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Corporate Restructuring and Its Effect On Employee Morale and Performance
Corporate Restructuring and Its Effect On Employee Morale and Performance
I. Introduction
The world wide economic crisis has caused too many companies to restructure their corporate setting in order to survive
and meet their financial challenges. During the economic recession, many companies started to restructure their legal,
ownership or operation structure in order to be more profitable, competit ive and efficient. One co mmon management
strategy for restructuring is to downsize. Restructuring refers to mu ltidimensional process. However, the term corporate
restructuring is used here for operational restructuring as long term strategy of business. Operational restructuring is an
ongoing process, which includes improvement in efficiency and management, reduction in staff and wages, sales of
assets (for examp le, reduction in subsidiaries), enhanced marketing effo rts, and so on with the expectation of higher
profitability and cash flow . Rising competition, breakthrough technological and other changes, rising stock market
volatility, major corporate accounting scandals have increased the responsibility to managers to deliver superior
performance and enhance market value to shareholders. The companies which fail to deal with the above successfully
may lose their independence, if not face extinction. According to a study by the Harvard Business School, corporate
restructuring has enabled thousands of organizations around the world to respond more quickly and effective ly to new
opportunities and unexpected pressures, thereby re-establishing their co mpetitive advantage.
In India, corporate houses have recently witnessed an increase of restructuring in different organizations. The main
reasons for the sudden impetus to restructure in India are mounting pressure on margins, increased competition and all
round resource optimization in existing businesses to streamline operational profit. However, some organizations have
done their restructuring through acquisition and mergers and some through demergers. There is also corporate
restructuring done through changes in corporate structure and optimization of resources including financial structuring.
When the market prices of shares are rising, the companies like to use their sha res to acquire other companies.
Acquisition is a process of taking over companies and merging with the entity in order to improve the marg in. Here the
advisors of the company may suggest and encourage mergers after taking over the other company. Demerger is a process
of corporate restructuring in which single or multiple business units are spun off as a new entity. Demerger is just the
opposite of merger. In a market of falling prices, mergers and initial public offers are less popular and the merchant
banks, who normally earn their fees fro m corporate activity, start to look at demerger possibilities of their clients. There
were various corporate restructurings in India during the last few years. For examp le, the acquisition, merger, and
demerger of Reliance Industries Ltd. like their acquisition of IPCL (5) mergers of Reliance Petrochemicals Ltd., and the
recent demergers of four entities like Reliance Co mmunication Ventures Ltd., Reliance Energy Ventures Ltd., Reliance
Natural Resources Ventures Ltd., and Reliance Cap ital Ventures Ltd. which spun off fro m Reliance Industries Ltd. (RIL),
and were perhaps the most prominent restructurings in recent times. Even the recent demerger of the cement division of
Larsen and Toubro Ltd. (L&T), named Ultratech Cement Ltd., seems to be one of the L&Ts grand strategies to
concentrate more on infrastructure, engineering, energy and turnkey businesses. Other kinds of restructuring through
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structural changes, to improve sales and profit, or all round optimization of products , processes and systems in
Multinational like Siemens Ltd. are worthy examples of successful restructuring in Indian industry. This research paper is
mainly focus on measuring the impact of the restructuring strategies of the organisations on employee mo rale. The
research is carried out by collecting the data on measurement of employee mo rale in pre and post corporate restructuring
of Indian co mpanies in recent times.
There are many ways executives implement ing the strategies for rest ructuring the organisation in order to reduce
operational cost as well as to increase operational and financial performance of the company. The o ne way which is
found the easiest and affective way of restructuring is Downsizing. Downsizing is the systematic reduction of a
workforce through an intentionally instituted set of activities by which organizations aim to improve efficiency and
performance (Appelbaum et al., 1987b; Cameron, 1994a; Cascio, 1993). Contemporary terms such as reengineering,
rightsizing, layoffs, reductions in force, organizat ion decline, and reorganizing are regularly used as substitutes for
downsizing. While they do denote to some extent a co mmon meaning, each has its own connotation (Cameron, 1994a; de
Meuse et al., 1994; Freeman, 1994). It is understood that downsizing effo rts are undertaken for the improvement of the
organization. However, that does not imply that only firms that are experiencing problems downsize; quite to the
contrary, firms that are growing are just as likely to downsize. Equally important to point out is that downsizing can be
proactive and anticipatory or reactive and defensive (Cameron, 1994a). Finally, downsizing can refer to large permanent,
reactive layoffs, a streamlin ing of functions, a redesign of systems, a redefinition of policies aimed at cutting costs, and a
proactive strategy (de Meuse et al., 1994). The initial intent for downsizing was to cut cost, boost productivity and
position the company for the long term wh ich often not being met after the downs izing is conducted suggested by many
researchers. When facing great financial pressures, some co mpanies have to carry out personnel reductions in order to see
immed iate effect on their balance book. However, if planned strategically with a thorough conside ration of the future
position of the company, the outcome can be adjusted to other alternatives including re -skilling, job sharing and
redeployment instead of “layoffs” which will likely result in loss of skills, costly rehire and survivor trau ma (Band and
Tustin, 1995).
When deciding to restructure, whether to downsize to a leaner corporate setting and redeploy employees to other
functions in order to reserve the talents, or to reduce the personnel headcount in order to achieve the immediate goal of
saving, management has to first analyze their company’s competitive position and the most appropriate structure for the
desired outcome. Once the structure is defined, the process of implementing the change fro m the current structure form to
the new one has to be carefully thought out (Band et al., 1995). As Imberman states, “… unless the starting point of this
[downsizing] journey is identified with great precision, and unless things are being done right today, using a five -year
plan as a map to the Pro mised Land will lead only to limbo” (Imberman, 1989).
Once the strategies for downsizing have been defined, if layoffs become unavoidable, the careful planning for the human
resource management during the layoff process becomes crucial to business. If this proces s is not planned well, the
damage to the emp loyee morale can last for a long time (Richey, 1992).
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In another study conducted by Chadwick, Hunter and Walston (2004) on a samp le of hospitals that undertook
downsizing, more evidences were found to support the impact of emp loyee morale during and after downsizing process.
Four types of downsizing practices were compared: process that has an emphasis on employee morale and welfare;
practice that include advance notice of layoffs to emp loyees; one provide great economic benefits to laid -off workers; and
the model of work redesign to support downs izing. By using the data collected through a widely distributed survey to
hospital executive officers and other upper managers, followed by a mo re focus survey distributed to only hospital HR
managers who responded to the first one, this study clearly draw a positive association between consideration of
emp loyee morale and perceived success of the downsizing initiat ive (Chadwick, et al., 2004). When speaking of morale,
many managers show the attitude to their emp loyees that they should be grateful for just having a job in this difficult
time. In the contrast, many researchers believe it is actually more crucial now than ever during this financial crisis to
maintain or even boost your employee’s morale in order to retain the productivity and customer base whe n budget and
resource become limited and workload become heavier. Denka (2009) in his article suggested six key areas for managers
to focus when considering boost employee’s morale. The first and most important area is commun ication. Effective
communicat ion plays a critical ro le in the process of managing laid-off workers and survivors, even more crucial to the
later. Be transparent on the issues company is facing and the strategies management has thought out. Open for
suggestions and value employee’s input. “Keep in mind that communicat ion isn’t limited to the words you say. Your
actions also play a big role in the message your team receives.” (Denka, 2009). Another interesting suggestion found in
this article is delegating. Delegate more project work or power to make decision to your team members will enhance their
sense of empowerment and accomplishment. It has been considered as a morale -enhancing experience which will lead to
a more productive team (Denka, 2009).
Implicit in any employer-emp loyee relationship is a social or psychological contract which is a perceived reciprocal
obligation between those two constituencies (Barnard, 1938; Reilly, et al., 1993). Once this contract is broken by the
emp loyer, new behavior tendencies begin to emerge among the employees who survive the lay-offs: individual
opportunism for survival. Reilly, et al. (1993) found in their studies that loyalty to career, versus loyalty to the company,
is strongest among managers in companies that have experienced financial reorganization or organizational breakup.
Survivors with low self-esteem, although motivated by fear and anxiety to become more involved in the tasks which they
think will enable them to keep their job, simultaneously become less committed to the organization and t o the tasks
necessary to achieve its short-and long-term goals (Brockner, et al., 1993). The fear of future layoffs may not be the only
source of broken contracts. Survivors, while being assured by senior management of their continuing val-ue to the firm,
may simu ltaneously be subjected to increased scrutiny of expense reports, sup -plies, business travel plans and other items
which were imp licitly entrusted to them through their psychological contract. The notion that excellent performance is
rewarded through promotion, raises or bonuses may likewise evaporate under new budgetary rules and constraints.
According to Brockner, et al. (1993), survivors ‟ reactions depend upon their perceptions of the relative fair -ness of the
layoffs and the conditions of the workplace post-layoff. Mistrust, turf protection and high levels of anxiety are the by -
products of across-the-board layoffs, reductions in compensation and randomly offered retirement packages (Hitt, et al.,
1994). A survey of 1,500 HR managers has found that 31% of the companies that downsized said that morale has
declined severely and 47% said that morale had worsened somewhat. Nearly 40% said that workforce productivity had
sagged following the reductions (Beylerian & Kleiner, 2003). It would appear, then, that opportunism for survival in a
perceived inequitable environment leads to a significant decrease in commit ment to the firm and an increase in
individualism wh ich undermines the concepts of teamwork and mutual trust necessary for effective coordination.
Objectives
The purpose of this research is to analyze the impact of corporate restructuring on employee morale and measu re its
effect on performance level of employees in the organisation .
This research has attempted to provide answers to the following questions:
What are the different components of Employee Morale? To what extent these components are related with emp loyee
productivity?
How these components are affected by the restructuring strategies in the organisation?
Is there any effect of Corporate restructuring on employee morale?
To what extent these strategies effect employee morale?
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This research is focused to find and develop the relation between morale and employee productivity and analysis is done
to measure the effect of corporate restructuring on employee morale in the organisation. The research was done by
analysing the responses of the both the profiles (restructured and non - restructured) and from skilled and unskilled
emp loyees.
IV. Data
The main data collection method used in this research was the mail survey. The mail survey was the met hod of choice
because they are relatively inexpensive to administer; they allow for large numbers of respondents to be surveyed in a
relatively short period; respondents can take their time in answering, and privacy is easier to maintain (Mangione, 1995).
The data used for the study were primary data generated through structured questionnaires. The questions in the
questionnaires were closed ended questions. The response format emp loyed a 5 point Likert scale. 110 were ad ministered
to the companies which have recently gone through major corporate restructuring in India. These were included
HINDA LCO AND INDO GULF, Daiich i sankyo and Ranbaxy India and Reliance Industries Ltd with Reliance
Petrochemicals Ltd The organizations and the staff respondent was randomly chosen. The questionnaires were distributed
to unskilled emp loyees in their local language to receive the proper and correct responses from the emp loyees.
Even though all respondents have secured ongoing employment it is clear fro m the results that those staff whose role, job
scope or role continuance was under threat have been acutely affected by the restructure. A number of sta ff co mmented
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that changes in the organization’s structure had been made at the last minute, and where they had been given assurances
that their roles were not to be affected, they were. Staff was asked if there was anything the organisation could do to help
improve how they felt. A general theme is in the comments was that senior management had failed to support staff (but
non-one suggested what they could have done to change this) and as a consequence trust and faith in management was
low: A number of staff raised the need for management to actively recognize the valuable contribution that staff made to
the organization.
Some staff also commented on the fact that they felt jobs were no longer "secure for life" and there was increased
acceptance of this in light of dimin ishing resources and a need to maintain co mpetency in emp loy ment (TAB LE 2).
Job Security
Fairly Same as Very
Secure
N MEAN SD Very Insecure Before Secure
%
Table 2 Insecure% % % %
Skilled Restructured 13 3.69 1.18 7.7 7.7 15.4 46.2 23.1
Not Restructured 23 3.26 1.05 4.3 21.7 26.1 39.1 8.7
Nearly half o f all staff (45.5 %) in restructured positions and a third of all staff (34 %) in non-restructured positions do
not trust senior management to make sensible decisions for the organization’s future. Non -restructured non-skilled staff
was mo re likely to trust management (46.6 %) than non-restructured skilled staff (34.7 %) (TABLE 3 ).
Trust in Management
N MEAN SD Strongl Disagree Neither Agree Strongly
Table 3 y % Agree nor % Agree %
Disagre Disagree
e% %
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Both restructured skilled and non-skilled staff was vehement in their response to this question with over three quarters of
each group indicating that there was insufficient opportunity to participate in decisions that would affect their work areas.
Staff who were not restructured also indicated dissatisfaction with the decision making process (56.8 % skilled and 40 %
non-skilled) cit ing a lack of clarity as to how decisions were arrived at. (TAB LE4).
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to 60.9 percent for skilled but there was no change for non -skilled. Again, skilled have felt the effects of the restructure
more acutely however all staff in restructured positions demonstrated much lower levels of co mmit ment.
Procedural Fairness
Table 6 N MEAN SD Strongly Disagree Neither Agree Strongly
Disagree% % Agree % Agree
nor %
Disagree
%
Skilled Restructured 13 2.23 1.24 38.5 23.1 15.4 23.1 0
Not
Restructured 23 2.70 1.22 21.7 21.7 26.1 26.1 4.3
Total 36 2.53 1.23 27.8 22.2 22.2 25.0 2.8
Un-
Skilled Restructured 9 1.78 1.39 22.2 22.2 22.2 22.2 11.1
Not
Restructured 15 2.53 0.83 13.3 26.7 53.3 6.7 0
Total 24 2.63 1.06 16.7 25.0 41.7 12.5 4.2
All Staff Restructured 22 2.45 1.30 31.8 22.7 18.2 22.7 4.5
Not
Restructured 38 2.63 1.08 18.4 23.7 36.8 18.4 2.6
Total 60 2.57 1.16 23.3 23.3 30.0 20.0 3.3
TABLE 6
62 % of restructured academic staff considered the process of restructuring was unfair with 38.5 % feeling very strongly
about this. 44 % of restructured non-academics were also dissatisfied. Over half of non-restructured non-academics
however could not decide whether the process was fair or not. (TAB LE 6).
Results show that there is a strong relationship between each of the elements of employee morale and performance output
(TAB LE 7).
The relationship (using Pearson correlation) between Job Security and productivity (.855**) is also statistically
significant and evidences that the presence of low levels of job security is likely to translate in to high levels of
performance deficiencies.
There is also a statistically significant positive correlation between Trust in Management and
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Productivity (.512). This would indicate that if staff has little trust in management to make sound decisions or keep its
promises to staff, it affects the performance levels of employees within the organisation.
Participation and procedural fairness is also correlated with the employee performance to some extent (.468 and .014)
which demonstrates that all the factors effect the emp loyee performance but employer emp loyee relat ionship and job
security play a very important role in increasing employee performance.
Conclusion
The literature provides strong evidence to s uggest that organizational restructuring can have a profound effect on levels
of emp loyee morale, as demonstrated by the potential loss of loyalty and trust in the organisation, feelings of insecurity,
the imp lementation of seemingly unfair downsizing processes and confusion over roles and expectations. Failure to
effectively co mmunicate direction and ensure legitimate, ongoing opportunities for staff to be actively engaged in the
process of restructuring, and ensure transparency of decision making can damage the relat ionship between employers and
emp loyees, reducing the employee morale.
The outcomes of this research are evident with low levels of trust in management, continued feelings of job insecurity
and resentment over the way in which the restructurin g process was both planned and implemented. Staff feels strongly
that there was insufficient involvement in the decision making process and that the views of staff were largely ignored.
Feedback was considered inadequate. Despite surviving the restructure many staff do not feel the organisation values
them or their contribution. The result shows employee mo rale has dropped significantly post restructure.
The above research indicates that how restructuring can affect the employee morale adversely if it is not imp lemented
with proper communication and consultation with the employees. Few things that can ensure the improvement in
emp loyee morale within the organisation.
Hu man resource professionals should have a central role in ensuring the successful implementation of downsizing
strategies as they represent the key interface between management and employees. The human resource team needs to
take responsibility for ensuring that the consultation strategies cover all groups and information shared to senior
management regarding individuals and their positions is accurate
The involvement of staff in decision-making processes could be enhanced by ensuring more comprehensive feedback on
proposals and by providing opportunities for further discussion and debate, ev en when ideas are not considered feasible
by the senior management team.
Hu man resource management strategies should focus on increasing the staff employability and providing training
opportunities which support these strategy feelings of job insecurity may ease.
Investment in staff can be demonstrated through the introduction of personalized career planning processes, enhanced
support and resources for train ing and development as well as providing opportunities for job enrich ment through
secondments and greater participation in determin ing organizat ional strategy.
It may be possible to rebuild trust by ensuring that communications are transparent, they have greater opportunities to be
involved in change management strategies and that management is seen to be accountable for their performance
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