The resulting situation is that they may lose morale and start working on their personal lives rather than on the organisation’s objectives. Moreover, issues of organisational trust, fair dealings, and insecurities will start cropping up in the work environment.
Continuously using downsizing as a solution has serious consequences for the organisation in terms of retaining and attracting skilled personnel (Baumol, 2003). Therefore, in light of these reasons, downsizing remains a highly controversial and slippery process.
Understanding Organisational Downsizing
What is Organisational Downsizing?
Organisational downsizing is a strategy that involves cutting down an organisation’s workforce in a bid to improve efficiency, reduce costs, and increase profitability. These three aspects mainly aim at placing the organisation at a competitive position within the dynamic market place and global economy (Freeman & Cameron, 1993).
Whereas the move to downsize involves and affects the lives of the personnel, it is typically not limited to workforce layoffs. It could also involve restructuring work processes, having fewer employees manage tasks that require a larger workforce or cutting down on the costs of the organisation (Hayes &Ninemeier, 2008). However, this report will concentrate on the aspect of layoffs.
Charles Handy, a psychology professor, coined the word “downsizing” in the 1970s. By mid-1980s, most companies were already used to downsizing their businesses in an attempt to improve efficiency (Hirschberg, 2000).
Regrettably, downsizing became the most preferred strategy, if not the only strategy, in the 1990s during one of the world’s worst economic performances. The deep recession threw nearly all managements into downsizing their organisations (Karake-Shalhoub& Karake, 1999).
Procedures of Downsizing
Deciding to Downsize
Before any organisation settles on restructuring its processes, especially through downsizing, it should first understand the whole process and its implications. David Jones’ top management team should evaluate the options and implications of downsizing before settling on restructuring the organisation by downsizing (Baumol, 2003).
The next step, once the strategy and its options are clear to the senior management, is to formulate a vision. In its downsizing strategy, David Jones intends to minimise its business and venture into new retail format that will enhance its ability to achieve its profit maximisation objective.
The decision was motivated by increased competition from other international brands such as Uniqlo, which are venturing the Australian fashion industry. Therefore, to be successful in implementing its downsizing strategy, it is paramount for David Jones Limited management team to formulate clear objectives regarding how it will attain its desired goal.
After formulating the objectives for downsizing, David Jones’ senior management should communicate the firm’s vision and objectives to lower level employees. This move will aid in minimising possible resistance from lower level employees. One of the most effective ways through which the firm’s management team can make the employees receive information regarding its downsizing objective positively is by empowering employees.
Additionally, it is imperative for the David Jones to ensure that the employees’ morale is not negatively impacted. Therefore, the employees’ trust should be maintained and one of the ways through which the firm can achieve this objective is by giving employees an opportunity to own the firm partly, for example by issuing shares.
Advantages and Disadvantages of Downsizing
When formulating its downsizing strategy, the firm’s top management team should evaluate its vision (Cummings & Worley, 2008). This aspect will aid in weighing the advantages of downsizing against the disadvantages and thus the firm will make informed decision regarding the firm’s operation.
Advantages of downsizing
The first advantage of downsizing is scaling back operations. The strategy gives the organisation a chance to restructure the business to a size that is manageable and realistic (Shein, 2011).
By downsizing, David Jones will increase its profitability by focusing on new line of business. In its effort to downsize, David Jones’ objective is to venture in the fashion and beauty line of business, which means that the firm will expand its scope of operation.
David Jones Limited will also be presented with an opportunity to leverage on its operating and merchandising capabilities. Through downsizing, David Jones will eliminate underperformers and thus maximise on talented employees. Consequently, the firm will experience an increment in the level of productivity and thus the firm will maximise its profitability by minimising the cost of operation.
In the event of another recession, the operations of David Jones will not be threatened because the firm’s administrative costs, for example employees’ salaries and wages, will be reduced. Therefore, downsizing will allow the firm to operate efficiently and cost effectively (Jones, 1998).
Downsizing provides firms with an opportunity to review their operations, which allows them to formulate plans that are in line with market trends (Deems & Deems, 2007). In its downsizing strategy, David Jones intends to dispose and lease four of its shops in Melbourne and Sydney. The proceeds received will go into developing new concepts.
Disadvantages of downsizing
As aforementioned, David Jones will experience a number of setbacks by downsizing its operations. One of the most notable drawbacks relates to the high cost that the firm will incur by the end of the process. One of these costs relates to severance cost that may lead to worsening of the firm’s financial position. Therefore, downsizing can cause a firm to experience financial constraints rather than the intended gains (Shein, 2011).
Downsizing may also affect the firm’s effectiveness in decision-making. Laying-off some employees will reduce the firm’s ability to source for diverse ideas in its decision making process. Additionally, lay-offs may lead to loss of the firm’s competitive advantage that is associated with a strong workforce (Baumol, 2003).
In its operations, David Jones Limited has managed to develop effective reputation in the market and this achievement has significantly contributed toward its market competitiveness. However, downsizing may stimulate employees to speak negatively about the firm in public, which might have adverse effects on the firm’s profitability (Gordon, Michael, Merrill, Babcock, &Dorsher, 2012).
Factors Important to Employees
When implementing downsizing strategy, the firm’s management team should take into account the employees because employees are directly affected by downsizing. Prior to implementing its downsizing strategy, David Jones should ensure that it communicates to all the employees regarding the possibilities of layoff. Communicating to the employees will prepare employees psychologically.
Engaging employees in the process of formulating downsizing strategies will make employees feel valued (Cappelli, et al., 1997). In addition, during the employee communication process, the firm’s management team should explain to the employees the reasons and objectives for downsizing (Shein, 2011).
The firm’s management team should develop the employees’ lay-off package or the severance package. The lay-off package should cater for the inconveniences caused to the employees. Additionally, it is important for the firm’s management team to ensure that there is a smooth transition.
Therefore, David Jones should consider continuing to offer basic benefits to the laid-off employees. However, care should be taken during the process of formulating the employees’ lay-off package in an attempt to prevent the firm from experiencing financial burden (Neumark, 2000).
In a bid to increase the probability of the laid-off employees being re-employed in other organisations, David Jones management team should provide reference in their job search. However, this should be done based on individual performance. This move will build trust and confidence on the part of the laid-off employees during their job search (Neumark, 2000).
Ethical Implications of Downsizing
There are four ethical issues that the senior management of David Jones Limited should consider when implementing the downsizing strategy. First, the team should consider the potential benefits of downsizing to the organisation. The process should be guided by what the company stands to gain or lose in the event of downsizing (Cascio, 2002).
By simply arguing that the company will save money is not a legitimate reason to put the livelihood of others into dismal circumstances. Ethically, the management should resort to downsizing if that is the only way they can save the company and enhance its future competitiveness (Gandolfi, 2006).
Secondly, there are ethical implications to consider involving the employees if senior management chooses to downsize the organisation.
Even if it is only temporary that workers’ lives and those of their dependants are affected, the disruption caused by downsizing is significant on the normal lives of the employee households and throws them to unexpected financial insecurities. The senior management should do what they can to ensure that the layoffs do not disrupt the normal lives of the employees and their families (Cappelli, et al., 1997).
The third ethical issue is the timing of downsizing, especially on potential victims. The senior management must notify the workers early enough of their intentions to downsize the business. This move will give the employees enough time to start looking for other options while still in their current positions. Ethically, this would be very kind of the organisation (Manfred, 2011).
The last ethical issue involves the economic considerations. The performance of every organisation contributes to the global economy. Therefore, downsizing is a process that not only affects the organisation and their workers, but also the local economies.
For instance, by reducing its staff, David Jones will have serious negative effects on the economic stability of the laid-off employees’ relatives and the society within which the firm operates because the income of the laid-off employees will be adversely affected. Therefore, the management should be aware of the local economies before they can settle on the strategy (Hirschberg, 2000).
Conclusions
This report was commissioned by the senior management of David Jones for the most senior human resource manager to provide a strong analysis of the strategy to downsize the organisation. The report reviewed the controversies surrounding downsizing, a clear understanding of the strategy, including its implications, and the alternatives of the process.
The results indicate that downsizing is primarily a business process that is concerned with business only. From the experiences of organisations that have deliberated on this strategy, downsizing has short-term solutions to an underperforming economy but fails to actualise lasting financial expectations.
One factor attributed to this failure is the culture of management and tendency to ignore other alternatives, including those addressing the human factors. This report, thus, establishes that other factors, particularly those affecting the human elements, are equally relevant when considering downsizing.
Therefore, this report recommends that before the senior management of David Jones decides to downsize the organisation, the stakeholders should seriously exhaust all other options available, and downsizing should be the last resort.
Recommendations
To survive in the dynamic business environment, it is important for firms’ management teams to consider various strategies. One of these strategies is downsizing. To implement its downsizing strategy effectively, it is paramount for David Jones management team to consider the following aspects.
The management team should conduct a cost-benefit analysis of downsizing. This analysis will aid in weighing the cost of downsizing against the benefits. If the benefits are more than the costs, then it should implement the downsizing strategy. However, if the costs are higher, the firm should consider alternative strategies of developing its competitive advantage in the market.
The firm should not consider the financial benefits associated with downsizing only. However, it is vital for the firm’s management team to take into account the human factors involved in the process.
The firm’s management team should ensure that downsizing is undertaken in such a way that the employees’ morale is not negatively affected. David Jones can attain this objective by communicating to the employees before implementation of the downsizing strategy.
The firm’s senior management should consider formulating a lay-off package for the employees in order to minimise the possibility of incurring heavy financial cost arising from lawsuits by the laid-off employees. Formulating a lay-off package will enable David Jones maintain its public reputation and hence the level of customer loyalty by ensuring that the laid-off workers do not speak ill about the company.
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