Wednesday, November 26, 2008

Creative Alternatives to downsizing

News of downsizing spreads like wild fire and organisational mercury levels rise with the apprehensions that abound. It definitely is bad news for employees. Though downsizing is a common strategy adopted by organisations to cut costs, during recession it becomes a requirement. Research proves that the primary objective of downsizing, of cutting costs, is not met often, since most companies rehire.

To keep an organisation afloat managements either have to cut costs or increase revenues. They choose the easy way and downsizing happens. But there are organisations that think otherwise. They use some creative ideas instead of downsizing to cut costs. HR should be aware of the alternatives to apply them to their company.

Silver lining

Some organisations claim to have adopted techniques that could cut costs without resorting to downsizing. At Charles Schwab the top management took a 50% pay cut as an example to the other employees.

Rhino Foods, an ice cream manufacturing company in Vermont, sought employees' suggestions on the issue. One strategy that proved successful was to lend employees to their suppliers and other companies during off seasons. This way they cut costs without downsizing their employee strength.

Cisco is another company that does not believe in downsizing. During the depression its employees are allowed to work with non -profit organisations for 20-30% of their actual salary. Called the ' warehousing strategy ', it helps retain employees even during tough times.

Similarly Lincoln Electrical, Ohio, has not laid off any employees since 1930. During a sales slump they retrained their shop floor employees who were not more than high school graduates. They were expected to identify unexploited markets so that the company could leverage it. This done now Lincoln gets $800 million as revenue from the market the employees identify.

A drizzle

Organisations must realise that the alternatives should be developed keeping in view the present and the future needs, which are changing rapidly. The success of options are based on the fact that

  • Everyone has to go through cost cutting strategies
  • HR plays an important role in easing the strategies

Respite from the heat

Hiring for the future

Organisations should hire its employees with its vision and objectives in mind. HR should design interviews and assess based on their present and future skill requirements. Recruiting people who can meet future challenges will help the organisation in the long run.

Skill mix

An assessment of the skills available in the organisation and future needs will help employees to know skills they need to acquire and those that need sharpening. This also helps HR to identify training needs and provide for them accordingly.

Succession planning

Assessing the skill mix of the organisation helps in succession planning. The organisation can prepare probable candidates for the position and then appoint them when the position falls vacant. Employees need not thus be hired and laid off during recessions.

Opportunities that enhance overall development

Organisations sometimes create opportunities that help employees to innovate and add value to the organisation. Employees create a new line of business or identify untapped markets and help the organisation to exploit the area. However, organisations rarely adopt such options. Ford has done something similar to this. When they planned to sell the name Mustang to another company their engineers wanted to launch a Ford version of the car. The leaders accepted the proposal, on the condition that the new launch meets the quality specifications of Ford. What transpired is history. A cult was created by the Ford Mustang.

Working hours and wages

Sometimes organisations resort to reducing work hours by placing all the employees in flexible work arrangement. Others allow employees to share jobs and the benefits thereof.

Wage reduction is strategy where employees face wage reduction irrespective of their position in the organisation structure. The top management has the highest reduction followed by middle managers and lower level employees.

Alternative placements

When all the other alternatives fail to give expected returns organisations can find an alternative job for the laid off employees. AT&T adopted this option with a difference. The organisation advertised the availability of employees for other organisations. It paid off. Requests from various companies poured in to recruit the employees.


Organisations can explore various other ways to resolve the problem. Some organisations do not downsize but wait for their employees to leave on their own. These positions are not filled immediately so existing employees can be placed there.

Some others offer leave with benefits or part benefits to their employees. When they return from the leave they might be given the same or a different job position. Organisations also use employee buy-outs. The employees buy a business unit that is on the verge of closure and try to revive it on their own.

Few organisations offer the company's equity in lieu of the salary cuts. Although this decision needs strong employee participation the reality is far from it. Employees are hardly involved in any kind of decision- making.

Some of the Japanese companies use all the above alternatives. If one fails they use the next one.


Organisations should first check the appropriateness of the option chosen. They should visualise future needs and the options available. Organisations should assess their vision and determine whether they have the expertise to realise their vision.

The alternatives should be analysed individually using the questions and then the right mix of skills should be determined. Some questions to be asked before adopting the alternatives:

  • The alternative's scope of achieving the vision
  • The suitability of the alternative to the company's value
  • The costs and risks in using the alternatives
  • The impact of the alternatives on the people, their morale and productivity

Top managements often forget to recognise the trauma employees undergo when they are laid off. Management must place themselves in the employees' shoes to be able to relate with their distress.

Finally, when the alternatives are being implemented HR should first research the industry and see what competitors have been doing. Involvement of employees and the top management in the implementation of the alternatives eases the process.

Reference:The ManageMentor

No comments: