Posted: July 13th, 2021
Workforce reduction is a key part of management that is usually geared towards the improvement of organizational productivity, performance, efficiency, and cost-effectiveness. Workforce reduction occurs in organizations from time to time, especially with increasing economic hardships (Covin, 1993). Organizations all over the world implement the workforce reduction strategy with the expectation that economic benefits will be achieved. Many leaders and managers believe that there are only two methods by which money or profits can be made in business – increasing revenues or cutting down costs. This belief is the basis by which downsizing or workforce reduction is undertaken. Since expected costs are more predictable than expected revenues, and payroll costs are fixed costs, organizations cut down payroll costs with the aim of reducing expenses. However, this is only achievable is all ‘other things’ remain equal. In most organizations, employees are only defined in terms of how much they cost, with no consideration of the value they create. This often results in ‘other things’ not remaining equal, which means that the expected benefits of downsizing are not achieved.
The best practices for the reduction of workforce involve the management of an organization being thorough in planning to ensure that the anticipated outcomes of a workforce reduction are achieved (Covin, 1993). The process of workforce reduction needs to be well-defined in terms of both work reduction strategies and work redesign. The reasons for workforce reduction have to be stated and explained to ensure that employees understand why it is necessary. In addition, an effective strategy for the identification of which employees will leave and which employees will stay has to be used. The management also needs to develop an exit procedure that will include a send-off package for employees. The exit procedure and send-off package prepare employees for the transition and movement into the next step of their careers. Organizations undertaking workforce reduction can use four major strategies for downsizing: voluntary employee termination, which includes buy-out offers; attrition, where employees who leave are not replaced; provision of early retirement incentives; and mandatory termination.
For the selection of which employees will leave, organizations can use any decision criteria that do not discriminate employees based on any membership in a protected class. The criteria must not be capricious or arbitrary and must be based on business reasons that are legitimate. Some positive outcomes of workforce reduction include the elimination of redundancy and duplication within an organization, as well as the improvement of labor force productivity and efficiency. The cost-effectiveness of an organization is also improved as the payroll costs are reduced. The negative outcomes of workforce reduction include low employee morale, which occurs after some employees are laid off and those left are afraid of being laid off as well. This results in reduced productivity and efficiency (Wagar, 1998). Moreover, an organization incurs huge costs in the downsizing exercise, as send-off packages are often huge amounts of money. To avoid these negative outcomes, organizations should consider alternatives to a workforce reduction.
The most commonly used alternatives to workforce reduction include the expansion of an organization to eliminate redundancy and duplication by creating new roles, entering mergers and acquisitions to increase work and expand operations so as to accommodate a larger pool of employees, pay cuts with incentives, reduced working hours to cut down payroll costs, and employee redeployment to other departments (Gross, 2015).
Covin, T. J. (1993). Managing workforce reduction: A survey of employee reactions & implications for management consultants. Organization Development Journal.
Gross, R. (2015). Organizational downsizing: The past and present organizational strategy–a review. International Journal of Research in Business Management, 3(1), 23-30.
Wagar, T. H. (1998). Exploring the consequences of workforce reduction. Canadian Journal of Administrative Sciences/Revue Canadienne des Sciences de l’Administration, 15(4), 300-309.
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