Organisational Restructuring & Downsising

In their book, ‘Managing Human Resources,’ Luis R. Gómez-Mejía, David B. Balkin, Robert L. Cardy  contest that there has been a dramatic transformation in how firms are structured.

Organisational structures that had many management levels are becoming flatter as companies reduce the number of people between the chief executive officer (CEO) and the lowest-ranking employee in an effort to become more competitive, and facilitate successful M&A integration since many mergers fail because the cultures and HR systems of the firms involved do not fuse.

Periodic reductions in a company’s workforce to improve its bottom line—often called downsising—are becoming standard business practice, even among firms that were once legendary for their “no layoff” policies, such as IBM, Kodak, and Xerox.

A newer and rapidly growing form of inter-organisational bonding comes in the form of joint ventures, alliances, and collaborations among firms that remain independent, yet work together on specific products to spread costs and risks.

To be successful, organisational restructuring requires effective management of human resources. For instance, flattening the organisation requires careful examination of staffing demands, work flows, communication channels, training needs, and so on. Likewise, mergers and other forms of inter-organisational relations require the successful blending of dissimilar organisational structures, management practices, technical expertise, and so forth.

Controlling costs

For most companies 35% of their operating expenses are associated with employee compensation and benefit programs.   With so much invested in your workforce it is critical to find ways to improve performance, increase efficiencies and lower total overall cost.

A compensation system that uses innovative reward strategies to control labor costs can help the organisation grow. Other ways to keep labor costs under control include making better employee selection decisions; training employees to make them more efficient and productive; attaining harmonious labor relations; effectively managing health and safety issues in the workplace; and reducing the time and resources needed to design, produce, and deliver quality products or services.

Opting for across the board cuts, postponing performance improvement initiatives may achieve short term savings, but as GE experienced that many of its cuts impacted on other departments tied to service customers.

Cost reductions create increased stress on departments and their employees. The HR Department must be in readiness to address employee concerns about layoffs, mitigate increases in the number of employee complaints and claims, and expand organisational development/change management programs to help lessen the negative impact of reductions on employee morale and productivity.

Alternatively the company can focus on its customer value proposition to drive cost out of capabilities that contribute low financial leverage.

Kraft Foods is a case in point at a time consumers were turning to organic and natural foods and vitamin and caffeine enhanced beverages. Kraft management confused cost cutting to maintain margins with cost management to sustain vitality.

“The biggest problem I faced (in the Kraft turnaround) was that the cost focus had overtaken so much of our decision making. Our reaction was to centralise more of our functions, to take quality out of our products and to cut into overhead, like sales, because they were viewed as costs rather than capabilities. …. the most important thing I did as I came back was to try to get a better balance. Costs will continue to be a critically important focus area for us, particularly in the face of the challenging economic environment. But we need to be as focused on effectiveness as we are on efficiency.”

— Irene Rosenfeld, CEO Kraft


Identifying cost efficiencies and process innovations

Expanding Strategic Partnerships – Identifying and enhancing opportunities to collaborate with customers to increase organisational effectiveness.

The HR Department should continuously broaden its service focus to include a consultative approach to human resource management, and not just an administrative approach in the quest for increasing shareholder value