THE EFFECT OF DOWNSIZING ON ORGANIZATIONAL PERFORMANCE A CASE STUDY OF JOHN HOLT PLC

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THE EFFECT OF DOWNSIZING ON ORGANIZATIONAL PERFORMANCE A CASE STUDY OF JOHN HOLT PLC

ABSTRACT

This project in on the effect of downsizing on organizational performance. The Statement of Problem identified was that downsized organisations have not improved significantly in their performances and have failed to produce the desired results which thereby undermine the effectiveness of performance in the organisation. To meet the general objective, the study is focused on the following specific objectives, to determine the effect of downsizing on the quality of output, to determine the effect of downsizing on the volume of sales and to determine the effect of downsizing on the span of control. The descriptive survey method was used and the research tool was questionnaire. In the analyses, the simple percentage technique was applied to analyse the questionnaires and presentation was done by the use of tables. The data analysis used was Chi-square formula .The findings from the study shows that Downsizing results in decline in quality of output, volume of sales volume and increases span of control consequently, affecting the effectiveness and efficiency of  the organisation. The study concluded that reduction in size of workforce has not improved corporate organisational performance. Finally, the solutions and recommendation for this study emphasized that downsizing exercise needs to be carefully planned and executed in order to produce its expected result of expense reduction, increased effectiveness and efficiencies restructuring

CHAPTER ONE/INTRODUCTION

1.1       BACKGROUND OF THE STUDY

In the recent times, globalisation has made organisations to become more competitive and complex in the employment and application of resources of production. Many organisations adjust to practices that will give them an edge over their competitors. To compete effectively, they need to reduce cost, improve efficiency, and as well increase productivity and quality of output. To cope with this tough competition, many organizations have applied the management tool of downsizing.

Downsizing is a universal phenomenon the business world is experiencing. The major impact is on people, corporate organisations and the economy. An organisation, being a structured entity which is established to achieve specific goals by blending resources, is very sensitive regarding costs and benefits to get optimal returns.

The main motive for most downsizing activities is the objective of reduction of cost (Casio,1993), an increase of organisation’s level of efficiency, effectiveness, productivity (Gandolfi 2002), and competitiveness (Cameron 1994), and so an overall organisational performance. (Thornhill & Saunders 1998).

Every organisation attempts to expand or reduce its man power according to specific requirements and prevailing business conditions. The right size of human resources is indispensable for the successful survival of every organization. Many organisations are more concerned about how to become “lean and mean” and therefore face the task of reducing the size and improving the efficiency of an over-staff as a general endeavour to increase economic growth and cut deficit.

This has spread across American economy where the largest organisation has implemented a work force reduction unprecedented in its size and scope (Morris, Cascio

and Young 1999) and more recently, the phenomenon has also been documented in European (Dahl & Nashum, 1998) and Asian Firms (Ahmadjian & Robbinson,2001).

In the USA, there have been more than 4.6 million job cuts announced since 1990  with 1998 topping the decade’s biggest downsizing year (Laabs 1999).

An economist at the Federal Reserve Bank of Chicago estimated that in 1995, workers faced a 3.4 percent chance of being laid-off. A recent survey by the American Management Association (AMA) found that between one third and one half of medium and large sized organisations in the US have downsized every year since 1998 (Cole 1995).

In Nigeria since May 29, 1999, about 4.8 million Nigerians have been retrenched in the civil service of the federal statutory corporations, state owned companies, banks and insurance companies, through the policy of downsizing ( Aluko 2007). The downsizing of the public sector has consequently led to the downsizing of private sector and vice versa.

John Holt Plc is a multinational company, whose businesses spans through every sector of the economy such as manufacturing, industrial, commercial and other related businesses. In the organisation, retrenchment and retirement has become order of the day since 2005. Over the years, the organisation has been downsizing and over five hundred workers have lost their jobs. Some divisions were completely closed down while some branch network were reduced to operate only from the company’s corporate headquarter In Lagos.

The last downsizing was in August, 2011 where one Hundred and fifty workers were laid-off and this year, more names are being complied on the list of redundancy which will be released as soon as management settles the benefits of the last downsized staff. The organisation attributed their efforts, to improving global effectiveness through cutting down costs and improving organisational efficiencies.

Downsizing could be a painful process because it involves people and emotions. In organisations, the freedom for taking actions is much more and the damage such decision can make on employees and organisations can be too hard.

In private organisations, any decision about downsizing can drop like a bomb shell without any prior warnings and without giving time for employees to be prepared and management at all levels is expected to achieve results with fewer employees at less cost. Unfortunately, many employers generally lack a decent level of diplomacy in effecting retrenchment and they hide behind the legal terms and conditions under which an employee originally signed, which would normally include a virtual freedom to terminate the employee.

Therefore, downsizing as an effective management tool for reorganisation and re-engineering, needs to be carefully planned and executed in order to produce its expected result of expense reduction, increased effectiveness and efficiencies restructuring.

It is on this background that this study is set to examine the effect of downsizing on organisational performance in the organisation where the concept of downsizing and organisational performance are defined, the downsizing implementation strategies used by organisations, the rationale behind organisational downsizing, the various factors affecting organisational downsizing, its effects on individuals and the various downsizing problems in the organisation.

1.2       STATEMENT OF THE PROBLEM

Downsizing has been a common feature of most firms in Nigeria and emerging economies. The downsizing period has been a period of great challenge for most organisations. This is because majority of the downsized organisations have not improved significantly in their performances and failure to produce these desired results has been attributed to a number of factors which are said to undermine the effectiveness of downsizing in the organisation.

Some of these factors include decline in productivity and quality of output, drop in sales volume and profit margin and decline in revenue.

However, these problems are associated with management lack of attention to long-term economic performance. This is so because most corporate managers focus too much on quarterly profits and too little on patient investment that will produce long term result.

In the light of the forgoing, that this research consider it necessary to look into John Holt plc with the view to finding the effect of downsizing on organisational performance. 

1.3       OBJECTIVES OF THE STUDY

1.31 General Objective

To show the effect of downsizing on organisational performance, using John Holt Plc, Enugu Area office.

Other objectives of the study are;

To determine the effect of downsizing on the quality of output.

To determine the effect of downsizing on the volume of sales

 To determine the effect of downsizing on the span of control.

1.4             RESEARCH QUESTIONS

Does organisational downsizing result in decline in the quality of output?

Does Organisational downsizing result in decline in volume of sales?

Does organisational downsizing lead to increase in span of control?

 1.5           RESEARCH HYPOTHESES

H1:          Downsizing results in decline in quality of output

H0:          Downsizing does not result in decline in quality of output

H2 :      Downsizing results in decline in the volume of sales

H0:       Downsizing does not result in decline in the volume of sales

H3:       Organisational downsizing leads to increase in span of control.

H0:      Organisational downsizing does not lead to increase in span of control.

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1.6       SIGNIFICANCE OF THE STUDY

The study is significant in the following ways

  1. The study will give useful information to government as regards the effectiveness of downsizing policy and this will also allow them to take a decision as to whether the policy should be modified, sustained or retained.
  2. The study will be useful to private organisations as this will give a better understanding of the effects of downsizing on the overall performance of the organisation and as well it will enable them consider if the policy of downsizing is a worthwhile option.
  3. The study will be useful to management of organisations , especially the Human Resources Department in that, it gives management a better insight and useful information on why downsizing is necessary, what cost to be cut, and what strategies the organisation intend to pursue.
  4. The study will be valuable for academic purposes as this will serve as a reference material for students who will be interested in carrying out research on related topic in the future.

1.7       SCOPE OF THE STUDY

The scope of this study is to cover the underlying principles, problems and impact of downsizing workforce on organisation’s efficiencies, the effect of output and quality of output on downsizing, the effect of downsizing on volume of sales and span of control.

1.8 LIMITATIONS OF THE STUDY

Some problems were encountered in the course of carrying out this study and there are as follows;

  1. Limited Source of data:     The research topic seems to be new and as such, there are no sufficient materials for this research from the library. This is because most management text books in the library did not discuss the subject exhaustively, so most of the data were sourced through the internet.
  2. Financial Constraint: Most of the information were obtained through the internet and as such much money is spent on internet subscriptions, printing of material and photocopying of documents.
  3. Time constraint: The research work is time consuming because of interconnectivity problems experienced from the internet. So this affected the duration for conclusion of this research.

1.9       DEFINITION OF TERMS

DOWNSIZING :      Reducing the total number of employees at a company through terminations, retirements and reorganisation in order to cut the operating costs and improve efficiency.

MANAGEMENT: Management is an individual or a group of individuals that accept responsibilities to run an organisation. It is the process of Planning, Organising, Directing and controlling all the essential activities of the organisation.

ORGANIZATION:­     A social unit of people, systematically structured and managed to meet a need or to pursue collective goals on a continuing basis.

PERFORMANCE:     The accomplishment of a given task measured against preset known standards of accuracy, completeness, cost, and speed.

POLICY: The set of basic principles and associated guidelines, formulated and enforced by the governing body of an organization, to direct and limit its actions in pursuit of long-term goals


 WORKFORCE: All the people who are employed or that is available to work in an                                       organisation.

REFERENCES

  1. Ahmakjian, L.C. and Robinson , P. (2001). Safety in numbers: Downsizing and        the deinstitutionalization of permanent Employment in Japan,         Administrative Science Quarterly, 46(4): 622 –658.
  1. Cameron, K. S. (1994), Strategies for successful organizational downsizing. Human Resource Management, 33 (2): 189-211.
  1. Cascio, W.F. 1993. Downsizing: What do we know? What have we     learned?.        Academy of Management Executive, 7 (1): 95-104.
  1. Dahl, S & NesheimT.(1998), “Downsizing Strategies And Institutional Environment. Scandainavin” Journal of Management 14: 239-257
  1. Gandolfi, F. 2002. Should training and development be implemented during organizational downsizing? A case study. Australia and New     Zealand Academy    of Management (ANZAM).
  2. Labbs J. (1999), “Has Downsizing  Missed its Mark”? Workforce Vol78           pp30-8
  1. Morris J R, Cascio W.F & C. E Young (1999),Downsizing after all these          years, Questions &             Answers about who did it how many did it, and    who benefited from it, organisational dynamics 27   winter 78-87
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  1. Sam Aluko, (2007), Federal Government Reform Agenda and A critical          Assessment.
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  1. Wager, T. (1992), “Restructuring Getting it Right”, Management Review, pp   10-      15 Administrative Sciences Vol 15