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Questions and Answers
Downsizing does not aim to improve financial performance.
False
One objective of downsizing is to increase productivity.
True
Outsourcing peripheral activities is a strategy firms use to sharpen focus on core competencies.
True
Reducing layers of management can slow down decision-making processes.
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Replacing labor with technology can enhance accuracy in tasks.
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Negotiating with suppliers aims to create a negative impact on material costs.
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Downsizing can lead to an increase in overhead expenses.
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Adopting new technologies can lead to higher long-term operational costs.
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A merger results in two companies forming a completely new entity.
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In an acquisition, the acquired company always continues to operate as a separate entity.
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Companies merge primarily to increase competition in the market.
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One reason for mergers and acquisitions is to strengthen market power.
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Downsizing only includes cutting employees and does not consider other employment alternatives.
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Downsizing typically leads to a firm's reputation as a good employer improving.
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Synergies from a merger can lead to increased operational efficiency.
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Downsizing has no effect on long-term profitability and valuation of a firm.
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Employee motivation is likely to be positively impacted by downsizing.
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IBM maintained its lifelong employment policies after several layoffs in the early 1990s.
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Voluntary workforce reductions typically lead to the retention of the most marketable employees.
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Survivors of a downsizing experience less stress due to fewer work hours.
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Attrition refers to the intentional separation of an employee from the organization.
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It is more effective to use across-the-board cuts rather than targeting weak business units during downsizing.
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Involuntary separation is often a result of resignation by the employee.
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Encouraging early retirement with benefits is a common technique used in downsizing.
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Leave without pay guarantees reduced benefits for employees.
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A survivor is an employee who remains after a downsizing event.
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Work redesign is a short-term strategy focused on workforce reduction.
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Systematic change aims to improve organizational culture and reduce costs over the long term.
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Cutting non-personnel costs can include reducing overtime pay.
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HRM plays a role in assessing workforce needs during downsizing.
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Transparent communication is essential in managing the downsizing process.
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Mandatory vacation is a strategy to prevent workforce reduction.
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Study Notes
Downsizing
- A strategy that reduces the scale of a business to improve financial performance
- Implemented to reduce costs, streamline operation, and sharpen focus on core competencies
- Can be implemented through workforce reduction, work redesign, and systematic change
Downsizing Objectives
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Reduce Costs: Decreasing expenses through efficiency improvements
- Streamline operations
- Negotiating with suppliers
- New technology adoption
- Energy consumption reduction
- Outsourcing
- Minimizing overhead
-
Replace Labor with Technology: Automating tasks previously handled by human workers
- Increased efficiency
- Lower long-term costs
- Enhanced accuracy
- Scalability
-
Mergers and Acquisitions: Consolidation or transfer of ownership through financial transactions
- Merger: Two companies combine to form a new entity
- Acquisition: One company takes over another and becomes its new owner
Downsizing Alternatives
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Employment Changes:
- Hiring freeze
- Cut interns and temps
- Reduce hours
- Attrition
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Changes in Pay/Benefits:
- Pay freeze
- Reduced overtime
- Pay cuts
- Voluntary time off
- Profit sharing or variable pay
-
Job Design Policies:
- Training
- Job sharing
- Demotions
- Transfers
- Relocation
Downsizing Effects
- Mixed Performance: Some initial cost savings, but long-term profitability and valuation impact is not guaranteed
- Reputational Damage: Firm's reputation as a good employer can suffer
- Employment Strategy Re-evaluation: Lifelong employment becomes less credible after a downsizing
- Morale Disruption: Negative impact on employee motivation, quality of customer service and increase in political behaviors
- Psychological Contract Violation: Cynicism, lowered work commitment, and fewer acts of goodwill
- Survivor Stress: Longer work hours, redesigned jobs, and increased future downsizing uncertainty
Downsizing Workforce Quality
- Loss of Senior Employees: Early retirement incentives lead to loss of institutional memory
- Loss of Marketable Employees: Voluntary workforce reductions leave the most valuable employees ("stars")
Downsizing Strategies
- Attrition: Natural reduction of workforce through retirement, death or resignation
- Voluntary Retirement: Encouraging early retirement with full or reduced benefits
- Buyout Benefits: Offering a lump-sum payment to encourage employees to leave voluntarily
- Involuntary Separation: Separation of an employee due to factors other than resignation
- Leave Without Pay: Granting leave with reduced benefits, but assuring job security upon return
Three Types of Downsizing Strategies
- Workforce Reduction: Short-term strategy focused on reducing employee numbers through attrition, early retirement, voluntary severance packages, and layoffs
- Work Redesign: Medium-term strategy aimed at reviewing and changing work processes, functions, products, and services
- Systematic Change: Long-term strategy changing organizational culture, employee values, and attitudes to reduce costs and enhance quality
HRM Role in Downsizing
- Strategic Planning and Execution: Assessing workforce needs, developing a downsizing plan, and aligning downsizing with organization strategy
- Communication Management: Ensuring transparent communication about reasons, process, and decision-making; conducting termination meetings with respect and empathy.
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Description
Explore the concept of downsizing as a business strategy aimed at enhancing financial performance. This quiz covers the objectives, methods, and implications of reducing the scale of business operations, including cost reduction and technology integration. Test your knowledge on how downsizing can shape corporate structure and function.
