Downsizing

B&A is a small auto parts manufacturer in Hong Kong with 80 staff. Due to increased competition in the automobile industry, the company anticipates a permanent reduction in the demand for its industrial products. They have decided to devise a sequential strategy that involves the implementation of a series of steps beginning with voluntary alternatives. It is also decided that layoff will be the last resort if all other alternatives do not work well. Suppose you are the HR Manager of B&A. You have been asked by top management to work out a sequential strategy and communicate it to all staff in writing as well as in meetings.

Under what circumstances might a company's managers prefer to use layoffs instead of early retirements or voluntary severance plans as a way to downsize the workforce? Use this B&A scenario to illustrate.

Answer:

Downsizing means planned elimination of positions or jobs (Cascio 1993). Layoffs may reduce the costs. But on the contrary, it can bring negative impacts. Whether layoff improves the firm’s operation, it depends largely on the survivors. Honestly speaking, layoff may demoralize the survivors and lower their sense of job security. On the contrary, early retirement or voluntary severance plans can also cause a series of problem. Thus, whether the managers prefer to use layoffs instead of early retirements or voluntary severance plans as a way to downsize the workforce depends on the company strategy.

Early retirement refers to give the choices to the employees to retire earlier and offer them a package of early retirement incentive to entice them to take the deal. But the company doesn’t take the control of which staff to be early retired under this early retirement policy. The choice is on employees’ side. The problems with this policy are as below:-

• Employees with top performance may leave B&A / Target layoff group

Those employees with great performance may probably choose to early retire which in turn B&A may lose lots of high calibers unwillingly. For those marketable employees, since they are equipped with excellent technical skills and may grow with B&A so that understand the values, beliefs, operations and culture of B&A, this group of employees is so valuable and can easily find other jobs in the market. If these high calibers or senior employees leave because of the early retirement incentives, company may face a talent drain. B&A cannot control which employees leave since those leaver are also eligible to take this choose. How can B&A confront with the increased competition with insufficient talent? It is a challenge to find a replacement for a sophisticated, highly skilled employee with experience in the market. Not only B&A will need to pay the sum of financial incentive for early retirement, it will also need to