EMPLOYEE
DOWNSIZING
Case Code- HROB016
Publication Date -2002
DOWNSIZING BLUES ALL OVER THE WORLD
THE DOWNSIZING PHENOMENONWORLDWIDE
THE FIRST PHASE
THE SECOND PHASE
Continued form previous page
TACKLING THE EVILS OF DOWNSIZING
During the early 21st century, many companies began offering flexible work
arrangements to their employees in an attempt to avoid the negative impact of
downsizing. Such an arrangement was reported to be beneficial for both
employees as well as the organization. A flexible working arrangement resulted
in increased morale and productivity; decreased absenteeism and employee
turnover, reduced stress on employees; increased ability to recruit and retain
superior quality employees improved service to clients in various time zones;
and better use of office equipment and space. This type of arrangement also
gave more time to pursue their education, hobbies, and professional
development, and handle personal responsibilities.
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The concept of contingent employment also became
highly popular and the number of organizations adopting this concept
increased substantially during the early 21st century. According to the
Bureau of Labor Statistics (BLS), US, contingent employees were those who
had no explicit or implicit contract and expected their jobs to last no
more than one year. They were hired directly by the company or through an
external agency on a contract basis for a specific work for a limited
period of time.
Companies did not have to pay unemployment taxes, retirement or health
benefits for contingent employees. Though these employees appeared on the
payroll, they were not covered by the employee handbook (which includes
the rights and duties of employers and employees and employment rules and
regulations). In many cases, the salaries paid to them were less than
these given to regular employees performing similar jobs. Thus, these
employees offered flexibility without long-term commitments and enabled
organizations to downsize them, when not required, without much difficulty
or guilt. Analysts commented that in many cases HR managers opted for
contingent employees as they offered the least resistance when downsized. |
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However, analysts also commented that while contingent employment had its
advantages, it posed many problems in the long run. In the initial years, when
contingent employment was introduced, such employees were asked to perform
non-critical jobs that had no relation to an organization's core business. But
during the early 2000s, contingent employees were employed in core areas of
organizations. This resulted in increased costs as they had to be framed for the
job. Not only was training time consuming, its costs were recurring in nature as
contingent employees stayed only for their specified contract period and were
soon replaced by a new batch of contingent employees. Productivity suffered
considerably during the period when contingent employees were being trained. The
fact that such employees were not very loyal to the organization also led to
problems.
Analysts also found that most contingent employees preferred their flexible work
arrangements and were not even lured by the carrot (carrot and stick theory of
motivation) of permanent employment offered for outstanding performance. In the
words of Paul Cash, Senior Vice President, Team America (a leasing company), "It
used to be that you worked as a temp to position yourself for a full-time job.
That carrot is not there any more for substantial numbers of temps who prefer
their temporary status. They do not understand your rules, and if they are only
going to be on board for a month, they may never understand." With such an
attitude to remain outside the ambit of company rules and regulations,
contingent employees reportedly failed to develop a sense of loyalty toward the
organization. Consequently, they failed to completely commit themselves to the
goals of the organization.
According to some analysts, the contingent employment arrangement was not
beneficial to contingent employees. Under the terms of the contract, they were
not eligible for health, retirement, or overtime benefits. Discrimination
against contingent employees at the workplace was reported in many
organizations. The increasing number of contingent employees in an organization
was found to have a negative effect on the morale of regular employees. Their
presence made the company's regular employees apprehensive about their job
security. In many cases regular employees were afraid to ask for a raise or
other benefits as they feared they might lose their jobs.
Though contingent employment seemed to have emerged as one of the solutions to
the ills of downsizing, it attracted criticism similar to those that downsizing
did. As a result, issues regarding employee welfare and the plight of employees,
who were subject to constant uncertainty and insecurity regarding their future,
remained unaddressed. Given these circumstances, the best option for companies
seemed to be to learn from those organizations that had been comparatively
successful at downsizing.
LESSONS FROM THE 'DOWNSIZING BEST PRACTICES' COMPANIES
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This case study is intended to be used as a basis for class discussion rather
than to illustrate either effective or ineffective handling of a management
situation. This case was compiled from published sources.
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