University of Chicago
Type of paper: Thesis/Dissertation Chapter
The new organizational reality: downsizing, restructuring, and revitalization
Restructuring according to Gowing, Kraft & Quick (2007) involves reposition of the strategic focus for an organization. The restructuring process entails the organization make changes on the key internal structures such as the strategies, operations, ownership and legal structures. This makes it better for the organization to meet its evolving and present needs. SMAC (2010) noted that in most instances, organizational restructuring is caused by an emergency crisis unexpected or events that forces the organization to quickly respond to prevent is very survival threat, such as failure or bankruptcy. Just like in the case study, L&T InfoTech Company restructured itself to stop leakage of its revenues by dividing the business into two clusters a service and industrial clusters. Restructuring of L&T Infotech Company enabled it to tap on the potential of individual cluster.
National Conference on Business Ethic et al (2009) stated that organizations do not need to wait for materialization of a grave threat before beginning the process of strategic restructuring. Depamphilis (2007) asserted that in fact, restructuring of an organization in the absence of any crisis can result in activities that produce strategic value of higher levels, which can mitigate substantially, if not wholly, the emergency or crisis from coming up in the first place. As much as it is true that socio-economic and political variables are definitely outside most of the ability of organizations to influence, this does not imply that there is nothing the organizations can do. Organizations that can restructure before arising of an emergency can eliminate or substantially decrease, being forced to adopt rushed restructures that might be needed to confront a danger at present, but also affect severely long term growth and value. Murthy (2007) stated that organizations that engage in internal reviews periodically and remain open to the changes and strategic restructurings will show consistently in environments that are changing, and be well placed for long term, growth.
Leaders of an organization find it necessary often to change how their organizational units operate for reasons such as changing the priorities of units, enhancing the effectiveness of the organization, initiating new programs and also to address budget reductions. According to Joyce (2000), a successful organizational reorganization requires advance and careful planning and preparation that address support services, programmatic needs required to advance the goals of the organization, and effective communication and workforce planning.
Many organizations functions in complex and procedural environments and therefore it is critical that they when reorganizing structurally to involve human resource if it may result in addition of new positions, changing significantly the work assignments, reduction or elimination of the positions existing, or even modifying the relationships of reporting for the current employees. Mishra (1991p. 57) indicated that such changes can lead to adjustment of compensation either downwards or upward, creation of new positions among other structural changes.
Organization restructuring takes place through two different ways, downsizing and re-engineering.
Downsizing according Freeman (2014p. 213) refers to interventions aimed at reducing the organization size. When downsizing, Freeman (2014p. 214) indicated that the organization need to first clarify its strategies, assess the options of downsizing and make choices that are relevant, implement changes, address the needs of those who leave and the survivors, and lastly follow through with the plans of growth. Ryan &Macky (2008p. 33) observed that there are mixed results from downsizing and this is because of the way in which different organizations conduct it. Cameron, Freeman & Mishra (1991p. 69) elaborated on the tactics of downsizing with their characteristics.
This is characterized by reduction of headcounts, fostering of transition and the short term focus. For example, lay-offs, retirements and attrition
This is characterized changes in the organization, fostering of transformation and transition, and the medium term focus. For example, merging of units, elimination of functions, redesigning tasks and product.Systemic.
This tactic is characterized by changes in culture of the organization, fostering of transformation, and long term focus. For example, changing of responsibilities, fostering continuous improvement and downsizing
Re-engineeringThis is the radical design and rethinking of processes of business in order to achieve improvements in performance dramatically. The implementation steps of re-engineering method of organizational restricting include preparation of the organization, rethinking of the way work gets done fundamentally. This involves identification and analysis of the core procedures of the business, definition of performance objectives, and designing of new processes. The last step of re-engineering is restructuring of the organization around the new processes of business.
Littler et al (2007p. 65) observed that in many of today’s organizations, the way of life is downsizing. However, studies have indicated that these initiatives of organizations, although intended to lead to positive results, do more harm to the organization and the workforce than good. The harm is to the productivity and profitability or organization and also to the process of learning of organizations.
As a result of the changes that takes place within the environment of business and their impacts on the structure of organizations, recent studies have observed many examples of organizational downsizing (Belasenet al 2006p. 96). Just like in other developed nations, in Australia, these initiatives of downsizing often takes place within large organizations that in the past had enjoyed some immunity degree from retrenchment. For instance, in a survey conducted by United States Conference Board in 1992 found out that 90% of surveyed large companies had taken downsizing actions significantly five years prior the survey. Similarly, Cameron, Freeman & Mishra (1991p. 62) pointed out that in the period between 1987 and 1991, approximately 85% of the 1000 Fortune corporations downsized the white collar employees. According to Best (2010), in 1994 alone, during the first seven months approximately 350,000 Americans were rendered jobless because of the downsizing initiatives.
The emergent downsizing characteristics which hit the firms in western nations a decade ago, has now shifted to Japan where the human resource managers of Japan firms have begun to downsize their workforce. Wagar (2007p. 307) observed that since mid-1980s, downsizing of employment has been considered as the route preferred to improve the performance of the organization. Patel &Cardon (2010p. 277) also noted that companies tended to downsize as they struggle to meet the expectations of the Wall Street. The fundamental conclusions of a study conducted by the government indicated that the failure or success of an organization that has been downsized depends on the remaining workforce after downsizing.
According to Krishnan & Park (2009p. 55), even if the economy of United States entirely is expanding, many organizations are continuously reorganizing by downsizing, and the experts believe that the trend of downsizing will not end very soon. These initiatives of downsizing are believed to represent the early stage of long term continuing socio economic evolution. SMAC (2010) argued that more than shrinking the organizations workforce simply, much of the change appears to represent a permanent shift in organizational, economic and social competition structures.
Organizational change managementAccording to National Conference on Business Ethics et al (2009), restructuring is an issue that is complex with break or makes implications for organizations. The restructuring benefits include cost reductions while creating effective processes, efficient structures and engaged staff. In a study conducted by Littler et al (2007p. 67), they found that poor execution by senior leadership is common. Their global study from 15 countries drew 28,000 responses which includes 4,539 from New Zealand and Australia. The research summary of the results from the research compared data of new Zealand/Australia against Asia and the global data.
Only 4% of the participants from New Zealand/Australia agreed that their senior leaders appropriately responded to external conditions. This is better compared to the rating of the Asia-pacific mangers that had 43% from the participants. Similarly, Participants from new Zealand/Australia rated their organizations 47% to indicate that change was effectively handled in their organizations. Asia pacific had 38% and globally it was 43%. (Littler et al 2007p.74).
Furthermore, Littler et al (2007p. 75) indicated that 45% of the new Zealand/Australia participants believed that their senior leaders effectively implemented change in their organizations. This was high compared to 37 of Asia-pacific and 42% from the rest of the world. Moreover, 54% of the participants from new Zealand/Australia considered their managers good for informing them about the organizations happenings. Asia it was 41% and 50% globally (Littler et al 2007p. 75).Relationship between employee engagement and change managementThe graph indicates that the participants who responded that change was handled effectively in their organizations were ten times more likely to get engaged compared to the people who believed that in their organizations change was not effectively handled.
Figure SEQ Figure * ARABIC 1
Relationship between productivity and change managementIn looking at the relationships between productivity and change management, the study examined the responses of the participants to two items. That is whether change is effectively handles in their organizations, and whether processes of work are efficient and well organized generally. The results indicated that 82% of the participants who agreed that change was effectively handled in their organizations also agreed that work processes was efficient and well organized (Littler et al 2007p. 71). This is an indication that where change is effectively handled in an organization, the productivity level or efficiency was also higher.
organization, the productivity level or efficiency was also higher.
Figure SEQ Figure * ARABIC 2
The study indicated that as much as it is relatively easy to reduce the organizations head count, it is much harder to avoid consequential loyalty of the customers, slide in revenue and profits. Restructure and downsizing that is successful depend on motivation and engagement of the survivors. The study also indicated that despite costs reduction through restructuring, many organizations may face significant challenges of performance in the aftermath years.
It is often difficult to recognize institutional change when a person is in amidst of it. Walton (1991p. 43) observed that committed employees are always great and productive to the organization. To get commitment of the employees to an organization, the managers and the employees with their unions must have a common interest, develop a mutual trust and agree on how to sponsor quality of work life or the involvement activities of the employees (Dessler, 2004p. 118).
Walton (1991p. 52) observed that recently increasing number of the manufacturing companies has started eliminating the plant hierarchy and increasing the span of control of the managers, integrating quality and the activities of production at the lower levels of the organizations, and opening up for workers the new career possibilities. Similarly, some other companies has started to commit themselves to informing their employees more about the businesses and to encourage everyone in the organization to participate and to be committed and have greater responsibility.
In the new commitment based approaches, to the organizations workforce, Dessler (2004p. 121) elaborated that jobs are being designed to be broader unlike before, to combine implementation and planning, and to include upgrade operations efforts. The responsibilities of the individuals are expected to change as the conditions in the organization change. Walton (1991p. 53) noted with the hierarchies in management flat relatively and the status differences minimized, lateral and control coordination depend on the goals shared and the expertise rather than the positions that can determine influence.
Equally important to the employee commitment to a company is the challenge of assuring the employees of their security, maybe by prioritizing them in retaining and training as elimination of old jobs is done and new jobs created during restructure of the organization (Dessler 2004p. 126). By guaranteeing the employees access to the change process and providing means for them to be heard on issues such as problem solving, production methods and human resource practices and policies, employee commitment is achieved.
In conclusion, restructuring of organizations strategically can be beneficial for a company. The past two decades has seen the trend of restructuring of organizations gaining force when they are faced with crisis. Reduction of workforce in the change process of downsizing has been welcomed with mixed reactions. As much as downsizing creates effectiveness, engages staff and reduces costs, poor executions are common. Lastly, employee commitment is fundamental to an organization and will enable an organization to achieve sustainability, expand its capacity and increase its financial power. Build of trust among the employees when the organization is restructuring is important for the success of the company and peace for the survivors.
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