Planning and implementing an effective downsizing program

Int. J. Hospitality Management Vol. 16, No. 1, pp. 23-38, 1997 © 1997 Elsevier Science Ltd All rights reserved. Printed in Great Britain 0278-4319/97 $17.00 + 0.00

Pergamon

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P l a n n i n g and i m p l e m e n t i n g an e f f e c t i v e d o w n s i z i n g program Joe C. Hutchinson Department of Hotel, Restaurant, and Institution Management, Iowa State University, Ames, 1/1 50011-1120, U S A

Suzanne

K. M u r r m a n n

Department of Hospitality and Tourism Management, Virginia Tech, Blacksburg, V A 24061-0429, U S A

K e n t F. M u r r m a n n Department of Management, Virginia Tech, Blacksburg, V A 24061-0233, U S A

Of primary concern to hospitality management before, during, and after a downsizing event should be the concerns and potential reactions of employees. The attitudinal and behavioral reactions of employees who work in a downsizing environment may be influenced by both the objective dimensions of this environment and employees'subjective interpretations of this work setting. This article discusses some of these key objective and subjective factors that may be present in a downsizing organization and provides recommendations to managers relevant to the planning and implementation of a downsizing program that is designed to elicit less work-related stress and more positive (or less negative) behavioral and attitudinal reactionsfrom employees. © 1997 Elsevier Science Ltd

Key words:

downsizing foodservice planning employees

lodging

organizations

Introduction Due to increasing pressures to cut costs and to operate more efficiently, downsizing has become a widespread and on-going activity facing managers at all levels of US public and private sector organizations. Rarely a week now passes without a news announcement concerning the planned restructuring and corresponding work force reductions of a major corporation. During the 1980s, the Fortune 500 companies lost 3.2 million positions, while over 3 million jobs were cut from the payrolls of US companies between 1985 and 1990 (Henkoff, 1990). Between 1987 and 1991, over 85% of the Fortune 1000 firms downsized,

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affecting over 5 million white-collar workers (Cascio, 1993). During the 1990-91 recession, layoffs were announced in corporate America almost every day. According to the Chicago outplacement firm Challenger, Gray and Christmas, over 316,000 jobs were eliminated by US companies in 1990 and over 555,000 layoffs occurred in 1991 (Murray, 1995). Despite a reported 11% increase in 1994 corporate America profits, the 516,000 job cuts announced by US corporations in 1994 approached those reported at the height of the 1990-91 recession. Few sectors of the US economy have avoided the difficult challenges of downsizing, and the hospitality industry is no exception. Downsizing has recently become a prevalent activity among America's lodging and foodservice organizations in both the private and public economic sectors (Hutchinson and Murrmann, 1992). Hotel & Motel Management, a bi-weekly lodging industry news periodical, revealed that layoffs were conducted during the early 1990s by Holiday Inns, Marriott, Hilton, Hyatt, La Quinta, and Days Inn. Following the 1990 acquisition by Bass PLC and the subsequent transfer of corporate headquarters from Memphis to Atlanta, Holiday Inns eliminated over 500 corporate staff positions (Salomon, 1991). In 1990 and 1991, Marriott laid off over 1000 employees in different areas of the company, due to the company's excessive debt obligations created by the rooms oversupply and reduced demand in the lodging industry (Seal, 1991). In late 1990, Hilton Hotels announced 100 layoffs of regional management and support positions to improve organizational efficiencies. In 1991, Hyatt Hotels Corporation cut 700 positions, or 1.5 % of the work force, at 105 hotels due to technological advances in hotel operations (Bard, 1991). Due to significant debt obligations, La Quinta Motor Inns eliminated 72 jobs at its corporate headquarters in late 1991 (Bond, 1991). Following the 1992 acquisition of Days Inn by Hospitality Franchise Systems, the relocation of the Atlanta reservation center resulted in layoffs of over 300 employees. The commercial and non-commercial sectors of the foodservice industry have experienced significant payroll cuts in recent years. The widespread nature of downsizing among large foodservice organizations can be evidenced through frequent press release announcements in the Nation's Restaurant News, a weekly industry periodical. In the quickservice segment of the commercial sector, a major reorganization at Burger King in 1989 and 1990 resulted in the elimination of over 800 regional management and support positions. In March of 1994, Burger King announced another series of job cuts and a continued focus on corporate restructuring. In a similar reorganization, Pepsico Corporation eliminated over 900 management and support personnel between 1990 and 1992 at the regional offices of its Pizza Hut, Taco Bell, and Kentucky Fried Chicken (KFC) restaurant chains. Hardee's also cut over 200 corporate or regional management and support positions between 1990 and 1991, while Wendy's cut 700 positions during this same time period (Romeo, 1991). Carl Karcher Enterprises (CKE) announced the layoff of 65 corporate staff positions in 1993 (Liddle, 1993), while Jack in the Box eliminated 80 corporate and field operation positions in 1994 (Martin, 1994). In general, downsizing at quick-service restaurant chains has not become an ongoing corporate activity that has involved across-the-board cuts. Instead, these reductions have been conducted on a onetime only basis and have been targeted at management and staff positions at the corporate, regional, and district level. The primary rationale for these work force reductions has been to increase operational efficiency, improve communication, and enhance customer service. With the exception of KFC and Jack in the Box, downsizing was not implemented in response to declining sales or profits.

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In the non-commercial and institutional segment of the foodservice industry, the largescale and on-going downsizing activities of America's businesses and manufacturing plants (i.e. IBM, General Motors, Eastman Kodak, Boeing, AT&T) have resulted in corresponding, across-the-board payroll cuts among foodservice contract management companies. Press release announcements in the monthly Food Service Director and Food Management trade periodicals revealed that Service America terminated over 1000 employees in 1990 and 1991, due to high debt requirements and decreased demand in client accounts. In 1991, Marriott's Food and Services Management division cut 52 positions, or 45%, of its corporate headquarters staff and laid off 100 employees at various geographical locations. The continued decrease in overnight patient stays and the corresponding reduction in meals served has resulted in a continued reduction of foodservice personnel at hospitals across the country. In the public sector, declining student enrollments and a continued massive military downsizing have also resulted in work force reductions in foodservice programs at schools, colleges and universities, and the US military. Although most organizations resort to work force reductions to cut payroll costs and increase employee productivity, recent surveys reveal that corporate executives frequently underestimate the cost of downsizing and often fail to gain the desired financial results. A 1991 survey of 1005 firms by the Wyatt Company reported that most downsizing efforts fail to achieve the established financial targets with respect to expense reductions, profit margins, and shareholder's return on investment (Lalli, 1992). A 1993 follow-up survey by the Wyatt Company similarly reported that less than 50% of 531 downsized organizations had achieved their financial and operational goals (Byrne, 1994). A 1993 survey of executives of 1468 downsized organizations by the Society for Human Resources Management revealed that employee productivity either remained constant or declined in over 50% of the responding companies (Cascio, 1993). According to the results of an American Management Association (AMA) downsizing survey, over half of the companies that downsized also reported that their profit margins did not improve (Greenberg, 1991). Neverthless, downsizing in one form or another will probably continue to be a widely used tool for cost-cutting and organizational restructuring. Since downsizing has become such a popular cost-cutting strategy among US organizations, why do so many executives report such disappointing results? One of the primary reasons for many of these failed downsizing attempts is likely to be the unanticipated and negative reactions of employees to the work force reductions. Employees who experience a downsizing event may react with decreased job satisfaction, reduced organizational commitment, less job involvement, more resistance to change, and reduced work effort (Brockner, 1988; Byrne, 1994; i3reenhalgh, 1983). These dyst'unctional responses may lead to negative organizational outcomes, such as decreased productivity, decreased product or service quality, customer alienation, increased turnover of the most valued employees, and difficulty in future recruiting efforts (Leana and Feldman, 1989; Kuzmits and Sussman, 1988; Henkoff, 1990; McCune et al., 1988). Since negative employee reactions can lead to such disappointing downsizing results, the success of any downsizing program is contingent on management's awareness of employee concerns and their potential reactions. In attempting to anticipate employee responses to a downsizing, it is useful for management to be aware of both the objective conditions of the downsizing environment as well as employee's subjective perceptions of the downsizing events. As illustrated in Fig. 1, an individual's subjective interpretations of his/her work

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I~ l

Objective Dimensions

/

Downsizing alternatives Downsizing methods Downsizing severity Downsizing implementation

1

I

Subjective I Interpretations

"

i• II

I[

Attitudinal and Behavioral

] I I

Downsizing

Job insecurity Role ambiguity Role conflict

Organizational commitment Job Satisfaction / morale Productivity / work effort Resistanceto change

Propensityto quit

Fig. 1. M o d e / o f the effects of downsizing on employee work-related attitudes and behaviors. Source: Hutchinson (1994).

environment often differ from the 'objective' properties of that environment (Billings et al., 1980; Whetten, 1980; Ford, 1980; Jick, 1985). And, subjective perceptions often may be more important determinants of employee responses than actual objective conditions (Jick, 1985). This article discusses some of these key objective and subjective factors that may be present in a downsizing organization and provides recommendations to managers relevant to the planning and implementation of a downsizing program that is designed to elicit less work-related stress and more positive (or less negative) behavioral and attitudinal reactions from employees.

Objective dimensions of downsizing A number of writers have identified objective characteristics associated with a downsizing environment that may influence employees' perceptions, attitudes, and behaviors. These objective properties of downsizing include: (1) the use of downsizing alternatives, (2) the downsizing method or methods used, (3) the severity of the work force reductions, and (4) aspects of the downsizing implementation program. The use of downsizing alternatives The use of long-term employment practices or human resource 'buffers' is considered to be a favorable cost-cutting alternative to that of work force reductions. These practices are designed to protect the core work force of exceptional performers, avoid costly work force reductions, and increase employment stability through greater job security. Buffers to protect the core work force include the use of employee leasing, temporary help services, outsourcing, the use of retirees and part-time workers, the redeployment of surplus employees, and retraining workers with obsolete skills. The downsizing method(s) selected If an employer decides to reduce the work force, it must select a method or methods of downsizing. As illustrated in Table 1, management may choose from a five-level hierarchy of

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Table 1. Frequently used downsizing methods

The five-level hierarchy: 1. 2. 3. 4. 5.

Natural attrition with a hiring freeze Induced redeployment (i.e. early retirement, voluntary hour/pay reductions) Involuntary redeployment (i.e. demotions, involuntary hour/pay reductions) Layoffs with outplacement assistance Layoffs without outplacement assistance

Source: Greenhalgh et al., 1988.

increasingly severe downsizing methods: (1) natural attrition with a hiring freeze, (2) induced redeployment, such as early retirement, severance pay incentives, or voluntary hour/pay reduction, (3) involuntary redeployment, such as demotions or involuntary hour/ pay reductions, (4) layoffs with outplacement assistance, and (5) layoffs without outplacement assistance (Greenhalgh et al., 1988). Employer surveys indicate that layoffs are the most common method of work force reductions, with mimimal consideration often given to the use of less severe downsizing methods, such as hiring freezes, demotions, transfers, reduced work hours, wage reductions, and job sharing (Greenhalgh and McKersie, 1980; McCune et al., 1988; Greenberg, 1991). In a survey of over 2000 downsized firms, Right Associates reported that only 6% of the employers had tried pay reductions, only 9% had implemented shortened work weeks or vacations without pay, while only 14% had developed job sharing plans (Cascio, 1993). The relatively low utilization of layoff alternatives may be partially attributed to inadequate preparation and planning. An AMA survey of 1142 downsized companies revealed that nearly half of the firms were not prepared for a downsizing and had not anticipated the type of problems that subsequently occured (Greenberg, 1991). In their survey of manufacturing firms, McCune et al. (1988) reported that 94% of the human resource managers in the sample had less than 2 months to plan and implement downsizing within their organization. In selecting a downsizing method, management faces a trade-off between protecting employee well-being and gaining short-term cost savings (Greenhalgh et aL, 1988). From the organization's perspective, natural attrition is usually perceived as providing the least cost savings, while layoffs without outplacement assistance provide the greatest cost savings. From the employee's perspective, natural attrition provides for the least dysfunctional outcomes, while layoffs without outplacement assistance are the most detrimental to individual well-being. There is little discussion in the literature regarding differences in downsizing methods used for management and non-management personnel. Although the same general approaches may apply to all employees, a closer examination of differences between management and non-management personnel may result in the some variation of downsizing methods selected for these two distinct positions. For example, based on traditional principles of job design, management/professional jobs tend to have more skill variety, identity (e.g. wholeness, rather than narrow and fragmented responsibilities), significance (e.g. impact on others in the organization), autonomy, and feedback (e.g. knowledge of results) than do hourly jobs (Hackman and Oldham, 1980).

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The severity of the downsizing Downsizing may be approached from a short-term, middle-term, or long-term perspective (Cody et al., 1987). The short-term and involuntary approach responds to an immediate organizational crisis by reducing the work force by 30-50% within a few months. At the other extreme, the long-term and more voluntary approach targets a 3-5% reduction over several years. The middle-ground approach involves the reduction of 15-20% of the work force over a 2 year period. Several field studies have compared the differences in employee reactions between moderate and severe downsizing events. The findings of these studies indicate that employees of organizations that undergo moderate (as opposed to severe) downsizing activities generally report less dysfunctional reactions (i.e. job satisfaction,job involvement, organizational commitment, job insecurity, role stress, and resistance to change) than do those employees of organizations that undergo more severe downsizing conditions (Blonder, 1976; Brockner et al., 1988; Owyar-Hosseini, 1990). Based on a number of succesful intervention strategies implemented by the Food Service Director of a downsizing school food service program, Hutchinson (1994) reported that cafeteria personnel had similar levels of stress-related perceptions, attitudes and behaviors, irrespective of the downsizing severity at their school locations. Downsizing implementation Topics that appear relevant to downsizing implementation, as illustrated in Table 2, are: (1) the selection criteria used to determine which positions or locations will be affected and how they will be affected; (2) the formal communication between management and employees; (3) the length of advance notification provided to affected employees; and (4) if applicable, the extent of caretaking services provided to laid off victims. • Selection criteria. If management decides to downsize, they must decide whether to

target the reductions at specific positions and locations or impose across-the-board cuts. If the downsizing targets specific positions or locations, then management must establish decision rules or selection criteria to determine which positions will be affected and how those positions will be affected. Employers may not legally discriminate on the basis of race, color, nationality, religion, sex, age, and disability when making any employment related decisions affecting hiring, assignment, promotion, transfer, training, compensation, and termination. All such decisions, whether in a downsizing

Table 2. Downsizing implementation issues • Should specific positions/locations be targeted or should across-the-board cuts be made? • What selection criteria will be used to determine which positions will be affected? • H o w will positions be affected and w h a t is the potential work- related attitudinal or behavioral

impact? • H o w will downsizing plans be communicated to employees? ~ • H o w much advance notice will be provided to affected employees? • Which layoff victims will be provided w i t h 'caretaking" services and what will be the content

and scope of these services?

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situation or not, may be based only on economic business criteria and the documented job performance of affected employees. Age is often an important issue in downsizing situations, since employers often terminate older and higher paid employees to more significantly reduce labor costs. Organizations often combine or restructure jobs or job functions to eliminate the positions held by older employees. However, these decisions cannot be made on the basis of age, but rather on the basis of the employee's actual job performance. In their survey of manufacturing firms, McCune et al. (1988) revealed that the most prevalent selection criteria for conducting layoffs was seniority, followed by performance and skill level for performing other jobs. Although random or senioritybased layoffs appear more equitable or easier to implement, these practices fail to distinguish between productive and non-productive employees. Consequently, the most valuable employees may leave the organization (Behn, 1980). Lab and field studies by Joel Brockner and his colleagues have reported mixed evidence with respect to the impact of layoff selection criteria (i.e. random, merit, seniority, and no-layoff conditions) on subsequent survivor productivity levels or organization performance (Brockner et al., 1985, 1986; Ichniowski et al., 1987). • Explanation o f reasons for the downsizing. Research indicates that the perceived fairness of a layoff depends on the extent to which the organization has offered clear explanations of the reasons for the layoff. Rousseau and Anton (1988) found that subjects perceived layoffs as more fair when management explained the reasons for the layoffs to them. Correspondingly, in the post-layoff environment of a national retail chain, Brockner reported that there was a greater decrease in survivors' level of organizational commitment when management did not offer clear explanations of the reasons for the layoff (Brockner et al., 1990, 1993). • Advance notification. Industry surveys cite a common management belief that providing advance notification to employees about a planned downsizing will result in reduced productivity, theft, acts of sabotage, or of employees leaving before the organization is ready to implement the downsizing program (Harrison, 1984; Greenhalgh and McKersie, 1980). However, research conducted in organizations undergoing layoffs revealed that the anticipated negative survivors' reactions (i.e. lower productivity, increased absenteeism and hostility) to the layoffs in terms were mitigated when the layoffs were preceded by careful planning and advance notification (Belzung et al., 1966; Hershey, 1972). A recent field study conducted by Joel Brockner and his colleagues revealed that layoff victims had less organizational trust and support when they were provided with inadequate advance notice and they perceived the layoff process to be unfair, irrespective of the extent of 'caretaking services' (severance benefits) provided to them by their former employers (Brockner et al., 1994). • 'Caretaking' services. Tangible forms of caretaking services to layoff victims include outplacement services, severance pay, extended health benefits, and retraining assistance. Previous research has shown that the provision of generous 'caretaking' services for laid off workers have mitigated the occurrence of negative reactions from these individuals (Belzung et aL, 1966; Gannon et al., 1973). In the post-layoff environment of a national retail chain, Joel Brockner and his colleagues indicated that survivors reported a greater decrease in organizational commitment when management did not provide adequate caretaking services for layoff victims (Brockner et aL, 1993).

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Employees' subjectiveperceptions Perceived uncertainty about the future is a critical determinant of an individual's reaction to a source of stress (McGrath, 1976). Jick (1985) suggests that the future uncertainty surrounding budget cutbacks in an organization may result in a number of employee stressrelated perceptions, such as job insecurity, role ambiguity, or role overload. Employees of organizations undergoing budget cutbacks report increased levels of job insecurity due to fears regarding the future uncertainty of job outcomes (Sutton and D'Aunno, 1989). As a result, they may become frozen by the stress created by this uncertainty (Greenhalgh, 1983). Job insecurity

Greenhalgh and Rosenblatt (1984) hypothesized that perceived job insecurity is a function of the perceived severity of the threat of job loss and the perceived degree of control over that threat. The severity of the threat of job loss is dependent on whether the individual perceives the threat of job loss or the loss of valued job features (i.e. promotional opportunities, pay raises, status/self-esteem, autonomy). An employee's perceived degree of control may be influenced by such factors as: (1) the degree of protection provided by unions, seniority systems, or labor contracts, (2) the degree of understanding as to what is necessary to maintain status of the job and what corrective action is necessary to avert the perceived threat of job loss or the loss of job features, (3) the extent to which the organization climate is perceived as authoritarian or participative, and (4) beliefs about the fairness of the dismissal process. Layoffs and other involuntary downsizing methods cause perceptions of loss of control among employees, while natural attrition and other voluntary downsizing methods provide employees with a greater sense of control (Sutton and D'Aunno, 1989). Factors that influence employee perceptions of job security are presented in Table 3. When comparing organizations according to downsizing severity (number of positions cut as a percentage of total work force), research has reported job security to be higher among employees of organizations that resorted to less severe work force reductions (Owyar-Hosseini, 1990). The results of field studies conducted among employees of downsizing organizations have also indicated that increases in perceived job insecurity are associated with dysfunctional attitudinal and behavioral consequences, such as decreased

Table 3. Factors influencing employee perceptions of job insecurity • The degree of threat of job loss. • The degree of threat of the loss of valued job features (i.e. promotional opportunities, pay

raises, status, autonomy). • The degree of protection provided by unions, seniority systems, or labor contracts. • The degree of understanding as to what is necessary to remain employed. • The degree of understanding as to what corrective action is necessary to avert job loss or the

loss of valued job features, • The extent that the organization climate is perceived as authoritarian. • The beliefs about the fairness of the organization's dismissal process.

Sourt~e: Greenhalgh and Rosenblatt (1984).

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organizational commitment (Owyar-Hosseini, 1990), reduced morale or job satisfaction (Jick, 1979; Owyar-Hosseini, 1990), more resistance to change (Owyar-Hosseini, 1990), decreased work effort (Greenhalgh, 1979), and an increased propensity to quit (Jick, 1979). In an examination of layoff survivors of a national retail chain that had closed many stores in the prior 12 months, Brockner et al. (1992) reported that moderate levels of job insecurity led to a greater increase in work effort than did low job insecurity or high job insecurity. The researchers suggested that survivors with low levels of perceived job insecurity are unmotivated due to feelings of complacency, while survivors with high levels of perceived job insecurity are unmotivated due to feelings of helplessness. They concluded that moderate levels of job insecurity should lead survivors to exhibit the optimum level of work effort, since they can overcome the complacency associated with low job insecurity and the helplessness created by high job insecurity. Role stress

Role ambiguity represents a lack of information about job requirements and procedures, while role conflict occurs when two or more patterns of behavior are expected for a single position in the organization (Katz and Kahn, 1978). The restructuring or reorganization that is commonly associated with a downsizing produces increased role ambiguity and role conflict, since these organizational changes often result in different job features and revised reporting relationships. Jick (1979) noted that those employees of a downsizing hospital organization who reported higher levels of perceived job insecurity also reported the greatest changes in their 'objective' work routines. Through interviews and survey data on 236 employees surviving a major layoff, Tombaugh and White (1990) found that these survivors reported significant increases in role ambiguity and role conflict. Bailey and Szerdy (1988) noted that a common problem faced by many employees in a downsizing work environment is role overload, an aspect of role conflict. Role overload is created by the elimination of jobs without a reduction in the workload. Consequently, more work is required by fewer employees. As the organization continues to downsize, the workload for the remaining employees increases. In a recent survey of over 4 million employees of more than 1000 corporations, the Wyatt Company reported that nearly all of the organizations (86%) had downsized within the past 5 years, but less than half (42%) had eliminated any of the tasks that employees were required to perform (Brockner, 1992). Role stress may result from real or perceived changes in an employee's work routines and job responsibilities. These role changes may be perceived by employees as threats or opportunities (Brockner, 1992). For example, the increased workload may be perceived as a threat, but may provide the opportunity to work in a more interesting and challenging job. Based on undermanning theory (Barker and Gump, 1964), the job-related changes accompanied by a downsizing may provide employees with a higher degree of task variety, job autonomy, and task interdependence (Sutton and D'Aunno, 1989; Brockner, 1988). Hackman and Oldham (1980) would suggest that these changes in work design would increase the motivating potential of jobs.

Recommendations for hospitality managers Based upon the objective dimensions, subjective perceptions, and potential attitudinal and behavioral outcomes of downsizing, the following recommendations are provided for

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Table 4. Recommendations for downsizing planning and implementation • • • •

• • • • •

Evaluate your alternatives to downsizing If you decide to downsize, first consider using layoff alternatives Plan for only moderate reductions in force (i.e. under 10% a year) Eliminate or modify job tasks and work routines, where appropriate Increase the scope and content of training activities, if applicable Establish specific, clear, and constent criteria for eliminating positions Establish a sound formal communication program Provide all affected employees with sufficient advance notification Provide generous 'caretaking' service, if layoffs are involved

management in the development and implementation of an effective downsizing program. These recommendations, presented in Table 4, are based upon the ultimate objectives of retaining the organization's most valuable employees, reducing the level of employee job insecurity and role stress, improving employees' job satisfaction and productivity, and increasing organizational efficiency and effectiveness. Evaluate your alternatives to downsizing

Prior to the decision to downsize, management should carefully explore all feasible costcutting alternatives to downsizing. The choice of alternatives likely will be a function of the magnitude of the required cost reductions and the time horizon allowed for implementing these cutbacks. The provision of a small percentage budget cut and/or the luxury of a long time horizon may allow for the utilization of long-term employment practices. These strategic and proactive decisions with respect to allocation and utilization should be designed to protect the core work force of valued employees. To avoid the future necessity of downsizing, the use of 'buffers' (employee leasing, temporary help services, outsourcing, etc.) should also be considered to satisfy incidences of peak workload demands. Organizations that face a more immediate economic threat may not be able to sufficiently reduce costs through long-term employment practices. If the high magnitude of budget cutbacks are required over a relatively short time period, management should first consider the reduction of non-personnel costs such as travel expenses, perks, training programs, and capital expenditures. A thorough investigation of all cost-cutting alternatives to downsizing may reduce the need to downsize or reduce the scope of the downsizing. Management should encourage the participation of all employees in suggesting ideas for cost reductions and revenue enhancements. Thus, if the organization does decide to downsize, employees will more likely 'buy in' to the need to downsize. Consider layoff alternatives

If the decision is made to downsize, management should carefully examine the various downsizing methods or combination of methods that are available to them, allow for an adequate planning time, and evaluate the potential individual and organizational level impact. Prior to selecting a downsizing method, management should carefully evaluate the potential individual and organizational level impact of the chosen downsizing method on long-term firm prosperity. Management should make every effort to avoid the use of layoffs as a downsizing method. This decision will likely be a function of a number of factors, such as the magnitude of the cuts required, the time horizon for implementing the cuts, the

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turnover rate and age among the targeted employee groups, and the potential and timeframe for increased organizational revenues. As an example, the following objective dimensions of an organization may allow for the use of layoff alternatives or less severe downsizing methods such as natural attrition, hiring freezes, early retirement, and/or hour or pay reductions. • • • • • •

a 10% work force reduction over the next 5 years; a traditionally high turnover rate among targeted employees; the identification of a number of non-personnel cost-cutting alternatives; a large percentage of employees in targeted groups that are nearing retirement age; the willingness of employees to take hour or pay reductions; and the identification of significant potential for increased revenues in the near term.

Plan for moderate reductions in force Downsizing may be approached from a short-term, middle-term, or long term perspective. Research suggests that a long-term or middle-term perspective to downsizing will reduce the likelihood of dysfunctional individual and organization level outcomes. This approach to downsizing would target less than 20% of the work force over several years. The magnitude of cutbacks that can be reasonably accommodated by an organization will likely be a function of a number of factors similar to those discussed in recommendation number two. In addition, the magnitude and frequency of an organization's prior downsizing efforts may also impact these outcomes. For example, many of today's organizations have implemented ongoing downsizing activities to continue their efforts to increase efficiency and productivity. The success of management in the planning and implementation of these ongoing programs and the degree of employees' comfort and familiarity in working in a downsizing environment may influence the outcomes of these programs. Carefully evaluate critical implementation issues The folowing factors should be carefully considered when developing a downsizing implementation plan: • Eliminate or modify job tasks and work routines, where appropriate. Since role-related changes are typically associated with a downsizing, management should carefully evaluate the changes in work routines that will result from the downsizing. Work processes and systems should be reviewed and streamlined prior to determining the number of positions that will be cut. Thus, if there are fewer employees, there should often be a corresponding decrease in tasks. The abilities and interests of each employee should also be reviewed to forecast their future performance levels at newly formed positions. Some of these individuals may be seeking more challenging and interesting work, while others may be more resistant to changes in their work routines. •lncrease scope and content of training activities to correspond with changes in job tasks and work routines. Although most hospitality firms have a much greater number of hourly than management positions, evidence suggests that a greater proportion o f management and staffpositions are targeted for payroll cuts. Consequently, hospitality managers and staff personnel may experience a higher level of job-related stress in terms of job insecurity. Since hourly employees may be required to assume some additional responsibilities from the eliminated corporate, regional, or district

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•

•

•

•

Joe C. Hutchinsonet al. management and staff positions, a flatter organization structure could result in more enriched jobs (skill variety, identity, signficance, autonomy, and feedback) among empowered hourly workers and unit-level management positions. Despite more interesting and challenging jobs, these remaining employees may experience jobrelated stress in the form of role ambiguity and role overload. To reduce this stress and increase productivity, organizations must take the appropriate steps to properly train these employees to assume their new roles in the organization. Establish specific, clear, and consistent selection criteria. Management should carefully document a specific and clear justification for those positions and locations that will be affected in a downsizing. This criteria should be designed so as to elicit a sense of fairness and understanding among employees. Although one form of selection criteria cannot be recommended for every organization, it should be consistent over time and it should be considered in light of the organization's culture. Further, the criteria should be designed so as to retain the organization's most valued and productive employees. Valued employees may be legally identified and offered inducements to stay on the basis of valid job qualifications and actual performance, but not on age, gender, etc. If voluntary separation or voluntary retirement packages are used to induce targeted employees to separate, it will hopefully be the 'less valued' employees that select these separation packages. Since these downsizing methods must be accomplished without age discrimination, it must be clear that these decisions are made by older workers on a truly voluntary basis. Establish a sound, f o r m a l communication program. Management should clearly communicate the nature and scope of the downsizing program so that all employees understand how their positions and roles in the organization will be affected. Management should discuss on an indvidualized basis each employee's current job status and the steps necessary to maintain or improve their job status in the organization. Those employees who are most valuable to the organization should be provided with management assurances regarding their job security and future roles in the organization. Management should clearly explain the rationale for the downsizing and should demonstrate that they have carefully evaluated all downsizing alternatives prior to the decision to downsize. Provide all affectedemployees with sufficient advance notification. Whether or not layoffs are involved, a 60 day advance notification provision should be incorporated into the organization's formal communication program. All employees should receive adequate advance notice with respect to the timing and impact of the downsizing. This should reduce the level of future job uncertainty and the potential for dysfunctional reactions by employees. Research indicates that sufficient advance notification is more advantageous to the employee and the organization than insufficient notification. Provide generous 'caretaking' services, if layoffs are involved. When layoffs are selected as a downsizing method, management should provide all laid off victims with generous caretaking services. This would include the provision of outplacement services, severance pay, extended health benefits, and retraining assistance. These services have traditionally been reserved for upper-level management. However, since lower-level, front-line employees usually play a major role in an organization's success, management sfiould be careful not to exclude this group when planning caretaking service provisions.

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Conclusion To avoid the disappointment of a failed downsizing effort, management should anticipate and be proactive in counteracting employees' negative reactions to work force reductions. In attempting to anticipate employee responses to a downsizing, management should be aware of both the objective and subjective factors that are present in a downsizing environment. This understanding should provide managers with a framework for planning and implementing a downsizing program that will elicit less work-related stress and more positive (or less negative) behavioral and attitudinal reactions from employees. A successful downsizing program should provide management with the opportunity to retain its most valued and productive employees, while ensuring the long-term viability of the organization.

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About the Authors Joe Hutchinson is an Assistant Professor in the Department of Hotel, Restaurant, and Institution Management at Iowa State University where he teaches graduate and undergraduate courses in Strategic Management and Financial Management. His research interests include organizational downsizing, business turnarounds, management training and development, organizational socialization, and employee turnover. Formerly a management consultant with K P M G Peat Marwick, an international accounting/ consulting firm. Dr Hutchinson continues to provide consulting services to lodging and food service executives and administrators of numerous organizations in both the public and private sector. Sue Murrmann is an Associate Professor in the Department of Hospitality and Tourism Management at Virginia Polytechnic Institute and State University. She teaches graduate and undergraduate courses in H u m a n Resource Management and Service Management. Her research interests include hospitality industry compensation program, the Americans with Disabilities Act, the impact o f AIDS in the employment setting, employee turnover, job

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attribute preferences of hospitality graduates, and the assessment of due-process systems in both unionized and nonunion organizations. Dr Murrmann has presented industry seminars on the topics of recruitment in an era of labor shortages, drug abuse, supervision, legal issues associated with the Americans with Disabilities Act, hiring and discharging employees, legal issues related to AIDS, and service quality improvement. Kent Murrmann is an Associate Professor in the Department of Management at Virginia

Polytechnic Institute and State University. He teaches graduate and undergraduate courses in Human Resource Management, Industrial Relations, Employment Policy, and the Legal Environment of Employee Relations. His research interests include employment and human resource practices in East Asia, union rivalry and jurisdictional conflict, and employee voice/influence concerning human resource policies. Dr Munmann has published in the Arbitration Journal, Journal of Collective Negotiations, Journal of Business. Ethics, Employee Relations Law Journal, and Labor Law Journal.