Downsizing in the downturn

by 12 Mar 2009

As the global economic downturn continues to bear down on the Australian economy, redundancies are a fact of life for some organisations. HR Leader looks at the latest trends and the role of outplacement in easing the process

A growing number of organisations are tightening their belts and cutting expenditure and staff costs. Many businesses are looking at measures such as hiring and salary freezes in a bid to avoid redundancies, however retrenchments are unavoidable in some of the worst-hit sectors. Recent research has found that 63 per cent of companies are forecasting redundancies in the coming 12 months, with an average planned cut in work force size of 5.5 per cent.

The research, which was conducted by Hewitt Associates, found that the hardest hit job families are administration – with 61 per cent of organisations planning to make cuts in this area – followed by sales at 41 per cent.

“Redundancies within the banking, finance and insurance industries are expected to slow, whilst an upswing in retrench ments is forecast for the IT and high-tech industries”, says Jairus Ashworth, reward practice leader with Hewitt in Australia.

The survey also found that 78 per cent of organisations with a formal redundancy program provide support for outgoing employees, such as career counselling or outplacement services, and the majority of these organisations (63 per cent) take steps to measure the effectiveness of these programs.

“These results show that, whilst redundancies are inevitable in these difficult economic times, Australian organisations are looking for ways to minimise job losses and the majority are doing the right thing by those employees they are forced to retrench,” Ashworth says.

David Reddin, director of Reddin Transitions, says that com panies are turning to outplacement partners to help in the total planning of any downsizing project. No longer is being “pres ent on the day” and helping a person adapt their skills enough. Rather, Reddin says, it’s all about equipping the managers to deliver the bad news, helping with internal communication pro grams, designing “survivor management” initiatives, and help ing the organisation remain viable through broader risk management initiatives.

Career transition services are seen as a normal part of any redundancy or retrenchment program, and companies are gen erally sensitive to the legal, social, and often moral implica tions of the actions they are taking, Reddin says. “Sure, some rubber-stamping takes place – for example, ‘We have a global contract with xyz company in career transition, so that’s where you’ll go’.

“But more and more companies are allowing their affected people to have some choice based on the premise that they will be more successful working in an environment, and with a consultant, that suits them and their needs. Sometimes budget doesn’t allow this, but certainly this is the case at more senior levels,” he says.

HR’s role

HR plays a critical role in the process, and the success of any redun dancy program depends on the planning, according to Reddin.

“HR needs to be intimately involved in who is to go, the mes sage to be delivered, helping equip line managers deliver the mes sage in a clear, unequivocal fashion, understanding the risk management implications of such an exercise and planning how to minimise that risk,” he says.

“It is typically HR which also monitors the success of any pro gram, ensuring that the ex-company employees are being looked after and receiving what they need from their program.”

HR can also help line managers think through risk issues, such as what happens if a certain team goes, what the impact might be on customers and key accounts and how to capture the infor mation that is in the departing employees’ heads.

The other issues they have input into include how to cover the workload with fewer resources, how to maintain credibility in clients’ and survivors’ eyes, and what sort of people the company is going to need to recruit in the future as the world of work con tinues to change.

“HR brings an intimate knowledge of the company, its cul ture, its managers’ strengths and weaknesses, where support is truly needed, and what has to be done from a risk management perspective to ensure the company can continue delivering,” Reddin says.

Looking after the survivors

Once a company goes into downsizing mode, it is vital that it puts in place a "survivor management" program, according to Reddin.

"As the first wave of people is moved out, the organisation becomes unsettled and often the best people decide they will begin looking for another role. Because they're good, they find one, and often that good one takes another with him or her. The organisation is weakened even further," Reddin says.

"There is research that shows that wholesale downsizing may positively impact the bottom line in the very short term, but that it does weaken organisations in the long term."

The loss of skills, experience and company history all impacts on effectiveness, and that shows on the bottom line within two or three years, according to Reddin. "There are many stories of companies retrenching far too much experience, and then being forced to rehire the same expertise as a consultant only months later at a far greater cost."

The best organisations still have an eye to top talent and quietly use the downturn to identify and capture that talent, he says. When the downturn ends, these companies are equipped for the quick ramp up that is needed to take advantage of changed circumstances.