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While the pain of downsizing-related layoffs can't be avoided entirely, it tin be mitigated. Anticipating the duration and depth of an manufacture downturn, for example, can definitely assist a manager prepare and deploy Hour practices that volition, in turn, help both employees and firms suit to difficult times. This writer discusses some responses that have been known to exist constructive.

Downsizing has been a pervasive managerial exercise for the by three decades. Over the years, a house's standard response to finding itself in financial difficulty was to reduce its workforce. While there is ample evidence suggesting that downsizing activities rarely return the widely anticipated benefits, at that place is also a sobering understanding that downsized firms are forced to deal with the human being, social, and societal aftereffects of downsizing, also known as secondary consequences. Research shows clearly that the human consequences of layoffs are costly and especially devastating for individuals, their families, and entire communities. While workforce reductions cannot always be avoided, there are compelling reasons why downsizing-related layoffs must however be seen as a managerial tool of absolute last resort.

During an economic downturn a firm must carefully consider its options and assess the feasibility and applicability of cost-reduction alternatives before deciding on layoffs. While a considerable number of inquiry manufactures that discuss alternatives to downsizing have been published, there is no conceptual agreement of downsizing-related layoffs as they chronicle to the bodily cost-reduction stages of a firm. Indeed, it is disquisitional for an organization to factor in the concept of cost-reduction and to recognize the specific cost-reduction stage that characterizes the firm's electric current business position and environment. Thus, a business firm needs to determine the expected elapsing of the concern downturn. In order to practise and so successfully, the executive managing director must know exactly where the firm is in its cost-cutting phase. A firm'due south cost-reduction stage, by definition, refers to the timeframe the company requires to exist able to reduce operational expenditures successfully.

The purpose of this article is to nowadays a methodology that enables firms to minimize, defer, or fifty-fifty avoid the adoption of downsizing-related layoffs. In order to do this, the research presents and discusses the framework of cost-reduction stages of a firm coupled with artistic modern-day human resource (HR) practices that firms typically adopt. This newspaper builds upon Vernon's (2003) and George's (2004) work of the three price-reduction stages: brusque-range, mid-range, and long-range phases. The underlying framework of the toll-reduction stages is depicted in Effigy 1.

Effigy one: Framework of cost-reduction stages

Source: adjusted from Vernon (2003) and George (2004)

Price-reduction stages

The framework depicted in Figure ane comprises 3 timeframe-related phases. Each commands several internal cost adjustments that have produced a diversity of stage-related HR practices:

Stage one: Brusk-range cost adjustments

According to Vernon (2003), the first phase of the cost-reduction framework represents brusque-range toll adjustments in response to a short, temporary decline in business organization activities. Most likely, the firm resorts to small, moderate cost-reduction measures in this early stage. These preliminary adjustments should enable the house to shun downsizing-related layoffs and involuntary cutbacks, and return to normal business activity inside a timeframe of iv to 6 months. A firm experiences this stage because of an unexpected drop in sales and a reject in sales forecast. It is characterized past short-term expenditure adjustments in order to prevent a medium-range downturn or a more lasting, long-range decline. The immediate recognition of a temporary business skid and the resolute engagement in preliminary cost-reduction methods should allow the firm to focus its operations in a cost-sensitive manner for a quick recovery.

The likelihood of success for brusque-range cost adjustments hinges on a number of factors. First, senior management must exist able to effectively clear why the cost-adjustment measures are necessary and the brusque time frame of the strategy. Executives' ability to convey the bulletin that the implementation of preliminary cost-reduction measures at the present time will prevent hereafter layoffs is disquisitional. Second, the HR Director'southward role is to communicate the decision(due south) made by the executive board to the entire workforce promptly and to implement the cost-reduction methods finer. Third, employees' flexibility in allowing the business firm to modify cost structures increases the chance of success for the planned cost alterations. In sum, a firm's capacity to overcome a business organisation downturn in the first stage will depend on the organization'south ability to respond to the new surround by immediately modifying expenditures.

Hr practices for short-range toll adjustments

There are several HR practices that firms can prefer in an attempt to engage in preliminary cost reductions. Some of the more pop approaches that accept emerged are:

1. Hiring freeze
   A hiring freeze constitutes a mild form of downsizing and reduces labor costs in the brusk term. Some firms continue to hire new employees while cutting jobs at the same fourth dimension. While this exercise may make sense in terms of supplying the firm with central personnel, it likewise tends to send a confusing bulletin to the rest of the workforce. In its latest try to fight rising jet fuel costs and a weakening U.S. economic system, American Airlines imposed an immediate hiring freeze on management and back up staff (Maxon, 2008).
2. Mandatory vacation
   Implementing mandatory vacation involves requiring employees to use their accrued vacation days or mandating that individuals take a number of unpaid vacation days during a certain time period. While employees might not desire to be told when and how to utilise their entitlements, they will nonetheless appreciate the reaffirmed job security. Chrysler LLC currently plans a corporate-wide shutdown of its U.S. operations during the weeks of July 7 and July xiv, 2008, with the intention of improving the automaker's efficiency and boosting productivity (Govreau, 2008).
3. Reduced workweek
   Firms sometimes resort to a reduced workweek. This may translate into the reduction from xl to 35 or fewer hours and thereby reduce the brusque-term payroll expenditures. While most employees capeesh the thought of being able to spend more fourth dimension with their families, they may not always welcome a reduced paycheck. Also, employees may find that the aforementioned amount of work still needs to be performed while they spend less time on the job. Nucor Steel Corporation in South Carolina has avoided layoffs for 35 years by reducing to two- and three-workday weeks for its employees during downturns (George, 2004). Recently, workers at a St. Thomas automotive parts plant in the United kingdom have voted to reduce their piece of work week rather than see 200 employees leave permanently (De Bono, 2008).
4. Cut in overtime pay
   Reducing or abolishing overtime pay for employees can exist a potent technique for reducing operational costs in the brusque term. Firms may decide on an across-the-board (i.e., all employees) abolition or it may confine the cut to selected categories only (e.chiliad., non-management, blue-collar employees, or salaried employees, etc.). In 2004, automotive firms, such equally Visteon Corporation, General Motors, and Ford, slashed overtime pay for most employees indefinitely (Dybis & Garsten, 2004).
5. Bacon reduction
   Salary reduction has been a standard practice for firms experiencing unexpected financial pressure. Whereas salary reduction may mitigate fiscal concerns in the short-run, extended salary reductions can affect employee morale and loyalty. As well, while companywide salary reductions may foreclose layoffs, there is a clear risk that top performers will exist encouraged to get out for competitors that offer superior compensation. In 2006, White Electronics Designs implemented salary reductions of 5 percent for salaried employees and 10 percent for management. Hourly workers remained untouched. In 2006, a collation of Intel managers agreed to take a temporary 100 per centum pay-cut to avoid layoffs. Prior to that, Intel announced that it had planned to cut 10,000 employees, including ane,000 managers (Paul, 2006).
6. Temporary facility shutdown
   Temporary facility shutdowns occur when a work site closes for a designated period of fourth dimension, while some administrative functions are still performed. A shutdown allows employees to have time off without using their vacation days. While the overall company production decreases, the business firm can achieve considerable cost savings while avoiding layoffs. In 2008, Aleris International shut downwards its rolling mill production in Virginia in social club to align production with demand. The production for customers was phased out and transferred to other facilities within the U.s.. (Aleris, 2008).
7. Soliciting cost-reduction ideas from employees
   Employees appreciate the opportunity to make a positive affect on their workplace and environment. Firms frequently solicit cost-reduction ideas from employees who are often creative in producing cost-reduction solutions. This Hr exercise has shown to be most effective when employees are able to make suggestions in the early stages of cost cut (Vernon, 2003). At Martin Heyman Associates in the U.S., all professional structure consultants are encouraged to contribute cost-reduction ideas. Unfortunately, many executives withal practice not realize that employees are the best source of cost-reduction ideas, in that workers on the job are in a prime position to identify and recognize waste (Yorke, 2005).

Clearly, there are many HR practices and options that firms can adopt to reduce short-term expenditures. While some firms have come upward with fairly artistic ideas, others accept resorted to corporate layoffs equally a kickoff resort.

Stage two: Medium-range price adjustments

According to Vernon (2003), the 2nd stage of the cost-reduction framework constitutes medium-term toll adjustments in response to a concern downturn exceeding half dozen months. These secondary cost-reduction adjustments are frequently signaled through extended company-wide or industry-broad forecasts of diminished sales activity. If properly recognized and executed, the firm may be able to transition to mid-range price adjustments and thus prevent long-term layoffs and forced downsizing activities. Constituencies need to recognize that deeper cost-reduction strategies may be required in lodge to avert downsizing-related layoffs. Executive management and the HR Director must be able to articulate the underlying purpose and objectives of the expenditure adjustments to the entire workforce. This should ensure purchase-in and commitment on the part of employees. The awarding of HR practices in this phase could potentially alter employees' work surroundings. Thus, the HR section will play a disquisitional role in the conduct and transition of these practices.

HR practices for medium-range cost adjustments

Firms typically adopt several HR practices in an endeavor to appoint in secondary cost reductions:

1. Extended salary reductions
   Extending salary reductions tin be a method of choice if an economic downturn exceeds 6 months. While extended salary reductions can negatively affect employee commitment and morale, advocates stress that employees would prefer a smaller income temporarily rather than seeing their jobs disappear permanently. As with short-term salary reductions, there is a take a chance that loftier-performing individuals will be encouraged to pursue external employment opportunities. Firms have generally been artistic about altering variable pay options. For instance, while some firms remainder the reduced salaries by distributing once-a-year payments over 12 months, others substitute stock awards for variable cash payments. The U.Due south. firm 415 Production offered an overall 5 pct pay cut or a four-day piece of work calendar week reflecting the appropriate decrease in pay to its employees (Morss, 2008).
2. Voluntary sabbaticals
   Voluntary sabbaticals, too called furloughs, permit salaried employees to accept voluntary leaves for a designated period of time. Companies may offer sabbaticals with considerably reduced pay or no pay at all. Most firms go on to provide benefits during sabbaticals. Sabbaticals enable firms to reduce their medium-term expenditure and act as a strong method for fugitive downsizing-related layoffs. While employees may feel motivated and re-energized upon their return, HR experts point out that medium-range and long-term sabbaticals may cause employees to lose their leading-border and return with outdated skills. Interestingly, there is evidence suggesting that firms offer generous sabbaticals during times of economic growth while companies refrain from this HR practice during tough financial periods (Vernon, 2003). In 2001, the consulting firm Accenture announced that 800 employees qualified for a special voluntary sabbatical programme, while 600 employees were going to be laid off permanently (Taub, 2001). In 2001, one of Siemens' divisions, Information and Communication Mobile, offered its High german employees a ane-twelvemonth 'time-out' at reduced pay without permanently eliminating the jobs (Perera, 2001). Siemens was thus able to reduce costs without losing high-performing employees during difficult economic times.
3. Employee lending
   Employee lending is a modern-twenty-four hours Hr practice whereby the current employer, the lending firm, lends an employee to some other employer firm for a set period of time while continuing to pay bacon and providing benefits. The borrowing house, which can exist a competitor, in return, reimburses the lending company for part or all of the salary. While employee lending can dramatically decrease medium-range expenditure of the lending firm, some employees may not wish to work for a third-party. There is likewise the risk that the borrowing house may decide to rent the employee permanently one time the contracted period is lapsed. Equally a consequence, the lending firm would thus loose a critical cognition base. Texas Instruments engaged in lending Hour staffers to vendors for up to 8 months with the intention of bringing them dorsum to their original jobs at the end of that menstruum. The supplier reimbursed Texas Instruments for their staffers' salaries during the loan menses and agreed not to offer them permanent jobs (Morss, 2008).
4. Exit incentives
   This pick entails offering employees incentives to leave the business firm in the grade of optional severance or early retirement. This strategy enables firms to better target jobs and units in that it recognizes employees for their service and helps retain the remaining employees. At the same time, exit incentives can be costly and can create an entitlement mentality for the remaining workforce in the time to come (George, 2004). In 2007, technology-outsourcing firm E.D.S. (Electronic Information Systems) offered extra retirement benefits to 12,000 employees in the U.S. if they were to cover early retirement (EDS, 2007).

In sum, corporate executives and HR directors need to detect innovative means to reduce medium-term expenditures. Unfortunately, like to the beginning stage, too many firms resort to layoffs by default.

Stage iii: Long-range price adjustments

Co-ordinate to Vernon (2003), the tertiary phase of the toll-reduction framework represents long-term adjustments which are necessary if a business firm experiences a prolonged business downturn exceeding 12 months and beyond. This stage may be recognized through an extended refuse of electric current and projected customer demand and/or extremely volatile economic conditions. This third stage generally requires extended long-range expenditure adjustments on the part of the firm. Information technology is in this phase that downsizing-related layoffs are ofttimes inevitable. While permanent layoffs should e'er be seen as a final resort, firms must try to avoid across-the-board, mass layoffs at all costs (Gandolfi, 2006). Companies who find themselves forced to engage in all-encompassing layoffs must adopt practices that instill loyalty and commitment in the remaining and exiting workforces (Vernon, 2003).

HR practices for long-range cost adjustments

Firms that are forced to embrace downsizing accept shown to adopt various layoff-related strategies and with various degree of success. Information technology is beyond the purpose of this paper to review and present the literature on the bodily outcomes of downsizing. Essentially, the principal goal in this third phase is to set the scene for the firm to be able to re-attract and re-gain layoff victims in a post-downsizing phase. This, of form, is based on the presumption that the economy will bounce dorsum sufficiently and that the business firm will be willing and able to rent once more.

1. Rehiring bonuses
   It is not uncommon for firms to rehire laid-off employees. While some firms provide a budgetary rehiring bonus for veterans to return to the company within a specified menses of time, other companies hire previously laid off employees as external consultants. In some cases, firms realize that they cut too many and/or the wrong employees, while in other cases management decides to hire dorsum after the economic downturn. Enquiry shows that employees and consultants frequently return to the downsized firm with improved monetary rewards (Gandolfi, 2006). Dorsum in 2001 and subsequently ii rounds of layoffs, Charles Schwab Corp. offered a $7,500 bonus for any previously downsized employee who was rehired by the firm inside 18 months following the layoffs (Morss, 2008).
2. Maintaining advice with laid-off employees
   Firms should make an effort to maintain friendly relations with laid-off victims. Mod-twenty-four hours technology, including internet forums, 24-7 hotlines, eastward-mails, and mailings, provide and facilitate highly-constructive ways to foster and sustain positive employer-employee relationships (Lublin, 2007). This is particularly important if firms intend to rehire the former employees when the economic climate has improved.
3. Internal chore fairs
   Firms should make every possible effort to retain high-performing employees. A powerful method is an internal job off-white, where firms host events in order to aid place and redeploy downsized employees within the company. The Ford Motor Company is currently running internal job fairs in its plants to entice employees to find new careers beyond the assembly-line (Vlasic, 2008).

Selecting a downsizing strategy

Determining an appropriate workforce management strategy remains a vital task for firms. In order to select a downsizing strategy effectively, aligning a firm's cost-cut methods with the cost-reduction phase as outlined in Figure ane may show to be a powerful method. While there are many Hr tools at an executive'due south disposal, each practice works most finer when implemented during its established time frame, or toll-reduction stage. At the same time, the assumptions underlying the framework (Figure 1) are somewhat simplistic and probably do non capture the complexity of corporate decision-making. According to Vernon (2003), at least six factors affecting the selection of a downsizing strategy need to exist considered:

• time, or the expected duration of an economic downturn)
• resources, such as cash resource at manus
• upkeep, namely the financial condition of the firm)
• corporate culture, for example, the institutional values and anticipated effects of cost cutting
• demographics, the location of the firm/demographics of employees the firm would similar to retain or rehire
• labour market place, specifically the state and condition of the labour market place

These factors should be considered when selecting a item downsizing approach. For example, if the expected duration of an economic downturn is prolonged (i.e., cistron fourth dimension) and, thus, the firm opts to appoint in all-embracing layoffs, then there will be the inevitable impact upon the firm's corporate culture, as mass layoffs accept shown to produce negative consequences. Similarly, an established 'no layoffs' policy (i.e., corporate civilization) may prompt the firm to retain all its salaried employees if it has the chapters to remain liquid during an economic downturn (i.e., factors budget and resource).

This newspaper has demonstrated that the ability to correctly forecast the cost-reduction phase assists a firm in determining advisable employment strategies. This paper presented a methodology of cost-reduction stages enabling firms to minimize, defer, and avoid downsizing-related layoffs. It appears equally if the central lies in the alignment of a firm'south downsizing methods with the cost-reduction stage in which the firm finds itself. While the introduced framework remains simplistic, it is notwithstanding alleged that implementing Hr practices that are aligned with the six factors to a higher place should allow for a more successful downsizing. There is ample evidence that downsizing-related layoffs are devastating for all parties and that permanent layoffs should be non be considered at all costs.

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References

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Lublin, J. (2007) Employers see value in helping those laid off, The Wall Street Journal Online, September 24, 2007.
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