​​​​Diana Padgett​

The Effects of Restructuring and Layoffs

 

Abstract

 

With changing times and changing business conditions, restructuring is one of the options for a business to stay on track. Organizational restructuring involves making changes to the organizational setup. These changes have an impact on the flow of authority, responsibility and information across the organization. The reasons for restructuring vary from diversification and growth to minimizing losses and cutting down costs. Organizational restructuring may be done because of external factors like merging up with some other company, or because of internal factors such as high employee costs. We will mainly be looking at the restructuring strategy of downsizing or employee layoffs. The reasons for restructuring vary from diversification and growth to minimizing losses and cutting down costs. Organizational restructuring may be done because of external factors like merging up with some other company, or because of internal factors such as high employee costs. In a rocky economy many businesses and other organizations may have to make the difficult decision to scale down their budgets and expenses by laying-off employees. The effects of organizational downsizing are widespread. For both individuals who have lost their jobs, and for those that remain on staff, the effects of downsizing can also be devastating.

 

 

The Effects of Restructuring and Layoffs

 

Restructuring is a significant modification made to the debt, operations or structure of a company. This type of corporate action is usually made when there are significant problems in a company, which are causing some form of financial harm and putting the overall business in jeopardy. The hope is that through restructuring, a company can eliminate financial harm and improve the business. The reasons for restructuring vary from diversification and growth to minimizing losses and cutting down costs. Organizational restructuring may be done because of external factors like merging up with some other company, or because of internal factors such as high employee costs. Some of the strategies of restructuring are as follows (Thakur, 11)
 

• Downsizing
   

  • This restructuring strategy is about reducing the manpower to keep employee costs under control. This type of restructuring is tough to manage and is mostly adopted to overcome adverse situations; although layoffs or downsizing may also occur in business takeovers, acquisitions and mergers. (Thakur, 11)
     

• Starburst
   

  • This restructuring strategy involves breaking a company into smaller independent business units for increasing flexibility and productivity. Starbursting may also be used for expansion of the existing business such as when a business decides to spin off subsidiaries to handle business in different geographic areas. (Thakur, 11)
     

• Verticalization
   

  • This is the latest in restructuring trends, wherein an organization restructures itself to offer tailored products and services to cater to the requirements of a specific industry. This type of restructuring opens up avenues for specialization. (Thakur, 11)

 

• De-layering
   

  • This strategy involves breaking down the classical pyramid setup into a flat organization. The main objective of this type of restructuring is to thin out the top layer of unproductive and highly paid ‘white collar’ staff. The major advantage of de-layering is that the decision making process becomes shorter and more effective. (Thakur, 11)
     

• Business Process Reengineering
   

  • This type of restructuring is carried out for making operational improvements. It begins with identifying how things are being done currently and then it moves on to re-engineering the tasks to improve productivity. Business process re-engineering usually results in changing roles. While at times BPR may lead to layoffs, it can also create new employment opportunities. (Thakur, 11)
     

• Outsourcing
   

  • A practice used by different companies to reduce costs by transferring portions of work to outside suppliers rather than completing it internally. There are two ways outsourcing benefits a business; first, it helps in reducing costs and second, it allows the business to concentrate on its core business and leave the remaining tasks to outsourcing firms. (Thakur, 11)
     

• Virtualization
   

  • This strategy involves pushing employees outside the office to places where they are more needed like at the client’s site. It also involves upgrading to technology, which allows unmanned virtual offices to be set up. (Thakur, 11)
     

The strategy we will be focusing on is the strategy of downsizing or the process of laying off employees. In a rocky economy many businesses and other organizations may have to make the difficult decision to scale down their budgets and expenses by laying-off employees. The effects of organizational downsizing are widespread. For both individuals who have lost their jobs, and for those that remain on staff, the effects of downsizing can also be devastating. (Goessl, 2013) Some of the reasons why downsizing can be devastating are:

 

 

• Loss of Jobs (Goessl, 2013)

• Low Morale (Goessl, 2013)

• Fear (Goessl, 2013)

• Guilt (Goessl, 2013)

• Stress (Goessl, 2013)

• Decrease loyalty

• Decrease job satisfaction

• Decreased performance

 

Downsizing often causes poor morale, high levels of stress and even guilt among employees who retained their jobs. (Uhlig) Downsizing rarely achieves its intended level of cost savings. In fact, the National Human Resources Association reports that reducing employees by 7.7 percent reduces labor costs by just 1.1 percent because of compensatory measures the company must take to get the word one. For example, downsizing often leads to more overtime pay for remaining employees.  Secondary consequences that leave their marks on employees and the organization's culture can further offset cost savings. (Uhlig)
 

Downsizing or laying off employees is devastating to all involve from the ones that got let go, to the ones remaining and to the organization as a whole especially when being done as an attempt to save a struggling or failing business.  Often this attempt does not work and the company goes under anyways.  Every attempt should be made to look at and try alternative restructuring methods as mentioned previously. Some layoffs may still be necessary but when mixed with other restructuring methods there is a better chance of succeeding.  For example look at Ford Motor Company, they hired Alan Mulally as their new CEO to try and save the company, Alan Mulally employed various restructuring strategies and was very successful in pulling Ford out of the mud and back into profitability. (saving an iconic brand five ways alan mulally changed fords culture)
 

References
 

Goessl, L. (2013, October 12). How Organizational Downsizing Affects Employees. Retrieved from Inside business 360: http://www.insidebusiness360.com/index.php/how-organizational-downsizing-affects-employees-14144/
 

Reh, F. J. (n.d.). Alternatives to layoffs. Retrieved from About.com/Management: http://management.about.com/cs/people/a/LayoffAlternate_2.htm
 

saving an iconic brand five ways alan mulally changed fords culture. (n.d.). Retrieved from fastcocreate.com: http://www.fastcocreate.com/1680075/saving-an-iconic-brand-five-ways-alan-mulally-changed-ford-s-culture
 

Teacher, M. (2013, October 6). Reasons why Employees are Resistant to Organizational Changes. Retrieved from Inside Business 360: http://www.insidebusiness360.com/index.php/reasons-why-employees-are-resistant-to-organizational-changes-60/
 

Thakur, S. (11, 07 31). Business Restructuring: A Look at Some trategies. (D. Cosmato, Editor) Retrieved from Brighthub.com: http://www.brighthub.com/office/human-resources/articles/122397.aspx
 

Uhlig, D. (n.d.). How does Downsizing Impact the role of Human Resource Management. Retrieved from Small Business. Chron: http://smallbusiness.chron.com/downsizing-impact-role-human-resource-management-38669.html