Examining the Impact of Workforce Reduction on Surviving Employees in the Egyptian Organization


Bachelor Thesis, 2012
126 Pages, Grade: A+

Excerpt

Table of Contents

Table of Figures:

Chapter 1:Introduction
1.1 Research Importance and Objective
1.2 Structure of the Thesis:

Chapter 2: Literature Review
2.1 Overview on Downsizing
2.1.1 Factors affecting Downsizing
2.1.2 Approaches to Downsizing
2.1.3 Implementation Strategies
2.1.4 Theoretical Perspectives on Downsizing
2.2 Overview of Survivors in the Organization
2.2.1 Types of survivors
2.2.2 Overview of Survivors’ Responses
2.2.3 Archetypes of Survivor’s Response to Workforce Reduction
2.2.4 Factors affecting Survivors’ Response
2.3 Psychological effects of downsizing on survivors
2.3.1 Downsizing and Survivors’ Commitment/ Attachment
2.3.2 Voluntary Turnover among survivors
2.3.3 Survivors’ Psychological Contract Violation
2.3.4 Survivor’s Syndrome ‘‘Survivors’ Sickness’’
2.4 Research Gap ‘‘Hypothesis’’

Chapter 3: Research Methodology
3.1 Introduction:
3.2 Research Design
3.2.1 Structured Surveys
3.2.2 Semi-structured Interviews
3.3 Research Sample/ Sampling Techniques
3.4 Research Instruments
3.4.1 The Research Variables
3.5 Research Procedures
3.6 Data Analysis:

Chapter 4: Results and Findings
4.1.1 Frequency Tables
4.1.2 Correlation

Chapter Five: Discussion and Conclusion
5.1 Discussion
5.2 Limitations
5.3 Recommendations for Future Research
5.4 Conclusion

6 References

7 Appendix
7.1 Appendix A: ‘‘Procedural Justice and Survivors’ Responses Survey’’
7.2 Appendix B: Interview with Answers
7.3 Appendix C: List of Tables
7.3.1 Frequency Tables
7.3.2 Bar Charts
7.3.3 Correlation Analysis
7.3.4 Regression Analysis

Acknowledgment

I would like to dedicate this Bachelor thesis paper to the soul of my Dad whose words always motivated and supported me and my family who always expected much from me. Moreover, I thank ALLAH for making me able to perform my work successfully. Finally, I dedicate it to all my Professors and TAs who taught me a lot through my four years at the university. Most importantly I like to dedicate my bachelor thesis to Dr. Miral Metawie my thesis supervisor who helped me a lot and was always there with her professional experience and beneficial feedback for me. I would like to thank her for her exerted effort and her valuable time she gave me.

Table of Figures:

Figure 1: Archetypes of Survivor Response

Figure 2: Theoretical Framework of Survivor Responses to Downsizing

Figure 3: Theoretical Framework

Abstract

This present study aims at investigating the impact of downsizing on organizational survivors in the Egyptian organization. It aims at unleashing the impact of procedural justice on symptoms of survivor syndrome. It was hypothesized that higher levels of perceived procedural justice leads to higher levels of organizational attachment, less levels of voluntary turnover. To answer proposed research questions, a mix of quantitative and qualitative methods was implemented to determine the impact of procedural justice on symptoms of survivor syndrome. The results obtained from the sample (N=101) survivors supported previous hypotheses and reflected the fact that when survivors perceive layoffs to be unfairly implemented, they suffer from high symptoms of survivor syndrome.

Key Words: (Downsizing, Layoffs, Survivors, Survivor Syndrome, Job security, Procedural Justice, Attachment, Voluntary Turnover, Absenteeism)

Chapter 1:Introduction

Downsizing is a word which describes a widely implemented strategy by most organizations nowadays. It evolved due to increased reliance on modern machines and equipment rather than manual efforts by workforce. Global competition has become such fierce that it became critical fact for some organizations whether in public or private sectors to lay off their employees just to maintain their market share and competitive advantages (Appelbaum et al, 1999a). Various definitions to downsizing were proposed by different researchers at different time periods. However, all definitions exhibit the simple fact that downsizing practices are widely implemented by firms in both private and public sectors as the most formal restructuring effective strategy which helps them realize higher profits, higher share prices, and maintain their competitive position. This strategy is aiming at overcoming managerial difficulties, and adapting to environmental shifts (Tsai et al, 2006). More detailed definitions are presented and discussed below.

Cascio (1993) explained the word downsizing which refers to the previously intended eradication of jobs and positions within organizations. He explained how jobs include set of similar duties within meant positions like Programmers. That is why downsizing is not about only eliminating employees; it might include elimination of other functions, processes or hierarchical layers, or even whole systems or departmental units within organization. While Budros (1999) emphasized the permanent nature of this reduction in employee numbers with the conscious intention to achieve sought benefits in terms of improved internal efficiency and effectiveness. Budros (1999) stated that the core of downsizing process is the consciousness of those permanent reductions. He further explained how efficiency is measurement of how organizations are able to achieve their stated goals with best allocation of their resources (Budros, 1999).

Appelbaum et al (1997) stated that downsizing is a planned set of activities undertaken by top management aiming at eliminating some jobs, realizing cost savings; maintain smoother operational procedures business processes to improve its internal efficiency and effectiveness. An example of IBM which illustrates those competitive aspects was mentioned by Beylerian and Kleiner (2003) who viewed IBM’s full employment strategy in the early 1980s with no lay-offs for about forty years no single employee was laid off although it employed about 405,000 employees. When IBM began to face strict competition from new competitors like Apple and Microsoft, it had to downsize to survive within this changing environment. This example shows how downsizing is a critical strategy for firms in the whole industrial world to survive, and a necessary response to rapidly changing environment. It was mentioned that downsizing is a result of new economy which revolutionized the workplace not only in US firms but in the whole world (Beylerian and Kleiner, 2003).

From the above mentioned definitions, it might be thought that downsizing is simply about restructuring organizations. However, the term restructuring is about fundamental and radical changes in the whole organization; its strategy, employees, and processes, so it is a broader term. Downsizing is a strategy used by organizations which aim at designing smoother business processes, less costs to achieve efficiency as stated by Carbery and Garavan (2005). The difference between organizational restructuring and downsizing was highlighted by Budros (1999) who tried to omit the belief that both terms were synonymous; he mentioned that organization’s structure is about how individuals are distributed within their unique positions and how they have various roles and interactions carried on. This means that organizational structure as a term refers to formal hierarchies inside organizations, so restructuring indicates changes in hierarchical layers and redistributing units, divisions and ways tasks are organized, while downsizing is about reduction in entire size of the organization, whether this reduction is achieved by laying-off employees or functions. So both actions could have some ties but it is important to differentiate between resulted outcomes, whether they are alternation of processes and structures or contraction in size and number of employees (Budros, 1999).

Downsizing is a controversial matter which received much attention over the years (Beylerian and Kleiner, 2003). Some researchers believe that layoffs are the sole response to meet rapidly changing competitive environment. For example: Appelbaum et al, 1999a believed that downsizing is mainly implemented due to its sought financial and economic benefits which are cost savings, elimination of extra hierarchal positions which is believed to increase productivity, improve efficiency and effectiveness, and enhance the firm’s market value (Appelbaum et al, 1999a). On the other hand, layoffs are seen as only strategies which are taken by heartless strict executives who just do not care about their employees as downsizing is not the ultimate means to reduce costs; it might incur costs much higher than its desired returns due to replacement incurred expenses and severance packages like Nynex which incurred about 3 billion dollars in terms of severance packages payments, so the targeted costs reductions desired were met by only less than half of firms which implemented downsizing as a cost reduction strategy (McKinley et al, 1995). It was further stated that expected contributions of downsizing to improving productivity are limited; as when firms lay off their employees, they lose firm-specific skills of these employees which negatively affect the firm’s productivity. That is why about only 22% of companies which downsized have realized improvements in their post-downsizing productivity (McKinley et al, 1995).

When downsizing is mentioned, it is important to consider two types of employees, those laid-off who are called victims, and those remaining employed who are called survivors. It is important to consider human aspects related to downsizing process due to its impact on both victims and survivors within the organization. However, it is relatively more important to focus on surviving employees who remain within the organization and help it operate and reach its intended goals. The effects of layoffs on survivors are various; they can be either as a sense of appreciation among survivors who feel grateful as they maintained their secured jobs, or those as a sense of increased stress, and increased work load (Levitt et al, 2008). Many previous studies illustrated how downsizing negatively affects surviving employees within organizations through reducing their commitment, loyalty, and attachment to management. Those survivors carefully detect how management treats other laid off workers, then based upon the perception whether victims were fairly compensated or not, survivors shape their reactions and post-downsizing behaviors (McKinley et al, 1995). Some factors are affecting the degree to which negative responses are exhibited by survivors like procedural justice, distributive justice, clear communication, trustworthiness in management, and employee empowerment (Spreitzer and Mishra, 2002; Clay-Warner et al, 2005; Thornhill et al, 1996). However, perceived justice whether procedural or distributive has major impact on post-layoff responses according to the justice theory, the main difference between procedural and distributive justice lies in which employees are affected by the lay-off; as procedural justices is major predictor of post-layoff responses among survivors, while distributive justice predicts responses among downsizing victims (Sahdev, 2004).

1.1 Research Importance and Objective

According to this anticipated strong link between downsizing and survivors who are affecting overall organizational performance after layoffs; the purpose of the thesis is to identify the impact of downsizing practices on survivors within Egyptian organizations. The specification of Egyptian organizations in this study is based upon two main reasons:

First, Egypt is a developing country which has slow rates of economic growth and high rates of economic recession and inflation. And according to the literature on downsizing, if a certain region or country is facing economic recession, downsizing becomes the perfect strategy sought to survive within the declining economy (Selmer and Waldstrom, 2009). This aspect was further explained by Appelbaum et al (1997) who illustrated how the planned decision to lay off employees is taken with the intention of realizing costs reductions through jobs which are eliminated, and maintaining internal efficiency through better utilizing available limited resources (Appelbaum et al, 1997). So firms which face financial problems during economic downturns aim to avoid undesirable conditions by dismissing their employees (Said et al, 2007). Second, Egypt has lately witnessed many major changes on social, political, and economic levels; these changes were driven by the 25th January revolution in 2011. The political instability in the country forced some companies both foreign and local to shutdown their operating units, and dismiss some employees. Therefore, based on these reasons, Egypt is nominated to be in need for such type of studies due to the importance of the downsizing issue currently in Egyptian labor market, and the need to consider the human factor in more careful ways. Moreover, the importance of studying such effects on those survivors is due to the fact that survivors are a factor that determines the efficiency and effectiveness of the organization’s performance on the long run after it implements downsizing; they are supposed to hold new responsibilities and therefore they need enhanced skills to meet these new tasks (Carbery and Garavan, 2005).

1.2 Structure of the Thesis:

This thesis consists of seven main chapters. The first chapter is the introduction which provides a general overview of most common definitions and interpretations for the word downsizing. Some authors’ views which compared downsizing to other terms like organizational decline, restructuring are also discussed. The second chapter is the literature review which includes a detailed discussion of major factors driving organizations to undertake downsizing practices; it states major approaches to downsizing, and most commonly implemented downsizing strategies and tactics along with explaining how approaches and strategies are closely related. After that some theoretical perspectives on downsizing and their interdependence are explained. The second part of the review provides an overview on survivors; factors affecting their responses, four archetypes of survivors’ responses are also discussed along with four general types of organizational survivors, then the following part discusses various psychological impacts of downsizing practices on organizational survivors. Then the research gap is discussed; which aspects were not fully covered and considered in previous literature on downsizing’s relation to survivors within the organization, the third chapter includes the proposed methodology that will be applied to answer the research question of the paper, and the findings and discussion about the whole research represent the fifth section in the research. Then the conclusion is presented, and then the references as the sixth chapter. Finally, the appendix includes the questionnaire which was used to answer the research question, and the interview’s questions and answers. Moreover, the tables, charts used in the data analysis are attached in the appendix.

Chapter 2: Literature Review

The following section introduces information about downsizing; its various definitions, some factors affecting management’s decision to lay off its employees, some approaches to downsizing, strategies to implement it, and some famous perspectives on downsizing.

2.1 Overview on Downsizing

As mentioned in the introduction, downsizing has various definitions indicating similar aspects; it refers to shrinking staff and personnel size within some organizations aiming at improving their organizational performance. These organizations can also cut off other resources like capital and assets to better adapt to faced opportunities and available resources (Dewitt, 1993). Freeman and Cameron (1993) suggested another definition to downsizing which is considered as means followed by management to realize productivity increase, and maintain their organization’s competitive position. So it is viewed as a strategy affecting the whole organization. Other terms were used to describe downsizing like redundancy, re-organization, rationalization, revitalization, and rightsizing (Tsai and Yen 2008; Petzall et al 2000). Said et al (2007) believed that downsizing in today’s new economy has become a custom which is implemented by firms which face financial problems, or aim at improving their levels of internal efficiency and effectiveness. This modern view is not the same as traditional view on downsizing which was a solution which is taken by firms that were threatened by undesirable conditions (Said et al, 2007). McKinley et al (1995) stated that more than eighty five percent of American Firms undertook downsizing practices for their white-collar employees between 1987 and 1991, while in 1993 more than 350,000 workers were laid off.

Another important aspect to consider when studying the literature on downsizing; sometimes both organizational downsizing and organizational decline are considered as synonyms. That is why McKinley et al (2000) explained the difference between organizational decline and downsizing, and how each has different reasons; organizational decline is caused by factors that are not controllable by management such as environmental changes which weaken and reduce the company’s resources, while downsizing is an intentional planned for actions taken by management which cuts off its personnel (McKinley et al, 2000). Furthermore, there are some symptoms that indicate organizational decline were further discussed by Freeman and Cameron (1993) who stated that these reasons were the inability of management to adapt to environmental changes, less available budgets, and increased competition with other organization. Moreover, decline might not entail personnel layoffs; as it is more likely to negatively affect organizational performance and efficiency so firms might keep their employees. It means that the practice of dismissing employees sometimes is a result of organizational decline (Freeman and Cameron, 1993).

Greenhalgh et al (1988) had another perspective at this assumed relation between organizational decline and downsizing activities; they assumed that downsizing is a strategy to face organizational decline especially when it is a matter related to rare resources which force organizations to narrow their operational scope by laying-off their workers and employees with the goal of maintaining their market position and provided services and products. These lay-offs entail many tangible costs related to insurance payments, and monetary support for out-placed workers along with other intangible costs related to job insecurity and adverse reactions which might be exhibited by surviving employees who lost their trust in management (Greenhalgh et al, 1988). Some key attributes describing main characteristics of downsizing were mentioned by (Freeman and Cameron, 1993; Appelbaum et al, 1999c) who mentioned that downsizing is an intended planned for decision made by management, it is mainly about layoffs whether they were conducted through voluntary retirement programs or obligatory transfers. These actions can affect single departments or the whole entire organization. Moreover, they aim at improving performance and efficiency (Freeman and Cameron, 1993; Appelbaum et al, 1999c).

2.1.1 Factors affecting Downsizing

Downsizing as a phenomenon is attributed to various factors. These factors were explained by many researchers like (Budros, 1999; Carbery and Garavan, 2005; Dewitt, 1993) who had many perspectives on reasons which forced companied to dismiss their employees. More detailed review of these factors is presented below:

Some authors believed that technological advancements and new innovations were the driving factors causing downsizing to occur; Budros (1999) perceived downsizing as a form of organizational innovation which refers to new internally integrated systems, policies, or programs which can be procured or created within the organization which firstly implement them. As downsizing includes radical changes in organizational structures and hierarchical processes, so it could be considered an innovation system. It is a strategy adopted by many firms which believe it is the best way to improve their productivity, efficiency, profitability and productivity (Budros, 1999; Carbery and Garavan, 2005). The same aspect was mentioned by Appelbaum et al 1999a who stated that technological advancement and innovations are major factors which affect firms’ tendency to cut off its personnel due to increased global competition. However, the impact of technological advancements and organizational innovation nowadays is different from how it was years ago. Years ago, technology led to increased tendency to hire new workers, but nowadays it leads to laying-off employees. This contradiction is not driven by the technology developed, but is rather driven by the fact that some tasks which were previously done by employees who used to gather, analyze, and share information are now done mainly by new communication technological means, therefore those workers are no longer needed (Appelbaum et al, 1999a).

Meanwhile, Cross and Travaglione (2004) stated that “Downsizing has become one of inevitable outcomes of operating in a global fierce economy where continuous adjustments to products, services, and labor prices are needed to maintain current existing competitive advantage by companies which have the desire to survive in a changing business environment, adapt to up-to- date technologies, and realize economies of scale. They stated that neither organizational decline nor declining profits were only driving factors for downsizing. It was mentioned that organizations try to meet environmental conditions through outsourcing, temporary workforce employed, mergers and acquisitions, business process reengineering. These factors increased the reputation of downsizing as a strategic action (Cross and Travaglione, 2004; Dewitt, 1993; Tsai and Yen, 2008).

While Band and Tustin (1995) believed that downsizing represents solely an aspect of the overall implemented strategy to realize two major ends which are the long run market repositioning of the company, and raising the productivity of employees individually (Band and Tustin, 1995). These claims were emphasized by Tzafrir et al (2006) who stated that recession was the major factor driving downsizing systematic set of activities which take a more defensive and reactive nature when downsizing is caused by financial problems which affect both internal system and external environment of the organization (Tzafrir et al, 2006). Moreover, this overall implemented strategy was further explained by Budros (2002) who mentioned that there are two factors which affect the firm’s choice of certain downsizing strategy. The first factor is the degree of employees’ protection within their firm; if employees are forced to leave through involuntary downsizing, they are less protected due to less control they hold towards their economic job well-being. While if their firms implement voluntary non-lay off strategies, survivors are well-protected due to possessed control over their job continuity. The other factor is the degree of importance of short-term savings in costs. The involuntary downsizing helps the firm realize high cost savings as the firm does not pay its laid off employees leave payments, while relatively low cost savings derive from voluntary downsizing due to long time and high monetary payments made for employees’ retirement programs( Budros, 2002).

2.1.2 Approaches to Downsizing

The word approach was defined by Thornhill and Saunders (1998) as the way and shape of the change process implemented by the firm (Thornhill and Saunders, 1998). Two famous downsizing approaches which are: the reorientation and convergence approaches were mentioned by Sahdev (2004) who stated that they represent two contexts within which downsizing can occur. He stated that top management during reorientation periods attempts to consider all forces affecting its fundamental change like technological, competitive, and institutional external factors. While during convergence periods top management focuses on implementing continuous improvement programs and incremental changes (Sahdev, 2004).

2.1.2.1 Downsizing as Reorientation

According to Freeman (1994), downsizing can be seen as reorientation tool if firms react to its past incurred faulty steps or proactively and strategically adapt. At this case it is appropriate for the firm to redesign its processes, purpose, and structure. This can be done by top management which assesses the firm’s existing constraints, design, and human resources management practices. Freeman (1994) highlighted the fact that if the firm is undertaking downsizing on a large scale, it is an indicator of the past misalignment at this firm. Yet, this misalignment can still be addressed by reorientation approach to the firm (Freeman, 1994). Meanwhile, reorientation approach to downsizing is implemented by firms which attempt to match their internal capabilities and external environment to improve their competitive position (Appelbaum et al, 1999a). It is a short-term approach as indicated by Thornhill and Saunders (1998) who stated it is not easily implemented as firms need to ensure that changes include the whole organization which needs to be altered and redesigned (Thornhill and Saunders, 1998). Moreover, Appelbaum et al (1999a) explained that firms implement the reorientation approach through enhancing their existing mission after evaluating their structures. The major concern for this approach is improving the firm’s position and efficiency; therefore layoffs are not randomly conducted, but the firm selectively decides whom to be dismissed after conducting analyses involving all departmental levels, tasks, proposals are made about the new suggested design which must be known by all employees, firms abide by certain guidelines during this process, and they also consider their external relations with other firms (Appelbaum et al, 1999a).

2.1.2.2 Downsizing as Convergence

Freeman (1994) stated that the convergence approach does not entail radical changes but rather is done through downsizing which is considered a critical strategy incorporated into the firm’s goal of continuous improvement in its future efficiency. This can be achieved when all members inside the organization believe that improvement is always needed and operations can be simplified. Therefore all members are held responsible for downsizing, all tasks and positions are subject to possible replacement due to goals of simplifying tasks and reducing workload (Freeman, 1994). Years later, Thornhill and Saunders (1998) defined the convergence approach to downsizing as an approach implemented by firms willing to improve their efficiency and operational quality by adopting some incremental changes in their processes (Thornhill and Saunders, 1998). These changes are not fundamental but as explained by Appelbaum et al (1999a), these changes aim at continuously improving internal efficiency and performance through commitment to specific time frame before engaging in downsizing actual practices by allowing participation and involvement of all employees and managers who cooperate, suggest proposed improvements and strategies to maintain their firm’s market position, and realize smoother operational procedures (Appelbaum et al, 1999a).

2.1.3 Implementation Strategies

The three main downsizing strategies are workforce reduction, organizational redesign, and systematic strategies. The term strategy was defined by Tsai and Yen (2008) who referred to it as ‘‘Set of undertaken activities, procedures, policies and processes which consequentially and strategically affect the firm’’. This strategy could be planned or emergent due to its ideational and behavioral perspectives (Tsai and Yen, 2008).

These three strategies are independent; a firm can implement one or more of them according to its conditions. However, the firm should scan its internal capabilities and external environment, define its mission and sources of competitive strength, select the suitable downsizing approach that suits it from above two mentioned approaches, and decide the implemented downsizing strategy (Appelbaum et al, 1999a). Tsai and Yen (2008) stated that the chosen downsizing strategy depends on the degree of change desired by the firm, and that organizations usually implement two or more strategies when undertaking downsizing either simultaneously or sequentially. For example, some firms might begin with personnel reductions then follow it by a redesigning process for the whole organization (Tsai and Yen, 2008).

2.1.3.1 Workforce Reduction

Workforce reduction is considered the most common downsizing strategy. The most well-known tactics for workforce reduction are push and pull strategies (Appelbaum et al, 2003). The same tactics were mentioned by Budros (2002) but with different terms; voluntary turnover referred to pull strategy, and involuntary turnover referred to push strategy (Budros, 2002; Appelbaum et al, 2003). Voluntary turnover/ pull strategy occurs when employees voluntarily quit their jobs, it means there are no economic pressures but the social frame poses this action which occurs through offering some early retirement programs, and attrition opportunities, employees sometimes prefer voluntary turnover because it does not have those negative effects associated with involuntary lay-offs. On the other hand, involuntary turnover/ push strategy is about directly laying off employees because of their poor abilities or being faced by some pressures related to economic or social matters, these pressures make it more likely for the firm to engage in involuntary downsizing which is usually achieved through personnel layoffs, these companies are willing to maintain and keep their competitiveness in the market or realize cost reductions (Budros, 2002; Appelbaum et al, 2003).

Although work reduction strategies have some sought benefits like higher flexibility, and open communications, they are short term benefits related daily operations which might realize some cost savings. Firms which lay off their employees expect high cost savings due to large reduced portion of operating fixed costs like compensation and payroll expenses. Yet, some long term negative effects exist; employees are threatened, unable to predict coming layoffs, and lose their trust and belief in management. The appropriate downsizing decision should consider careful evaluation of individual employees’ performance, and dismissing those employees who do not add or create value to their firms (Appelbaum et al, 1999a; Said et al, 2007).

2.1.3.2 Organization Work Redesign

Organization work redesign is a medium term strategy with some sought benefits which can be realized if a full analysis for all departments, divisions, and tasks was performed to properly reach the desired design (Makawatsakul and Kleiner, 2003). Firms redesign their processes, procedures, and achieve flatter hierarchies through coordinating their departments and removing all extra uncritical divisions to improve operational efficiency and effectiveness. This simplifies work structure within the firm (Appelbaum et al, 1999). Another common term describing a firm reorganizing its activities, structures, and implementing dramatic internal changes is organizational restructuring (Appelbaum et al, 1999c). The changes undertaken by management are aiming at increasing efficiency and effectiveness of the organization through improving its competitiveness and production (Appelbaum et al, 1999c).

2.1.3.3 Systematic Strategies

Systematic strategies are about simplifying the whole organization; its production processes, and its relations with suppliers. This strategy helps firms realize their desired benefits in terms of improved procedures and efficiency through eliminating redundancy within the firm (Appelbaum et al, 1999a). The organizational system is divided into internal and external operating systems through redesigning processes and procedures; the internal side is about employees and internal operation, while the external side is related to supply chain and the firm’s external relations (Makawatsakul and Kleiner, 2003). It was mentioned by Appelbaum et al (2003) that the aim of this strategy is to create a new organizational culture including its employees’ values and norms, integrating the firm as a whole system. The systematic strategies discussed above are similar to those mentioned by Nair (2008) who stated that organizations can adapt to environmental changes by either proactive or reactive strategy. Proactive strategy occurs when the firm is restructured with the aim of increasing its efficiency, while reactive strategy occurs when the firm maintains its survival by obtaining resources preventing its bankruptcy (Nair, 2008).

2.1.4 Theoretical Perspectives on Downsizing

Appelbaum et al (1999a) stated that there are three main perspectives concerning downsizing which are global (industry), organization, and individual level. Macro broad issues like mergers and acquisitions, global employment trends are addressed by industry level, while organization level is concerned with evaluation of benefits and disadvantages of downsizing strategies implemented, and finally the individual level is about employees’ psychological status (Appelbaum et al, 1999a). However, the main three perspectives on downsizing according to McKinley et al (2000) were the economic, institutional, and socio-cognitive perspectives (McKinley et al, 2000). According to Tsai et al (2006), these theoretical perspectives of McKinley and associates (2002) are meaningful as they explicitly explain three major driving factors for downsizing, and provide better understanding of downsizing by people. Although there is no empirical research confirmed their absolute validity, they remain the most commonly used perspectives explaining downsizing (Tsai et al, 2006).

Tsai and Yen (2008) confirmed that the three perspectives; economic, institutional, and socio-cognitive have resulted from the socio-cognitive process by which managers agree on downsizing as a desirable effective strategy to be implemented regardless conditions, status and concepts of their various organizations. They explained that social forces affect management decisions towards downsizing which was considered a legitimate institutional norm, and that is why institutionalization was considered an important driving factor for downsizing. These social and institutional factors are external irrational, while some internal irrational factors like the organization’s culture and leadership traits were other factors affecting downsizing. Furthermore, it was stated that those strategies could have various levels among which firms could choose, these levels could range from involuntary or voluntary redeployments, layoffs whether accompanied with placement assistance payments or without, and the firm selects the level according to its background aspects and redundancy characteristics (Tsai and Yen, 2008).

2.1.4.1 Economic Perspective

McKinley et al (2000) stated that the economic perspective is concerned with ways how downsizing occurs, as it is considered a device influencing companies’ financial performance. It assumes that decision makers are aware of the relation between financial performance in their firms and potential downsizing practices. That is why they believe economic conditions like operational efficiency, increased productivity are main motivations to have future layoffs. Therefore they believe downsizing is the solution to face organizational decline phenomena which was previously discussed. Nowadays downsizing is implemented by various firms which are willing to increase their productivity although they do not face decline (McKinley et al, 2000). Few years later, Nair (2008) stated that the economic perspective is most commonly used by organizations which aim at improved future financial performance and increased productivity through reduction in operational expenditures. He mentioned that this pure economic perspective of downsizing does not consider costs associated with negative human aspect of the process. At the same time, it was mentioned that non-economic forces make it necessary for organizations to downsize. These non-economic forces like management beliefs and practices; if managers prefer flatter organizational structure and less hierarchical layers, they are more likely to undertake downsizing and laying off some middle managers (Nair, 2008).

2.1.4.2 Institutional Perspective

McKinley et al (1995) defined institutional rules as set of norms, expectations commonly held and shared by individuals whether in a society or an industrial sector. These rules determine how various organizations are structured and designed, how their managerial processes and procedures are undertaken. They gave an example of such rules which is the Human Resources Management Department which should be present in all large corporations (McKinley et al, 1995). In year 2000, McKinley et al (2000) further completed their studies on the three perspectives on downsizing; they stated that due to lack of clear evidence supporting claims of economic perspectives about the positive relationship between downsizing and the financial performance of the organization; institutional perspective appeared to complement the economic one. This institutional perspective assumed that both non-economic and economic factors drive downsizing. Downsizing is a concept referring to effectively managing the organization along with maintaining social acceptance. It goes along with cloning as a driving factor to downsizing, as both assume that downsizing is driven by some external social factors or market competitiveness requirements (McKinley et al, 2000). Furthermore; Tsai et al (2006) stated there are some items which should be included within the institutional theory of downsizing. These items are the motivating factors to downsizing whether they are socio-cognitive, economic, or institutional ones, they can be considered whether individually or jointly, and that post-industrial western countries are more likely to consider those three factors (Tsai et al, 2006).

According to institutional theory; economic and technical factors have little effect on institutional rules within organizations, they are only traditional elements to which firms react and conform. Three major social forces leading organizations to adopt institutional rules were defined, these factors are: constraining, cloning, and learning (Tsai et al, 2006). Two years later, Tsai and Yen (2008) further added that cloning, constraining, and learning were external institutional factors, and that organizations engage in downsizing activities in response to these three external factors despite their awareness that their anticipated benefits might not be realized (Tsai and Yen, 2008). McKinley et al (1995) elaborated that institutional theory of downsizing specified these three factors of cloning, constraining, and learning through emphasizing the critical role played by institutional rules and laws in shaping processes and structures within organizations (McKinley et al, 1995).

Constraining

Constraining was defined as the institutional rules and legitimate structures to which firms conform in their activities (Appelbaum et al, 1999a). This definition was also supported by McKinley et al (1995) who mentioned that these institutional rules are the determining factor to shapes on management structures and activities in their legitimate content. Moreover; Tsai and Yen (2008) stated that constraining occurs when top management makes the decision to downsize (Tsai and Yen, 2008).

Cloning

Cloning refers to imitation of some companies to other big ones which activities represent a benchmark in their excellence in the market; it is like a strategy of following market leaders (Appelbaum et al, 1999a). Cloning was defined by Tsai and Yen (2008) as an imitation process is implemented by the organization. While McKinley et al (1995) stated that some firms play roles of imitators to other major prestigious firms in the same industry sector as an attempt to face uncertainty caused by global fierce competition (McKinley et al, 1995).

Learning

Learning refers to educational institutions which discuss downsizing approaches and strategies (Appelbaum et al, 1999a). According to Tsai and Yen (2008), learning occurs through education and MBA courses (Tsai and Yen, 2008). These basic MBA courses and taught subjects are management practices and principles presented and taught in worldwide universities by professionals as indicated by McKinley et al (1995).

2.1.4.3 Socio-cognitive Perspective

McKinley et al (2000) had mentioned that the socio-cognitive perspective could explain the roots upon which the institutional perspective of downsizing was based at micro-levels (McKinley et al, 2000). Few years later, Tsai et al (2006) explained that psychological aspects could also shape downsizing decisions according to the socio-cognitive viewpoint. So downsizing is a legitimate ethical practice because of social interactions and societal cultures which help managers build their mind sets which view downsizing as this legitimate strategy to respond to dynamic environment (Tsai et al, 2006).

2.2 Overview of Survivors in the Organization

Downsizing is considered a strategy to adjust to structural and fundamental changes in global economic environment. Companies which are implementing workforce reduction strategies should consider their employees whether the laid off or those remaining in employment. Employees who survive a layoff are called ‘‘Survivors’’. They exhibit many negative post-layoff behaviors and feelings like stress, declining morale. However, the strength and shape of these behaviors and feelings depend on some factors which shape survivors’ responses (Mishra and Spreitzer, 1998). Although success or failure of downsizing is highly linked to the degree to which survivors accept and adjust themselves to it, management may ignore effects that downsizing may have on surviving employees who can lead to declining organizational performance on the long run as stated by (Kinnie et al, 1998; Thornhill and Saunders, 1998).

Nair (2008) stated that attitudes and behaviors of survivors are negatively affected by layoffs which create more stress, workload, less morale, commitment, trust in management, violation of psychological contract, depression. He further stated that management can avoid these negative reactions by clearly explaining and informing employees of its motivations to downsize. If employees believe there were clear honest communications between them and management, they are less likely to exhibit these negative reactions, and they are likely to engage in more speed and effective efforts to rebuild their organization (Nair, 2008).

2.2.1 Types of survivors

Some elements were discussed by Beylerian and Kleiner (2003) who stated that survivors respond and exhibit some negative emotions according to the legitimacy of layoffs; whether laid off workers were notified prior to these layoffs, whether the decision was made according to a clear criterion like seniority, the degree of fairness in applied procedures, and whether they were fairly implemented. So when survivors perceive inadequate implementation of above mentioned items, they will exhibit less morale, commitment, attachment to management (Beylerian and Kleiner, 2003). Same aspects were discussed by Mishra and Spreitzer (1998) who confirmed that survivors react in various ways to downsizing because of various characteristics which differentiated between four types of organizational survivors. These types are constructive, destructive, active, and passive survivors. This classification is based on two dimensions; survivors might react passively or actively, and they can be either destructive or constructive (Mishra and Spreitzer, 1998). The type of survivor is affected by the appraisal phase he/she is involved in while interpreting downsizing process. Survivors engage in two appraisal phases to shape their concept of downsizing. There is the primary appraisal phase, where survivors are affected by level of their trust in management, its competence, and perceived justice in its implementation procedures. This controls the degree to which downsizing is seen as a threat to survivors. That is why survivors exhibit cooperative and constructive responses, otherwise they will respond in destructive ways. While when survivors engage in secondary appraisal process, they think about their capability in coping with changes incurred by this downsizing. This is affected by degree of employee empowerment, sense of self-control, and concept of work redesign; it’s perceived intrinsic changes. That is why survivors exhibit active responses to downsizing if they are empowered and intrinsically satisfied with new changes introduced, otherwise they will respond in passive way (Mishra and Spreitzer, 1998).

Following is a discussion of types of survivors, their responses, and then the factors affecting survivors’ types and responses are illustrated to show the relationship between these factors and exhibited responses and reactions.

2.2.1.1 Constructive versus Destructive Survivors

Constructive survivors believe that downsizing poses no harm for their job security. That is why they exert more effort to help management implementing it; they exhibit hopeful obliging responses to layoffs which represent no harm to them. Unlike destructive survivors who believe downsizing is such a great threat to their jobs, and accordingly they are not willing to support management or accept its explanations of undertaken layoffs; they exhibit cynical and fearful feelings towards downsizing which negatively affects them (Mishra and Spreitzer, 1998).

[...]

Excerpt out of 126 pages

Details

Title
Examining the Impact of Workforce Reduction on Surviving Employees in the Egyptian Organization
Course
Human Resources Management
Grade
A+
Author
Year
2012
Pages
126
Catalog Number
V285837
ISBN (eBook)
9783656861140
ISBN (Book)
9783656861157
File size
2139 KB
Language
English
Tags
Downsizing, Egypt, Survivors
Quote paper
Deena Saleh (Author), 2012, Examining the Impact of Workforce Reduction on Surviving Employees in the Egyptian Organization, Munich, GRIN Verlag, https://www.grin.com/document/285837

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