Reasons for Reductions in Force

From OrgChart.net

A downsizing move or a reduction in force (RIF) is either resorted to consciously by an organization, or comes about as a side effect of certain other activities. In either scenario, it is a move that can boost the company’s stock or cost it dearly in terms of reputation, severance packages that need to be given and due to litigation suits initiated by the employees as countermeasures.

Causes of an RIF

An RIF is initiated mainly on account of following reasons:

Mergers and Acquisitions:

Mergers and Acquisitions are a process of integration and redistribution of the resources of merging entities in order to gain efficiencies. The resources, including human capital, are evaluated for value maximization and decisions are taken about who should be retained and who should go. The decision could be to do away with certain positions, employees, or geographies as such. It is expected that consolidation of assets and entities would create redundancies and hence RIF becomes inevitable.

This process must be done with utmost care, using efficient planning and visualizing aides as the RIF process itself spells a time cost. Assessment and integration of rules and legalities is vital but equally significant as assessment of individuals at the company may not be able to undo the damage of laying off the wrong employee.

Offshoring

Often, as a part of the cost cutting initiative, organizations resort to offshoring certain operations to a foreign land to capitalize on availability of cheap and skilled labor. This move may make a team or a department wholly redundant in the home country. It could lead to a gain of cost efficiency but may result in the loss of some high potential employees (HIPO’s). With a proper assessment, these HIPO’s could be retained and aligned with a different job function that uses their skills.

Reorganizing & Restructuring

Keeping in line with the Darwinian dictum of the survival of the fittest, companies have to increasingly resort to reorganizing or restructuring. The beginnings may be accompanied by noble intent to redefine roles and reassign responsibilities, but it can quickly transform into RIF. Reorganizing to manage workforce and enable achievement of corporate objectives is an expensive proposition. It is a process that requires time and resources from day to day work, making a dent in productivity. A badly planned or executed restructuring process can have a severely negative impact on an organization’s health and possibly on its viability in the unpredictable economic scenario of today.

Organizations can come up with better restructuring results and minimized risks using talent management systems. It not only is sensitive to detail but also makes the transition phase for any organization smoother.

Downsizing

Organizations that have been hit by downturns or are faced with a financial crunch must reassess their situation and come up with measures that boost chances of sustainability and steadily improve performance. A recessionary trend in the economy is the first trigger for any downsizing move. Since the measure is indicative of distress, all possible caution must be exercised so that the organization’s damages are minimized.

Downsizing is undertaken to trim the fat, i.e. to reduce the overall size of an organization and bring down the operating costs in the face of high stakes such as economic crunch, employee hostility and unpredictability of market forces. Not much can be done if a product is phased out, a service is no longer on offer or introduction of a technology has rendered certain functions obsolete. Downsizing is usually an extremely stressful time for a company.