There were many reasons for the downsizing of many airlines all over the world and UK air carriers were not exempted to that. Employee downsizing is ubiquitous and inevitable nowadays due to global financial crisis. The recent depression which struck the United States has cost many companies to lay off employees to cope with losses and eventually regain its previous status. Downsizing is the initially the first step a company will take before resorting to other management issues to overcome sudden failure of business operation.
Besides, when there is decrease in profit and/or sales, there is decrease in production and/or manpower. Downsizing is the hardest decision an organization could do, yet it provides advantages on the side of the company because it is one of the most effective method in terms of improving organizational performance and cutting cost. Indeed, downsizing has been recognized as “a legitimate restructuring strategy...
[and] an international proactive management strategy” (Hitt, et. al, 200). World airlines’ record of downsizing indicates several reasons for its occurrence perhaps partly due to depression. Some of the reasons are: high-profile accidents and incidents, and credit default cause by investing too much on fuel hedges according to ATW report. Worst loss has been experienced by the company since 1970 which caused a deficit of about 15 to 30% in profit.
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Similarly, if downsizing is perceived as beneficial and strategic action for air carrier companies, it also has adverse effect that requires immediate action. Tourish and Hargie quoted from Morris et. al using a review of 3,628 companies, that on the first year of downsizing year, there was decline in Return on Assets (ROA); while on the next year, only a slight improvement was observed which is not enough “to restore the ROA to its pre-downsizing level (p.19). The same authors also accounted other reports from other US downsized events in which they noted that downsizing “produces no improvement in firms’ performance relative to their industry or their own prior performance, except for a short-lived gain in productivity... ” (Tourish & Hargie, p. 19). Why strategic planning is necessary moved downsizing organizations to take actions to eliminate chain reactions within the organization.
Seemingly, Tourish and Hargie emphasized that while downsizing has impact on organization, it also has impact in the morale and motivation of employees. Some of the psychological impact of downsizing are: it reduced cross-unit and cross-level knowledge from interpersonal interactions, loss of personal relationship between employees and customers, increased interpersonal conflict, greater resistance to change, more centralization in decision making, and decreased employee morale, commitment and loyalty (Tourish & Hargie, p. 19, 20).
Organizational Challenges of Downsizing Apparently, the drop in demand for the air carrier services due to global financial crisis presents many challenges in the company. Downsizing is inevitable while the possible impacts of downsizing are readily threatening the organization. What the organization could do is to identify each challenge and create a plan of action in order to achieve positive results.
To do this, managers must understand downsizing in its context and other underlying causes and effect to mitigate negative outcomes if downsizing would be the last option for the company to take. Some of these challenges are identified as: (1) employee retaliation due to ambiguity of rationale behind downsizing, (2) strengthening workforce, (3) restructuring strategies before negative consequences set in, (4) strengthening the company’s strategic competitiveness, and (5) alignment of production output with quality.
The challenges stated above can be summarized into two major categories pertaining to organizational responses to downsizing are: (1) the strategic responses that aim at coping with conditions of decline and (2) the structural responses consisting of internal changes that occur within the organization itself (Shalhoub & Karake, p. 55). In effect, it has considerable effects on the organization, leadership, staff and key elements for successful change implementation. Downsizing as an international proactive management strategy creates more problems than what is expected.
Downsizing gives organization the biggest challenges. Impact on the Staff Basic and typical among the outcomes of downsizing is the issue of easing the employees who were retained to avoid any retaliation is the initial step to consider after the downsizing event. Motivating them instead to strengthen the morale of those employees will make a difference in the downsized organization in the restoration of the corporate productivity. Morris confirmed that downsizing “decreases morale and productivity, and can cost firms more than they save” (p.
131). Baatz on the other hand described downsizing as “wounding experience” because of “trauma of losing their jobs” (pp. 36, 37). Likewise, Shalhoub and Karake mentioned several employee reactions to changes as: individualism, intergroup relations break down, difficulty in communication and paralyzed decision-making (p. 57). Worst is that, many would consider resigning from work. In cases like this, Baatz emphasized the application of some healing activities “to salve those wounds” (p. 37).
According to him, the process of this healing activity coined under the reengineering of the organization; but in failure of such, a simple free flow of communication can do a lot to restore the morale of the employees (pp. 37, 38). Thus, as the initial effect of downsizing is concerned, one can conclude that it has adverse reaction to the company. Employee morale and motivation towards higher productivity is one of the challenges of downsizing. It basically hampers the organization to reach its goals much more in the aspect of organizational development.
Impact on Organization The second category refers to changes in the organizational structure as the outcome when large number of employees is laid-off. Refusal to acknowledge the existing crisis will be a pitfall of the company. Another challenge for the organization is to analyze any form of structural responses or changes within the organization due to loss of employees who works for each position in the organization. The company could both allow multitasking to replace vacant positions or change the organizational structure and design to meet the sudden loss of employees.
The challenge on organization level has to do with the reengineering of the organization. Impact on Leadership Similarly, downsizing has impact on managers and overall leadership. As more employees experience job insecurity, anger, frustration and other emotional trauma, the management has the final say in this matter. The coping process is part of the downsizing plan to mitigate adverse consequences of downsizing on employees. The challenge vested on leadership is designing effective risk/crisis management in response to both external and internal crises.
Fink, Beak and Taddeo identified several stages of crisis that requires attention from the management; the first is the stage of shock wherein employees lost their morale and interest; the second is the defensive retreat on the part of the organization wherein it imposes strict control in order to survive; the last is acknowledgement phase where everyone looks for the resolution of the problem (Shalhoub & Karake, p. 58). Hence, on management level, downsizing would mean a lot of challenges to face for the survival of the organization.
Recommendation The recommendations presented in this paper cover two aspects: first is advises on planning downsizing exercises and the second is the outsourcing of aircraft maintenance. The latter is included as part of the organization’s marketing strategy to promote growth in the company amidst the challenges coincide downsizing. The former aims to address several conditions of downsizing, which include the effect of downsizing among the staff, managers and on the organization as a whole, to carefully design restructuring process.
Planning Downsizing Exercises In view of the challenges mentioned earlier, the plan of action is addressed to the organization to take wilful action to resolve issues pertaining to downsizing which includes criteria for choosing employees to be laid off, morale and productivity of retained employees, and systematic restructuring programs to align the organization with the changes that took place. To be expected, the aftermath of downsizing places an organization into more taxing issues. Criteria to use in downsizing
First, the company should identify several criteria that it will use in determining employees/staff who will be candidates for lay-off. Downsizing may be called for employees who seek for early retirement or simply impose force resignation. Age is the criterion for the first method while the second is based on employees’ performance. With regards to that, the company must understand the risk of legal action before committing any decision; any action must be guided well by a lawyer to avoid legal issues.
The company may use optional condition for retiring employees and compulsory for non-retirees. The basic tenet in this arrangement is that, there may be highly skilled workers among the retiring employees so optional is the best alternative; while the conditions to be given to non-retiring are related to performance-criterion such as absenteeism, efficiency, skill, and responsibility which are grounds for termination of contract to emphasize the notion of cost-cutting through downsizing.
Optional condition for retiring employees is necessary because “early retirement is likely to be a more expensive strategy than layoffs” (Shalhoub & Karake, p. 59). Last, once the number of employees is reached, the company must be proactive by giving them what is due to them. Regaining employee morale and productivity As identified, the management has two primary responsibilities to counteract possible negative consequences of downsizing among employees. The first of which is to implement measures to minimize or eliminate trauma associated with the downsizing.
Since “change represents an ethical challenge” (Groarke, p. 147), the management must be proactive and responsible in dealing with people who are affected by taking serious steps to regain their morale and to increase their productivity. It is difficult to manage a group of people who are burnout, demoralized, inefficient, distrustful of management and afraid of future downsizing. The management must establish an open communication with the employees discussing them the rationale behind downsizing.
Persuading the employees to remain is a key to keep them intact in the organization. This process will help them view downsizing as objective; that will in turn help to increase the efficiency and profitability of the company. Manson emphasized that the employees who survived the downsizing need assurance from the management for many of them are still “fearful about losing their job” (p. 17). Pompa (1992) argued that “withholding information about layoffs is harmful to employees from both a consequentialist and a universal approach” (Burke & Cooper, p. 143).
Employers then must give honest and sincere information about “what has happened in the organization and about where the business is headed” (Manson, p. 17). If employees understand the organization’s rightful intention, initiative to be productive will come out naturally. In effect, once employees’ morale has been restored, motivation follows. The management must refocus the attention of the employees on the changes that will take place through training, reorientation and seminars.
Other meetings on employee productivity can help resolve the issues. Organizational restructuring In addition to downsizing exercises, the organization must also look into restructuring of the organization because too many positions were vacated and nobody is readily available to fill them up. Ruback suggested that companies must “re-examine how they manage their business” (cited in Manson, p. 16). Managing a business effectively requires good implementation of the plan especially in case of downsizing.
At this point, Burke and Cooper had offered the integration of TQM model during downsizing. The possibility of TQM integration in the downsizing organization is high based on empirical studies which shows the coexistence of the two wherein downsizing can be a powerful tool towards achieving organizational effectiveness (Burke & Cooper, p. 153). Citing a study of Cameron among US Army Command Unit, Cameron, Burke and Cooper mentioned that several factors attributed to effective downsizing, such as leadership, preparation and implementation (p. 154).
Leadership as they noted should be “accessible, motivational, and visionary and who communicated broadly and consistently with everyone affected by the downsizing” (Burke & Cooper, p. 154). The preparation stage is considered critical for it requires ample time for planning and preparation. It means that, the organization must prepare the people, the organization, the resources, and overall organizational change before executing downsizing. The last stage necessitates the cooperation of the whole organization in the implementation of plan during the downsizing event.
An organizational advantage of downsizing as explained by DeFrank and Ivancevich (1986) is the layoff survivors’ “increase in productivity” (cited in Burke & Cooper, p. 156) as compelled by the feeling of job insecurity. Accordingly, the remaining employees will work harder to secure their present jobs, but will gradually reduce as more workloads are assigned to them. However, increased productivity will not guarantee successful result of downsizing. Given this, the organization must identify key factors that lead to continuous improvement; then, discard what can and what cannot help.
Burke and Cooper mentioned some of the detrimental factors to the objective of downsizing as: “excessive workload demands, increased job insecurity, reduced commitment to the organization, and a deterioration in trust in the organization” (p. 156). One of the best methods of organizational restructuring to get the best result out of downsizing is developing functional groups within an organization. Functional teams are one essential component of TQM; here, supportive climate and trust and commitment are encouraged.
After downsizing, the company must develop effective functional teams through “employee empowerment and involvement” (Burke & Cooper, p. 156). Thus, the role of open communication and honest sharing with one another have been an effective tool towards developing trust among layoff survivors through which they empower them. It is suggested then to design a well-planned communication lines among the groups of employees. Functional teams not only hasten communication; it also eliminates hierarchical levels which hinders the flow of decision-making.
Inducing flexibility in the organization promotes not only employee productivity, but cost competitiveness also. Through flexibility in cross-functional teams, decision-making resides on teams that are responsible in their outputs. This system improves cost competitiveness because overheads and cut-backs are removed from the supply chain and allow the teams or production units to “embrace a much wider range of functions and responsibilities” (Salaman, p. 157).
Remember Alkhafaji’s statement regarding the goal of organizational restructuring, in which he stated, “Reduced costs, better communication throughout the company, and decentralized decision making are all factors in the equation to achieve better overall efficiency in the organization” (p. 153). At this point, the human resource management has much to do with the restructuring of the organization by placing people at the right position and determining their functions and responsibilities. Outsourcing of Aircraft Maintenance
Resorting to outsourcing services would be an advantage for downsizing organization because it solves the problem of inadequacy of employees’ number. Outsourcing of airline maintenance is cost-effective but shows dangers. Some of the countries that service aircraft maintenance are China, El Salvador, Philippines, India, Mexico, and many others. Unless the outsource companies can present safety measures and certifications from Transportation Safety Board, it would likely to create more problem. However, for the purpose of strategic management, seeking outsourcing services will be helpful.
In the United States and in the United Kingdom, outsourcing of aircraft maintenance has been in practice more than five years ago. This is in response to slow economy, increase in labour, infrastructural and tooling costs. For this reason, outsourcing provides Airline Company a lot more benefits. It is cheaper to use the services of outsourcing company and more efficient result at lower cost can be expected because technicians are expert in that kind of job. Since airlines are in crisis due to global financial crisis, using outsourcing will help lowers the cost of maintenance and manpower for efficient business result.
The practical suggestions on using the outsourcing of aircraft maintenance are through careful consideration of quality control. Cutting cost should never be an excuse to quality. First, review the credibility of outsourcing company in terms of track records of quality work, registration and certifications that officially state license to operate, and awards and recognition received for fruitful years in the service. As Doganis put it, “Many airlines are too small to provide all of these services economically in-house and are now looking for outside suppliers” (p. 283) because airline business is in a wider aviation business wherein it needs other company’s services.
Conclusion For an airline company experiencing downturn brought by global financial crisis, downsizing may be considered as an option to mitigate losses. However, it requires careful evaluation and planning if a company would resort to downsizing as the last option. The company must understand the context of downsizing and identify possible effects. Weighing between the pros and cons of downsizing will help towards designing a plan of downsizing exercises.
That of course includes criteria of choosing employees who are candidates for lay-off and financial obligation to them. The company must consider restoring the morale and productivity of the survivors through open communication to assure them of job security. Reorganization is another stage to ensure that every unit aligns to the needs of the company. Last, outsourcing may also be considered to reduce costs and guarantee efficiency of aircrafts.
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