downsizing & business reorganisation

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downsizing & business reorganisation

  1. 1. DOWNSIZING & BUSINESS REORGANIZATION Economics Analysis – MRB 1012 IBS – MBA UTM, SKUDAI
  2. 2. DEFINITION <ul><li>According to the Asia Pacific Journal of Human Resources 2005/Volume 42(1), </li></ul><ul><li>“ D ownsizing is an intentionally instituted set of activities designed to improve organizational efficiency and performance which affect the size of the organizations workforce, costs and work process.” </li></ul><ul><li>Downsizing means a company’s reduction in the number of employees, number of bureaucratic levels and overall size in an attempt to increase efficiency and profitability </li></ul>
  3. 3. INTRODUCTION <ul><li>Organization downsizing became part of a organizations way to increase profits in the late 1980s, 1990s and early days of the new millennium. </li></ul><ul><li>Studies shows that downsizing may not be overly beneficial. </li></ul><ul><li>Economist (1992) reported that 75% of companies that downsized believed that performance did not improve and 67% reported no improvement in productivity. </li></ul>
  4. 4. WHY MIGHT DOWNSIZING FAIL TO IMPROVE THE ECONOMIC POSITION OF A BUSINESS ?
  5. 5. IMPLEMENTATION STRATEGIES <ul><li>Downsizing implementation strategies have been studied over the years. </li></ul><ul><li>There are 3 downsizing strategies : </li></ul>
  6. 6. Short-term cost savings Quick payback Long-term adaptability Inhibits Long term payoff Moderate-term payoff Short-term payoff Temporal Target Extended Moderate Quick ImplementationTime Status quo processes Work People Target Culture Jobs and units Workers Focus Systemic Strategy Organization Redesign Strategy Workforce Reduction Strategy
  7. 7. <ul><li>Decrease in productivity </li></ul><ul><li>- workload increase and cause the drop of worker’s morale and health problem. </li></ul><ul><li>Increase in overtime wages </li></ul><ul><li>Company revenue reduce </li></ul><ul><li>Increase in training fee and cost of recruiting new skilled worker </li></ul>THE MICROECONOMIC EFFECTS OF DOWNSIZING
  8. 8. <ul><li>Loss of highly skilled and reliable workers. </li></ul><ul><li>An increase in the number of lawsuits which tends to occur after downsizing </li></ul><ul><li>Restructuring program might take years for company to stabilize due to the amount of time for the employees to adjust to their new roles and responsibilities. </li></ul><ul><li>Economic position of the company will fail if it chooses the Workforce Reduction Strategy </li></ul>THE MICROECONOMIC EFFECTS OF DOWNSIZING
  9. 9. Back To Basics: The Demand For Labour & The Determination Of Wages. <ul><li>INFLUENCES ON MRP </li></ul><ul><li>Technical change </li></ul><ul><li>Productivity growth </li></ul><ul><li>etc </li></ul>SHIFTS IN THE DEMAND FOR LABOUR
  10. 10. EFFECTS OF DOWNSIZING IN THE LABOUR MARKET W1 W2 D1 D2 S1 S2 Q1 Q2
  11. 11. THE MACROECONOMIC EFFECTS OF DOWNSIZING Downsizing <ul><li>Labour Surplus </li></ul><ul><li>Low wage rates </li></ul><ul><li>High level of unemployment </li></ul><ul><li>Less Consumer Expenditure </li></ul><ul><li>less demand for factors </li></ul><ul><li>of production </li></ul><ul><li>lower standard of living </li></ul>
  12. 12. Downsizing, Productivity & Growth <ul><li>Innovations & technological changes will raise the Marginal Physical Product (MPP) as more units of outputs can be produced by each worker. </li></ul><ul><li>In the short run, a rise in labour-saving technology often causes a downward shift in the demand for labour </li></ul>Hence the “easy way out” – TO DOWNSIZE !
  13. 13. Short & Long Run <ul><li>In the short run, labour saving technology do cuts employment and holds down wages. </li></ul><ul><li>But, historically, in the long run it has not reduced employment. It has raised workers’ incomes and increased real wages spectacularly since the Industrial Revolution. </li></ul><ul><li>Thus, downsizing is only a short terms means for pay off. </li></ul>
  14. 14. THANK YOU <ul><li>The Group : </li></ul><ul><li>Mr Tee Chee Pin </li></ul><ul><li>Ms Rahayu Tasnim </li></ul><ul><li>Ms Uma Nair </li></ul><ul><li>Ms Hazara </li></ul><ul><li>Ms Ratheega </li></ul><ul><li>Ms Hafizah Haris </li></ul>

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