Organizational Downsizing: Unintended Consequences Essay Paper

PSY655 Week 6 Organizational Downsizing: Unintended Consequences Essay Paper

Organizational Downsizing: Unintended Consequences Essay Paper

Sociologist Robert Merton commercialized the term unintended consequences after a 1936 review where he systematically analyzed unintended consequences of social action, in a popular journal of the time. He defined the term as “outcomes that are not the ones foreseen and intended by a purposeful action” (Merton, 1936, p. 895). This term is almost always prevalent in decision making, even when regimented analysis has been conducted and risk have been measured. Rather it is related to personal or business decisions, sanctions and laws or social behaviors, there is the potential for unintended consequences to result from choices made by individuals and organizations. The outcomes can have a negative or positive impact on the situation, more commonly identified is the unintended negative outcome that occurs.  Unintended consequences from employer-initiated layoffs will be explored in this paper. The process of the decision making including ethical and/or unethical factors which lead to the outcome will also be explored.Organizational Downsizing: Unintended Consequences Essay Paper

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According to 2016 statistics, layoffs account for over 13% of employment discharges in the United States (Bureau of Labor and statistics, 2016). Layoffs are actions taken by the employer which (usually) terminate employees based on a lack of work. Additionally, layoffs can be a result of stores/branches closing, or company acquisitions. Many organizations choose layoffs as a way to cut cost and continue operating, however sometimes processes become automated or outsourced (employing workers from other countries for tax breaks and lower labor cost) or they simply over estimated their growth (over hired) and now have more employees than they need.

For this scenario, we will say that a startup company is in economic turmoil. They need to cut their cost to keep the doors open and have chosen to hire an outside consultant to assist in their decision process. After thorough analysis, some of the processes at the company are automated. The decision makers were able to identify that this would cut cost down tremendously however, it would result in the layoffs of employees in the department which was automated. Recognizing that they could no longer afford the salaries of many of their employees in the marketing department, they decided to outsource these positions and reduce staff in the stateside office by 50%. Managers were given the option to move to different departments and/or different positions which would result in pay cuts. Same opted to resign but others moved to different positions. The company was able to trim the amount of cost down and keep their doors open. The decision makers considered many options and with the help of the consultant were able to resolve their financials with the least amount of impact to the business.

Knowing that they needed to continue generating revenue to pay their monthly overhead, they outsourced the work which had the largest impact on their sales, this was identified as their marketing department. Automating their customer service process using an IVR phone system (interaction voice response) cost less than having full time employees, making the decision of who to layoff easier as a large portion of employees staffed this department. With operational employees being laid off, the natural process reduced a need of managers in this department as well.

A case study by the Department of Health in Kansas found that often layoffs do not improve economic hardships that a company is going through and that the negative impacts result in customer dissatisfaction (Appelbaum, Henson & Knee, 1999). The unintended consequences of this company’s layoffs could be the attitudes and behaviors of the remaining employees which are often referred to as the survivors . The “survivors” of the layoffs are one of the largest factors of unintended consequences (Gandolfi, 2008).  The fear of not knowing what will happen next to them can be crippling. Layoffs often lead to financial stress for those impacted as well as emotional stress (i.e. depression) for those who have been laid off and remaining employees. Such a huge change in the dynamics of an organization could prove to negatively impact production and absenteeism. Remaining employees may be afraid that they are next on the chopping block and start looking jobs elsewhere to secure stability in their financial future. Employee’s resigning would result in the organization spending money on new hires and could possibly hurt their reputation with new candidates if they are seen as an unstable company to work for.  Having fewer people in the office could lead to employee burnout or increased wages because of necessary overtime. These unintended consequences are costly to the organization and may undermine the intent of the initial staff reductions.

The determinants for this company’s layoffs were ethical. Alternatives were considered and no one group of people were targeted based on discriminative factors (i.e. age, ethnicity, gender). Staff reductions were made in all departments and at all levels after an in-depth analysis was conducted by a third-party unbiased consultant. The company’s financials were documented and although employees did not know that staff reduction was coming, they were kept in the loop as it pertained to there being a hiring freeze, understanding that raises were limited to cost of living increases only and the cancellation of their annual holiday celebration. Employees who were affected directly by the layoff were given a two week notice as well as two weeks severance pay. Laid off employee’s were also given tenure should they reapply in the future. The decisions of who within a department would remain were based on job skills, abilities and performance with the intention to minimize management bias and/or favoritism.

Layoffs sometimes take place during economic down-turn, sometimes because of mergers and acquisitions and other times as an unforeseen result of changes in the industry. It is imperative to make sure that alternatives have been considered before making decisions which will impact remaining employees and possibly lead to lawsuits. Offering outplacement services or severance packages may soften the blow but giving those selected to be laid off respect during the exiting process could lessen the impact on remaining employees as well as the company’s reputation. Openly communicating what is happening during times of staff reductions is a crucial factor in minimizing unintended consequences both internally and externally which could impact the organization for years to come.

References

Appelbaum, S. H., Henson, D., & Knee, K. (1999). Downsizing failures: an examination of convergence/reorientation and antecedents – processes – outcomes. Management Decision, 37(6), 473–490. doi: 10.1108/00251749910277961.Organizational Downsizing: Unintended Consequences Essay Paper

Gandolfi, F. (2008). Learning from the Past – Downsizing Lessons for Managers. Journal of Management Research, 8(1), 1-14.

Merton, R. K. (1936). The Unanticipated Consequences of Purposive Social Action. American Sociological Review, 1(6), 894–904. doi: 10.2307/2084615

U.S. Bureau of Labor Statistics. (2016). What Happens to the Employers Involved in Mass Layoffs? BLS WORKING PAPERS, 470, 1-20.Organizational Downsizing: Unintended Consequences Essay Paper