Strategic Redundancy Implementation

Re-Focus, Re-Organise and Re-Build

Madeleine Stevens

• Publisher: Routledge
• Year: 2022
• ISBN:
  9781000548723
• Edition: 1
• Topic: Betriebswirtschaft
• Subtopic: Personalmanagement

Redundancy, restructuring, downsizing. There are few, if any, other management books on this important topic, and yet the pace of redundancies has only accelerated in recent years. Coupled with this, many companies that implement redundancies as a cost-cutting exercise often fail to achieve their goal.

Whilst viewed as an uncomfortable topic by many, guidance on how to implement a redundancy programme that is fair, proportionate and ultimately leads to improved organisational performance, has never been more needed. This book fills this important gap. It takes the reader through a redundancy implementation strategy – Re-Focus, Re-Organise and Re-Build – that incorporates the key aspects of planning and analysis, fairness and justice, and prepares management for redundancy implementation through training. What will your communications include? What will be your strategy for implementation? What training does your management need? Various helpful template examples are included for employee consultation, communication and training.

The book will be invaluable for business managers, HR professionals, employee representatives and HR students.

Part I Re-Focus Understanding the challenge

1 The redundancy phenomenon

DOI: 10.4324/9781003030416-2

This chapter explores the main definitions of redundancy, including the terms redundancy, restructuring, downsizing, retrenchment, rightsizing and reengineering. This is followed by a discussion covering the drivers of redundancies, including external, internal, social and miscellaneous factors.

Introduction to the redundancy phenomenon

Redundancy is not a new phenomenon; however, it should be recognised that the scope and pace of redundancies have accelerated in recent years (Baruch and Hind, 1999). The management strategy of restructuring, often resulting in redundancies, has been used globally for more than two decades (Williams, 2004, Gandolfi, 2009) and more frequently deployed as a human resource management strategy (Orlando, 1999, Allen et al., 2001, Tourish et al., 2004).

The economic crisis that began in 2008 impacted on numerous companies that faced tough trading circumstances, posing a direct threat to their survival in some cases (Schoenberg et al., 2013). To cope with increased competitive pressure, demand for cost savings and high performance, many organisations have come to rely on the strategy of implementing redundancies. With the outbreak of the global pandemic: COVID-19, redundancies have become an inevitable part of living in a global economy with continual organisational adjustments to ensure sustainability. In the business lexicon, we refer to this phenomenon as living in a VUCA world: a world of volatility, uncertainty, complexity and ambiguity.

The objectives of downsizing are to promote organisational efficiency and productivity, and to improve market competitiveness by making changes that impact on costs, such as the size of the workforce (Cameron, 1994; Allen et al., 2001). Workforce reduction rationale also typically includes benefits such as reducing costs, improving productivity, better service and aligning the business with the changing economy (Gervais, 2014). In addition, companies also restructure to lower overhead costs and improve communication (Burke, 1998). Despite these reported organisational benefits, implementing redundancies have a severely negative impact on an organisation’s workforce. Many organisations still are of the view that the pain of large redundancy payouts in the short term is a worthy compromise to increase profitability over the longer term; however, the evidence of the success of redundancies to achieve this aim is unreliable at best. The pandemic of COVID-19 has had a further significant impact on the global scale of redundancies (Petzer, 2020).

Various definitions

The terms ‘redundancy’, ‘downsizing’, ‘workforce reductions’, ‘reengineering’, ‘rightsizing’, ‘organisational decline’, ‘re-organising’ and ‘restructuring’ are used interchangeably in literature, and various definitions apply that refer to dismissal of employees or a head count reduction in some context, with each having its own distinction in meaning.

Typically, the terms ‘downsizing’, ‘rightsizing’ and ‘layoff’ are used in the USA, whereas ‘redundancy’ is more aligned to language used in the UK and Europe. ‘Retrenchment’ is often used in the southern hemisphere, such as Australia and South Africa. ‘Restructuring’ is also frequently found in the UK lexicon, and although a restructure may not necessarily lead to a reduction of employees, it can still have implications similar to those caused by redundancies.

Associated with the language of downsizing and redundancy is the language that refers to those employees impacted by the process. They are referred to in numerous ways; ‘laid off’ is typically used in the USA, and ‘dismissals’ or ‘terminations’ are more often used in Europe and the UK. In South Africa and Australia, the term ‘retrenched’ is often favoured. For the purpose of this book, I will use the terminology ‘dismissal’.

Some definitions have slight variations in meaning, whereas others may not refer to headcount reductions at all and could cause misinterpretation if used incorrectly. To highlight the differences, the definitions of the main redundancy lexicon are explained in the next section.

Definition of redundancy

Redundancy, as demarcated in the UK’s legalistic interpretation Employment Rights Act, 1996, section 139:1, is defined as a reason for dismissal of an employee attributable wholly or mainly to:

• Business closure

Ceasing or intending to cease to carry on the business for the purposes for which the employee was employed.

• Workplace closure

Ceasing or intending to cease to carry on that business in the place where the employee was so employed.

• Reduced requirement for employees

Having a reduced requirement for employees to carry out work of a particular kind or to do so at the place where the employee was employed.

Definition of restructuring

Corporate restructuring is defined as a major change in the configuration of an organisation’s resources coupled with a major change in the organisation’s corporate strategy (Hoskisson and Turk, 1990). There are three different types of corporate restructuring: Portfolio, financial and organisational restructuring. This book focuses on organisational restructuring, which could result in changes in functions, with the ultimate aim to improve efficiency and productivity. Restructuring is usually implemented as a result of an organisation’s ambition to adapt their staffing requirements to best suit their changing needs for sustainability or ultimately growth. Consequently, employees are ‘reshuffled’ according to their strengths and best match to organisational departments. This could include the harmonisation of two departments, such as Marketing and Communication, which will become one department. The intentional outcome would be a more streamlined function with enhanced collaboration between employees with the aim to be more aligned with the organisation’s strategic goals. Organisations choose to restructure for reasons other than implementing redundancies such as the ones similar to driving efficiency or effectiveness. Restructuring often occurs as a result of a change in the organisation’s portfolio offering. Such organisational changes in the strategic structure will lead to corresponding changes in the organisation’s authority and decision-making hierarchies. Restructuring, however, does not always have to lead to a head count reduction; however, it often does lead to the implementation of redundancies.

Definition of downsizing

Downsizing presents itself with various meanings, often dependent on the country where downsizing takes place. Shaw and Barrett-Power (1997:109) define downsizing as a ‘constellation of stressor events centering around pressures toward workforce reductions which place demands upon the organisation, work groups, and individual employees and require a process of coping and adaptation.’ Freeman and Cameron (1993) complements this definition of downsizing as an intentional reduction in the number of people in an organisation. It is accomplished via a set of managerial actions, which may include the use of hiring freezes, layoffs, and normal or induced attrition.

An interesting challenge to the definition of downsizing suggests that downsizing refers to a reduction of size and costs of an organisation and that head count reduction is a strategy within the downsizing process (Kets De Vries and Balazs, 1997), whilst Cameron (1994) agrees that downsizing often involves a reduction in personnel. In Germany, definitions of downsizing exist linked to the percentage of employees being made redundant with a typical threshold of a minimum of 3%. Nonetheless, downsizing refers to management’s reduction in human capital. Literature also refers to ‘rightsizing’, which is the application of organisational downsizing to cut costs through reducing human resources to get to the ‘right organisational size’. A key distinction between downsizing and redundancies is that downsizing incorporates a strategy to not only reduce the employees, but also the work requirement. This may be realised through outsourcing, divesting unrelated businesses, eliminating functions or the selling of capital assets.

Definition of retrenchment

Retrenchment has been defined in Australia as a termination of employment that is not on account of any personal act of the employee dismissed or any consideration peculiar to him, but because the employer no longer wishes the job the employee has been doing to be done by anyone. The word ‘retrenchment’ is used as the expression that stipulates an employee’s status when their employment is terminated because their job has become redundant.

The following circumstances can amount to an employee being retrenched:

• where the employer has introduced new technology resulting in the employee no longer being needed to work in their job
• the employer restructures the organisation, and the job is no longer needed to be done by the employee
• the employer by reason of financial necessity, has to reduce the size of its workforce
• the employer dismisses a work...