Downsizing Strategy Is Being Used Management Essay

Given the issues relating to this research field are introduced and research objectives are also be proposed carefully in Chapter 1. In Chapter 2, the researcher would like to continuous introduces the concepts, definitions and theories relevant to the issues that already mentioned in Chapter 1, through that, Chapter 2 will provide and build research hypothesis for research. Basically, Chapter 2 includes the main parts as follows (1) The definition of downsizing, (2) The definition of Survivor’s Syndrome, (3) The research hypothesis (4) Chapter summary.

Definition of Downsizing

In the economic context of continuos competitive, developing, changing and unpredictable, organizations suffering severe downturns in their business or facing difficulties, downsizing strategy is being used by many organizations in every industries and sectors with different goals and visions, their perception regarding the implementation of the downsizing policy within their organization also be different. There is not a single downsizing definition accepted by all researchers (Davis, Savage, Steward& Chapman, 2003). There are many different definitions or understanding about downsizing, for example Cameron, (1994:194) defines downsizing as a positive and purposive strategy for organizations: “a set of organizational activities undertaken on the part of management of an organization and designed to improve organizational efficiency, productivity, and/or competitiveness. Businesses for a long time that no longer considered downsizing as a situation solution in the hard time period, but they considered downsizing as an effective strategy to reduce costs, human focus, create job opportunites, increased job challenge and promotion. The right sizing contributes to better decision-making and the control of human resource so that the cost of expenditure can be cut short effectively. It develops a value system of proactive work culture where the members in the organisation get opportunity for better participation and involvement in the decision making process. It develops an ownership mentality among members and they shoulder forward an organization with more collaboration, fidelity, and accuracy. According to Mishra and Spreitzer (1998) defines downsizing has become the strategy favored by many organizations attempting to cope with fundamental, structural changes in the world economy. Or Freeman and Cameron (1993) defined downsizing as a set of activities, undertaken on the part of the management of an organization, designed to improve operational efficiency, productivity, and/or competitiveness. “Downsizing as a deliberate reduction in size or complexity of a firm’s activities intended to improve the profitability, productivity, and/or competitiveness of the firm’s continuing operations”(Legatski II, 1998). But in conclusion, most researches have defined downsizing as any reduction in the size of the organization (e.g. Budros, 1999; Cascio, 1993; Freeman & Cameron, 1993; Kozlowski, Chao, Smith & Hedlund, 1993). “Downsizing, in general, refers to the reduction of work for certain organization. For employees, downsizing is considered as a ‘ management weapon ‘ to enforce greater control over the workforce. To management, it is a strategic measure to bring ‘ optimized operation efficiency and productivity ‘ in organization”. Cameron and colleagues (e.g Cameron et all., 1991, 1993; Cameron, 1994b) have identified three organizational strategies to achieve downsizing: workforce reduction strategy, work redesign and systematic change. The first strategy is workforce reduction is typically a short-term strategy, which simply focuses on reducing organization’s headcount. In a confirmatory study, Mishra and Mishra (1994) found that such strategy might lead to loss in valued organizational competency or negative outcome of those who remains. Human resource is essential and is a factor that makes the decision for the development of organizations. Lack of human resource will increase workload, anxiety about losing their jobs at any time, and these feeling leads to insecurity psychological, these are reasons that cause labor productivity reduced. Work reduction is applied by organizations through some programs such as attrition, early retirement or voluntary severance packages, layoffs and terminations. The second and third strategies are work redesign and systematic change strategies. While work reduction’s resulted is lead to reduction, rather than improvement, the work redesign and systematic change are positively related to organizational performance in term of both cost reduction and quality improvement (Cameron et all.,1993; Mishra and Mishra, 1994) and to survivors (people who remains) of downsizing having a positive learning orientation (Farrell and Mavando, 2004).

Many previous researches indicated that the use of workforce reduction is increasing and become popular despite the harmful impacts may arise for organization. Workforce reduction or simply called workforce downsizing is becoming the most popular strategy and a plethora of workforce reduction strategies for downsizing of employees has been proposed (e.g. Greenhalgh et al., 1988; Gutchess, 1985; Leana & Feldman, 1992; Price, 1990). Whenever reduce equipments, machines… organizations can find out the outcome and its impact through simple calculations, but in workforce downsizing, the emotions, loyalty, and human effort can not simply calculate. In an organizational context, employees not only contribute their individual skills and knowledge, they also collaborate and integrate their separate skills toward creating firm capabilities. As such, both human and social capital-and therefore the commitment and the loyalty of employees-play an important role in dictating a firm’s capacity to create competitive advantage. Reducing headcount may lead to immediate labor cost savings, but it can also seriously erode employee commitment and loyalty, with negative consequences for firm competitiveness and performance.

So the questions are what the impacts of workforce downsizing to organizations are, how it effects, and what the advantage and disadvantage of the impact are? Some researches indicated the opinion that organizational downsizing produce better result in performance and productivity, while, others indicate downsizing as a threat to the human resources and existing organizational culture. “Downsizing has been defined as an attempt to increase organizational effectiveness”(Kozlowsky, et. al. 1993). Freeman& Cameron (1993) and Tomasco (1990) indicate from their findings that the presumed benefits of downsizing include faster decision making, greater flexibility, and improvements in quality and increased efficiency and productivity. Cascio (1993:97) suggested that proponents of downsizing generally expect the following benefits: lower overheads, less bureaucracy, faster decision making, smoother communications, greater entrepreneurship and increases in productivity. “Downsizing can suggest to financial markets or government funding agencies that an organization is cutting costs and reducing waste, which may increase availability of capital for subsequent activities” (Cascio, 1993; Dial & Murphy, 1995; Palmon, Sun & Tang, 1997). “Downsizing has been defined as an attempt to increase organizational effectiveness (Kozlowsky, et. al. 1993)”. It develops a value system of proactive work culture where the members in the organization get opportunity for better participation and involvement in the decision making process. It develops an ownership mentality among members and they shoulder forward an organization with more collaboration, fidelity, and accuracy.

However, many others strongly disagree with those arguments and indicate that it has devastating effect on human morale, motivation, and productivity. “Downsizing may provide a decrease in operating expenses in the near term, but the long term impacts may not be so positive” (Difrances, 2002). Downsizing can lead to a loss of knowledge and experience base because of some laid off will be the people who worked for a long time with organization, old people, who may not have a fast and efficient action in work like young people, but they have extensive knowledge, experiences that young people learn in short time, loss available mentors for existing and new employees, loss of corporate culture, and downsizing can have direct impaction to the customers such as loss of established customer service and contacts.

Therefore, whenever workforce downsizing is chosen by organizations in hard time or peaceful time, there is definite and obvious impact good or bad on organizations. But in all the affected elements, the human factor is probably the most affected element. They are staffs of organization, they dedicated their soul to the development of organization, they are people who be laid off or people who lucky enough to keep their job. The individuals who lose their jobs (called victims) are obviously the most affected by downsizing. “Numerous researchers have focused on the impact of downsizing on workers whose employment is terminated due to reasons independent of job competence (Cappelli, 1992). These individuals are often known as the “victims” of downsizing due to research that documents the devastation of job loss, focusing on negative consequences in terms of psychological and physical well-heing (e.g., Bennett, Martin, Bies, & Brockner, 1995; Cappeili, 1992; Fallick, 1996; Leana & Feldman, 1992)”. The real pains of downsizing cannot be minimized. Careers change, families struggle, and downsized victims suffer loss of prestige, income and security. While a few downsized individuals may be victims of their own past inefficiency, the vast number are those who have performed well and played by the rules but have become the victims of a changing economic environment.

However, several researchers have analyzed those who remain in the downsized organization called “survivors” (e.g., Allen, Freeman, Russell, Reizenstein, & Rentz, 2001; Appelbaum & Donia, 2001; Brockner, 1988a; 1992; 1995; Brockner, Grover, O’Malley, Reed, & Glynn, 1993; Cascio, 1993; Mollica & Gray, 2001; Noer, 1993; O’Neill & Lenn, 1995; Shah, 2000). The survivors of downsizing are not the happy campers, grateful to have their jobs, but rather that surviving is so difficult that continuing employees experience higher levels of stress than displaced employees (Collins-Nakai, Devine, Stainton & Reay, 2003). The downsizing has more effect on the psychological contract that exists in between management and workers within the organization. Many researches reported that it would develop stagnation, deterioration, low morale, low trust and productivity. The fear and anxiety of the retainers of the organization is more, as there is more uncertainty and insecurity feeling among them”. This is called as “survivors’ syndrome.”

Definition of survivor syndrome

The literature suggests a condition referred to as “survivor syndrome”, or a “set of attitudes, feelings and perceptions that occur in employees who remain in organizational systems following involuntary employee reductions” (Collins-Nakai, Devine, Stainton & Reay, 2003 p.109-110). Survivor syndrome is defined by some human resource professionals as being the “mixed bag of behaviors and emotions often exhibited by remaining employees following an organizational downsizing” (Appelbaum, Close & Klasa, 1999 p.424-436). Survivor syndrome has become known as the emotional and attitudinal characteristics of those who have survived from a downsizing (Mossholder et al., 2000; Iverson and Pullman, 2000; Allen et al., 2001). The emotional responses of each survivor are different.

There are not many previous researches confirmed the positive response for survivor when downsizing occurs, some note that concentrating on core operational competencies can reduce unnecessary management layers and increase the speed of decision-making (DeWitt, 1993; Tomasko, 1989), somes even suggest that fear of termination may increase individual effort among employees who wish to retain their jobs (Kraft, 1991). A few active survivors feel themselves so lucky because they still have their job, survivors may work more hours without compensation to help the organization through the transition. They believe that they quite understand the difficulties as well as the main reasons why organizations choose to apply downsizing strategy, they are willing to stick with organization for a long time and continue add their efforts to the development of organizations. Contrary to a few positive responses, a stream of research, both laboratory and field, has provided a lot of evidences of the harmful effects downsizing can have on survivors, these effects have been described in terms of lower morale (e.g., Armstrong-Stassen, 1993), high stress (e.g., Leana and Feldman, 1992), and anger, envy, and guilt (e.g., Noer, 1993). According to Collins-Nakai, Devine, Stainton & Reay (2003) consistent with the terminology of a syndrome, this collection of symptoms includes anger, depression, fear, distrust, and guilt, or Baruch and Hind (2000) indicates that survivors exhibit a plethora of problems, such as de motivation, cynicism, insecurity, demoralization and a significant decline in organizational commitment. Termination of co-workers may lead to perceptions of organizational injustice and distrust of top management (e.g. Brockner & Greenberg, 1990; Mishra & Spreitzer, 1998; Noer, 1998).

A lot of research shows that in case of downsizing, the organization breaks the implicit psychological contract between employer and employee-a contract that implies lifetime employment in return for hard work and loyalty. As a result, the feeling of dependency that may have evolved into entitlement is transformed into a sense of betrayal. Downsizing survivors often curious about management and spend their times to observe the intention of management after downsizing occurs; they have greater concern on their future with the organization. It leads to stress and strain among members in the organization; it affects their next attempt and the willing to stay with the organizations. With survivors, organization may thinks they are lucky, but in the reality of many people, their emotions are anger, loneliness, feel lost in broken team work because of missing their colleages, they do not feel confident enough for work due to their wondering about their job. Downsizing occurs that means organization is left with fewer employees who are expected to put in their best effort in a manner that enhances organizational productivity (Kets de Vries & Balazs 1997). They are the ones who organization put their faith in; expect long term commitment, but with fews people, it may lead to workload, role conflict, and role ambiguity tend to be high among the remaining staff after downsizing (Hellgren et al. 2005; Parker et al. 1997; Tombaugh & White 1990). Workload reflects the perception of having too much work to do in the time available (Beehr, Walsh & Taber 1976). Workgroup membership changes also may be associated with the loss of important organizational knowledge (Fisher & White, 2000). Role conflict concerns the experience of having to deal with conflicting terms, instructions, and demands in the work environment (Rizzo, House & Lirtzman 1970). Role ambiguity relates to the individual’s experience of not knowing what is expected of her at work (Caplan 1971). Beside that, survivors may view downsizing as a threat to their job security, an indication of poor organizational performance, or a symptom of unfair management behavior. Survivors may also develop negative feelings toward the organization, as well as perceiving that organizational goals are difficult to achieve. According to Isabella (1989) has noted that while organizations are usually prepared to meet the needs of those being laid off, they are often unprepared for the strong emotions, lengthy adjustment periods, diminished morale and lower productivity often experienced and expressed by survivors. Managers may expect survivors not only to be grateful they were spared and to forgive what happened to their friends, but also to put their feelings aside and work harder. But the reality is not that, a bag of survivor behaviors or called survivors syndrome has always existed, it is like a contract between employees and organizations, the contract gives survivors psychological control over their work environment, which lets them freely invest themselves in caring for customers.

Trust

Granovetter (1985) and Lewis and Weigert (1985) define trust as “a willingness to be vulnerable to others, based on the prior belief that those others are trustworthy”. Another definition of trust is offered by Mayer, Davis and Schoorman (1995), who proposed that trust is “the willingness of a party to be vulnerable to the actions of another party based on the expectation that the other will perform a particular action important to the trustor, irrespective of the ability to monitor or control that other party”. Or according to Mishra & Spreitzer (1998) trust is related to psychological contracts since trust is the expectation of a future action based on the action in the past by observing the rules of behaviors in relationships. If these expectations are not met, the expecter becomes hopeless, frustrated and will lose confidence, distrust will appear instead of trust (Robinson, Kraatz & Rousseau, 1994). The trust is an essential part of managing people and building a high performance, productivity organization. Trust is the foundation of all relationship from top to bottom in the organization. If employees believe in their manager, their organization, this relationship will always help to create good working conditions, employees are willing to stand up for their organization at any situations, they will naturally want to do a good things, contribute their best effort for the success of their organization. Conversely, if there is no trust between employees and managers, employees will have negative actions, will not devote their energy to the development of their organization, the relationship is broken.

“Downsizing organizations appear to suffer a deterioration of trust (Buch & Aldridge, 1991; Cascio, 1993) and an increase in fear (Buch et al., 1991). The occuring of downsizing makes employees feel uncertain about organization, stress … the responses tends to score lower in problem solving, creativity and the ability to learn new skills, uncertainty and anxiety reduces the focus of work. Trust between employees and organization also reduced because downsizing is usually a headful though of managers, they need along time for making the decision, but with employees, downsizing is just a sudden result, sometimes they do not have a chance to prepare or may not believe that they will be the one who be laid off. According to O’Neill & Lenn (1995), survivors who believe that management is competent and reliable, may view downsizing as less threatening because they believe that the managers will keep their promise, be honest và open vá»›i what is going on with their employees. Trust is instrumental in overcoming resistance to change, for it shapes how individuals interpret the implementation process (Kotter & Schlesinger, 1979). If they have trust, survivors are willing think that all the things that organization do, have a reason, it is a good thing for them, for organization, downsizing just helps organization stand in difficult time as well as creating opportunities for employees in the future. In other words, trust in top management minimizes the categorization of threat by helping survivors to understand and believe in management’s intentions and expected behavior. If they do not have trust, survivors wil have negative thinking such as the decision of manager is wrong, or managers put their personal interests above the interests of employees. Without trust, employees are likely to feel threatened by downsizing, leading to resistance and retaliation, rather than the constructive cooperation that is necessary to facilitate deep change (Quinn, 1996).

Commitment

There are a lot of definitions about employee commitment such as “A force that stabilizes individual behavior under circumstances where the individual would otherwise be tempted to change that behavior” (Brickman, 1987), or “The relative strength of an individual’s identification with and involvement in a particular organization” (Mowday et al, 1979) or simply “A psychological state that binds the individual to the organization” (Allen & Meyer, 1990). “Commitment is loyalty to the organization. A loyal employee identifies with an organization and is involved in being an employee of that organization” (Price & Mueller, 1986). Committed employees feel that there is a tight string between them and the organization, which, in the positive form, makes them more willing to perform their job. Organizational commitment is the ‘driving force behind an organization’s performance’ (Suliman and Iles, 2000, p. 408). The multidimensional approach poses that organization commitment is influenced by three constructs: emotional attachment (affective commitment), perceived costs (continuance commitment) and moral obligation (normative commitment) (Allen and Meyer, 1990). Affective commitment is mean that employees stay with organization because they want to, they believes in organization and feel it like their home. Normative commitment is mean that employees stay with organization because they feel obligated to continuew to work for many different reasons and purposes. Continuance commitment is mean that employees stay with the organization because cost of giving up the job is too high for them. (European Motivation-Index.com). It has also been proposed that different types of commitment can have different effects on behaviors and attitudes (Iles et al., 1990). For example, continuance commitment can have detrimental effects on job satisfaction compared to the beneficial effects of affective commitment (Suliman and Iles, 2000). Affective commitment has been shown to be the best predictor of intention to leave (Stallworth, 2004) and found to be more important than job satisfaction in determining service quality of customer-contact employees (Malhotra and Mukherjee, 2004).

It can be seen that in human resource management process, organizations should pay attention to the affect commitment group because these people will add value, increase productivity and quality to the organization, but they also be the most affected by downsizing, or in other word “maintaining a high level of employees’ affective commitment to the organization is assumed to be a critical factor for successful downsizing, but downsizing tends to reduce employees’ affective commitment to the organization” (Lee Jaewon, 2002). According to many research about employee commitment, in downsizing context, employees’ commitment to an organization is challenged. Moreover, commitment has been shown to positively influence other variables related to ‘survivor syndrome’, such as job satisfaction (Liou, 1995; Fletcher and Williams, 1996; Mowday et al., 1974; Wong et al., 1995; Vandenberg and Lance, 1992), performance (Hartmann and Bambacas, 2000) and perceived organizational support (Eisenberger et al., 2001). A negative relationship has been shown for absenteeism (Iverson and Deery, 2001; Metcalfe and Dick, 2000) and turnover intention (Schnake and Dumler, 2000)

Stress

According to Casico & Wynn (2004) stated that the downsizing create “a breach of an unwritten rules that constitute the ‘psychological contract’ between employer and employee leads to a rise in stress and a decrease in satisfaction, commitment, intention to stay and perceptions of an organizations trustworthiness, honesty, and caring about its employees. Stress has been defined “as a stimulus, a response, or the result of an interaction between the two, with the interaction described in terms of some imbalance between the person and the environment” (Cooper, Dewe & O’Driscoll, 2001). When downsizing occurs, like the victims, the survivors often lose control over their employment status and work situation. Survivors often feel angry and overwhelmed by the sudden disruption of the workplace, similar to people who be laid off, survivors also have feelings of betrayal and fury when downsizing occurs. Research also indicates that other stressful characteristics tend to emerge when work has to be carried out by fewer employees (Hellgren & Sverke 2001; Hopkins & Weathington 2006; Pfeffer 1998). The lack of people to work become overwhelmed, constant anxiety because of imbalance as well as job lossed can be happened anytime that creates stress to survivors.

Employee stress can take many forms and significant impact on both employees and organizations; it can manifest as anxiety, irritability, dependency, depression and it results in reduced productivity, employee burnout, absenteeism … (Valueoption.com). It has been suggested that layoff survivors experience stress that is as great, or even greater than, the stress felt by those who have been laid off (Kaufman 1982).

Job insecurity

Job insecurity is the exact opposite of job security, is defined as the “perceived powerlessness to maintain desired continuity in a threatened job situation” by Greenhalgh and Rosenblatt (1984). Job insecurity represents one of the most frequently investigated stressors in the context of organizational change and downsizing (e.g., De Witte 1999; Sverke/Hellgren 2002). The string sticks employees with organizion is job, in other word, any organization keeps their employees by proper job with many opportunities to learn, to develop, and above all of them, the job has to be durable and security. When downsizing occurs, survivors feel like the promise of organization has broken down, they see their colleagues lose their job and they fear of losing their jobs at anytime, fear of instability of income, loss of status or self esteem. They believe that their work will no longer be safe, if the organization was willing to let the employees go in the past, they would be willing to do it again in the future. Job insecurity leads to dissatisfaction, people intent to leave the organization and come to a safer place; it also leads to greater absenteeism, higher turnovers and disability claims (Boroson and Burgess, 1992; Koco. 1996; Mishra and Spreitzer. 1998; Tombaugh and White. 1990).

Previous studies such as Moore, Grunberg & Greenberg (2006); Ashford, Lee & Bobko (1989); Brockner et al. (1992) or Hellgren & Sverke (2003) have concluded that job insecurity are related with organizational downsizing both in short and long term perspective and the worried about future job loss is associated with impaired work attitudes and well-being. Theorists have emphasized that job insecurity is a multidimensional phenomenon (Ashford, Lee & Bobko, 1989; Greenhalgh & Rosenblatt, 1984; Jacobson, 1991). The first dimension, called “severity of threat”, consists of the range of work features at risk, the valence of these features, probabilities of losing each feature, and the number of sources of threat. The second dimension is “perceived powerlessness”, or one’s ability to respond to risks. Job insecurity can also be thought of in terms of expectancy (i.e. probability of loss) and valence (i.e. value of job features) from expectancy theory (Jacobson, 1991). Job insecurity is a broad concept, including threats to any desired work features including opportunities for career development or wages. perceptions of job insecurity also can be considered as stress inducing, so reports of worry and stress are sometimes used as proxies for perception of job insecurity. Results showed that perceived job insecurity increased over time as layoffs unfolded but no new information arrived. Job insecurity was lowest among those employees who had no contact with workforce downsizing, with higher insecurity among those who had friends or co-workers laid off, and the highest insecurity among those who had been warned that they would be laid off or who had been laid off and then rehired.

Hypothesis

Many organization managers apply workforce downsizing strategy for their organization, often focus their attention and effort for those employees who be laid off and pay little attention to those who remain with organization

As the large bank in Vietnam, VietinBank is also applying workforce downsizing like many other organizations to overcome the current difficulties. Get to know the survivor’s syndrome is very important not only for VietinBank but also for many other organizations. The future of the organization can be at stake if these warning signs take hold and start to have a long-term effect. Organizations that understand and combat the causes of survivor syndrome at an early stage have a far better chance of weathering the storm and moving forward after the period of unsettling change.

Based on the previous studies, in the scope of this research, researcher would like to find out the impact of workforce downsizing to the behavior such as trust, commitment, and stress and job insecurity of Vietinbank’s staffs to see how they were affected by downsizing and which elements of fours will be the most impacted by downsizing. Through this research, researcher hopes to put some help for VietinBank managers in order to have a better understanding about their employees so that they can looking for an appropriate direction as well as specific plan to minimize the harmful impacted may arises from downsizing.

Based on the above theory discussion, the Hypothesis is formulated as following:

(H1) There is a significant relationship between downsizing and VietinBank survivor’s trust.

(H2) There is a significant relationship between downsizing and VietinBank survivor’s stress.

(H3) There is a significant relationship between downsizing and VietinBank survivor’s commitment.

(H4) There is a significant relationship between downsizing and VietinBank survivor’s job insecurity.

(H5) There is a survivor’s symptom that be strongest impacted by downsizing in VietinBank

Chapter Summary

Through out the chapter, researcher give a deeped review of previous research on downsizing and it’s impacted on survivors. There are many different opinions about the effects of downsizing on organizations, somes indicated that downsizing is an effective stratefy for organization, which may lead to increase innovation, human resource focusing. However, numerous previous studies have concluded that there are adverse effects of downsizing on organizations, especially for survivors, who is considered to be lucky one for remaining their job. Previous researchs have come up with a term “survivor’s syndrome” to describe the behaviors or attitudes of survivors during and after the workforce downsizing occurs. And by understanding the attitudes, emotions and viewpoints of the survivors, a clear perspective on the true short and long term benefits, gains or losses of downsizing for corporations can be derived. Even in early ‘survivor syndrome’ literature there was some evidence that effective management of downsizing can control for negative effects on the survivors (Brockner, 1990; Brockner et al., 1992)

The next section of the research studied further the impact of downsizing on trust, stress, commitment and job insecurity of VietinBank’s survivors. This research enables better understanding about the perspective and behavior of VietinBank’s survivor when downsizing situation occurs.