GMGM 3043

PEMBANGUNAN ORGANISASI

INDIVIDUAL ASSIGNMENT

DOWNSIZING IN ORGANIZATION

PREPARED FOR
PROF. MADYA DR ZAHERAWATI BINTI ZAKARIA
013-4657700

PREPARED BY
NOR AZIAN BINTI ABDUL AZIZ
(s258746)

SUBMISSION DATE
15 OCTOBER 2021
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TABLE OF CONTENT

Num. Content Page

1.0 What is Downsizing ? 3

2.0 Genesis of Downsizing 4

3.0 To Downsize Or Not To Downsize ? 5-7

4.0 Factors of Downsizing 7-8

5.0 Pros and Cons of Downsizing 8-9

6.0 Downsizing with Dignity 9-11

7.0 Implementing a Workplace Reduction 12

8.0 Downsizing in Malindo Air 13

9.0 Conclusion 13

10.0 Reference 14

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1.0 What is Downsizing?

Downsizing is the reduction of a company's workforce in order to minimise total

operational costs. According to Karake-Shalhoub and Karake (1999), downsizing is the process

of reducing an organization's overall human labour size in order to maintain a smaller number

of people and simplify the organisation. Downsizing can occur voluntarily or inadvertently

(Karake-Shalhoub & Karake, 1999).

Companies have had no option but to change their corporate culture in order to thrive

in a highly competitive business environment and meet market consumer expectations.

Companies are no longer as rigid as they previously were, and they are more willing to try out

new ways. According to Richbell, many firms are now taking a more flexible approach to

labour procurement, resulting in the use of downsizing and outsourcing as options (Richbell,

2001).

The technical breakthroughs that have rocked the technology sector are considered as

having the most impact on the notion and have greatly contributed to the popularity of

downsizing. Companies are now able to and are continuously seeking methods to replace

workers with machines, thanks to the availability of sophisticated equipment practically

everywhere. Tasks that were formerly performed by humans are now performed by machines.

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2.0 Genesis of Downsizing

In a research conducted by Allan, he links the genesis of downsizing with events that

occurred in the United States in the 1980s and 1990s, when the American economy saw huge

worker cutbacks (Allan, 1997). While some employees welcomed the opportunity to downsize,

several businesses resisted the urge to reduce operating expenses by terminating employee

services.

These companies were adamant that keeping their staff offered more advantages than

asking them to quit in any way. Using a variety of techniques, these businesses were able to

reduce or even eliminate staff layoffs (Allan, 1997). Some employers who opposed the practice

said that downsizing had the detrimental impact of lowering business share values rather than

increasing them (Baumol, Blinder & Wolff, 2005).

Employees with no other source of income were disproportionately impacted by

downsizing and substantial job losses. The unfortunate employees lost their jobs, but those who

remained were in no way better off, since there was continual dread of losing their employment

among them, and no one knew how long they would still be relevant to the operations of the

companys (Baumol, Blinder & Wolff, 2005). Other techniques used by certain businesses to

cut company expenditures included hiring foreigners or hiring temporary workers with little

pay and little or no commitment to the corporation (Baumol, Blinder & Wolff, 2005).

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3.0 To Downsize Or Not To Downsize ?

Many parties, including academics and practitioners, have expressed concern over

whether or not to shrink. Some have attempted to demonstrate a strong relationship between

downsizing and a company's corporate social responsibility, leaving one to ask what effect

downsizing will have on a company's image at the end (Karake-Shalhoub & Karake, 1999).

According to Karake-Shalhoub & Karake, corporate social responsibility plays a significant

role in furthering an organization's goal and should thus be at the centre of every single

employer.

Although the necessity for downsizing may appear obvious to many businesses, the

difficulties produced by downsizing are more complicated and have far-reaching consequences

than most people realise. The action of one organisation to downsize may lead other

organisations to do the same, especially if some organisations have ties that need them to exist

(Garber, 2008).

The sole motive for shrinkage, according to Garber (2008), is survival. A company that

fails to keep a tight handle on its costs during difficult economic times may be setting itself up

for disaster. The destinies of both the business and its employees will be at stake (Garber,

2008).

Although it may be unpleasant and undesirable to some, downsizing is viewed as a

wonderful answer for any company that has to maintain operations. Given the financial

problems that companies confront regularly, Garber says that downsizing is essential, even if

some of the consequences are unpleasant and many people suffer as a result.

As a result, he recommends that when the decision to downsize must be made, it should

be done with dignity. The impacted personnel must be treated with the utmost respect, and they

must get a great deal of support and encouragement (Garber, 2008).

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4.0 Factors of Downsizing

Even though technology has made it easier to conduct corporate activities, it has mostly

been criticised for enabling downsizing (Baumol, Blinder & Wolff, 2005). Technology has

brought about many changes, including increased speed, efficiency, flexibility, and

personalization. Certainly, these are critical for an organization's growth (Baumol, Blinder &

Wolff, 2005). The unanticipated reduction in economic growth has also been attributed to the

start of downsizing. Tough economic circumstances have compelled businesses to devise

strategies to ensure their survival in a highly competitive corporate climate (Garber, 2008).

Rowland (2011) offers a similar theory, claiming that the global economic collapse is

to blame for company re-evaluation efforts. Rowland, on the other hand, points out that,

according to studies, businesses that keep their most skilled employees are more likely to gain

long-term benefits (Rowland, 2011).

According to Garber (2008), mergers and acquisitions might eventually lead to

corporate downsizing. When two or more companys merge and become one, it is sad that the

services of some of the workers in any of the organisations involved in the merger or acquisition

may become completely unneeded. The new organisational structure may not have room for

them, and in most situations, the only choice has been to terminate these individuals' services.

Other reasons for downsizing include market shifts and the world's ever-present

catastrophic political occurrences (Garber, 2008).

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5.0 Pros and Cons of Downsizing

Yu and Park's study attempted to demonstrate that, if properly conducted, downsizing

may enhance a company's profitability (Yu & Park, 2006). One may argue that this is correct,

given that after downsizing, most companys would have to maintain just a smaller number of

employees, resulting in lower pay and employee benefits costs. It is also feasible that a

company may turn to technology and, in some sectors of the business, achieve even greater

results from machines than humans could.

One of the negative outcomes of downsizing, according to Karake-Shalhoub and

Karake (1999), is lower staff morale. When employees face the prospect of losing their jobs,

their stress levels are sure to rise, and with the worry of future survival creeping in, their

performance suffers. Employees begin to focus less on their employment and more on their

interests. According to studies, the reorganisation performed by corporations while shrinking

has not made these companies any better. Before the public, it appears that the management is

not fully qualified to cope with business difficulties, which eventually leads to people

mistrusting the company's management (Karake-Shalhoub & Karake, 1999).

According to Karake-Shalhoub and Karake (1999), the good connection that previously

existed between employers and their employees is now a thing of the past. Although many

companys have been in the practice of rewarding loyal employees with job security for a very

long time, this is now a nightmare since it is no longer feasible to guarantee anybody of

extended employment terms.

Employees become suspicious as a result, and they spend the majority of their time

worrying rather than working, costing the company man-hours. Employees are no longer

required to work towards the organization's shared objective. As a result, the level of output

and efficiency suffers greatly (Karake-Shalhoub & Karake, 1999).

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Reengineering business processes, according to Smith, Oczkowski, Noble, and

Macklin, necessitates the utilisation of a trained workforce. As a result, the retained employees

may require some sort of training to prepare them for the new job demands. While some

individuals may be pleased about this, others may become frustrated and refuse to completely

comply with the implementers (Smith, Oczkowski, Noble & Macklin, 2003).

6.0 Downsizing with Dignity

According to Garber (2008), when one considers how downsizing would affect people's

lives, it may fundamentally transform the way they carry out the process. As described

elsewhere in this paper, a company that thinks about its corporate social responsibility has a

higher chance of survival than one that does not. How a company handles its employees while

downsizing reveals a lot about how concerned or unconcerned the corporation is with its staff

(Garber, 2008).

Even though many employees realise why a company has no option but to downsize

and will not dispute the decision, they may not be able to tolerate any insensitive behaviours

or negligence that may come from downsizing. However, if downsizing is done carefully,

demonstrating to employees that the company truly understands and cares about them, the

company will end up with a very solid basis for rebounding back. How the downsizing is

carried out has a significant impact on the employees' future view of the company, and in some

ways, this is important for the organization's success (Garber, 2008).

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7.0 Implementing a Workforce Reduction

When contemplating downsizing, a company must examine a variety of factors. One of

the primary issues is how to care for people who may be harmed by the procedure. While some

people will be directly harmed, others may be indirectly affected. All of these concerns must

be addressed. For example, when a breadwinner in a household loses his or her work, all

dependents suffer greatly.

Strict secrecy is one of the most important things that implementers must maintain. As

far as possible, the subject must be kept private and not made public (Garber, 2008). Garber

emphasises several other factors that must be considered, such as the availability of financial

resources to support the implementation process, the length of time required for complete

implementation, and the legal issues involved in the process (Garber, 2008).

According to Dolan, Belout, and Balkin (2000), positive outcomes were gained when

companys had well-planned and unambiguous downsizing implementation methods. The

successful businesses made certain that they had suitable timetables to follow and a well-

defined operating setup. The techniques were extremely beneficial in protecting not just those

who were fired, but also their survival. Good downsizing plans also offered the remaining

employees the confidence to continue working without fear.

Companies who selected a reactive approach to the downsizing process, on the other

hand, harmed both the impacted persons, survivors, and the company (Dolan, Belout & Balkin,

2000). Yu and Park (2006) make a similar assertion, arguing that downsizing has beneficial

outcomes when undertaken proactively rather than as a reaction to a company's financial

problem (Yu & Park, 2006).

Yu and Park went on to say that companys that downsized faced higher financial

problems than those that did not. Although downsizing had the beneficial effect of increasing

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a company's profitability and efficiency, it had no positive influence on employee production

(Yu & Park, 2006).

8.0 Downsizing in Malindo Air

Malindo Air companies said that all monies received from the Social Security

Organisation (SOCSO) were completely distributed to its employees and that the airline did

not retain any portion of these funds, as some have wrongly claimed. Malindo Air got a total

of RM1,267,200 from SOCSO under the Employment Retention Programme (ERP) for April

2020, which was credited in mid-May 2020 and disbursed to 2,112 workers. Following that, a

total of RM1,486,800 was received and credited to 2,478 workers in late June 2020.

As a result, when SOCSO discontinued the ERP in favour of the Wage Subsidy

Programme (PSU scheme), just 196 employees benefitted. SOCSO got RM235,200 in total for

June and July 2020, which will be disbursed in late August and September 2020, respectively.

Nonetheless, Malindo Air has assured that staff who benefitted from both programmes would

be retained for more than three months in accordance with the company's rules. Malindo Air

reported RM200 million in monthly income prior to the epidemic. This, in turn, provided a

monthly pay of RM40 million for 5,000 employees.

Given the significant loss of its financial flows as a result of the Covid-19 epidemic,

the airline has been forced to embark on a large cost-cutting effort to stay viable. Malindo Air

reduced its fleet by half by transferring 20 aircraft. This led to RM20 million monthly savings.

The airline also claims to have requested deferments and renegotiated contracts with its

numerous service suppliers, including aircraft lessors and airports.

Malindo Air stated that, despite numerous measures such as a voluntary separation

programme (VSS) for 349 of its employees and a Long Term Unpaid (LTU) programme for

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439 of its pilots and cabin crew, with no immediate prospect of resuming normal operations,

they must now lay off 1,861 employees in order to remain in business. However, the airline

has stated that it works closely with the Minister of Human Resources, YB Datuk M.

Saravanan; the Director General of Malaysian Industrial Relations, En Khalid Jali; Jabatan

Tenaga Kerja; SOCSO, and the Human Resources Development Fund (HRDF) to assist all

displaced personnel in retraining and retraining for subsequent placement. Eight months after

the pandemic began, and with no sign of any rules being relaxed, borders being opened, or the

epidemic abating, air travel continues to remain in a state of upheaval internationally.

The airline company additionally provided a three-month profits severance bundle for

the duration of this retrenchment, and a lot of its team of workers took to social media to

percentage their stories and reminiscences whilst running with the airline company, main to a

flood of affection on social media from stewardesses, pilots, and the on-floor team of workers.

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Figure 1: Some postings made by Malindo Air crews before signing off (Source: Syok)

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The alternate withinside the behaviour of passengers following the COVID-19 disaster,

journey regulations and the following monetary disaster have ended in a dramatic drop in call

for airline services. The mixture of bad call for and deliver shocks and the uncertainty across

the medium-run outlook create an unsure angle for airline companies. Through its linkages,

this uncertainty impacts the complete aviation company. Moreover, the company stays

uncovered to a likely resurgence of the pandemic, as governments can also additionally impose

new air journey regulations to address flare-ups or a capability second wave of infections. This

can also additionally threaten the life of a few corporations withinside the company, as

manufacturing and sales are in all likelihood to stay not as good as pre-disaster tiers for a few

time (Air, M.,2020).

9.0 Conclusion

With rising competition and new technologies to assist company operations,

downsizing is unquestionably here to stay. As previously stated in this article, downsizing has

both advantages and disadvantages, and any company or organisation that intends to downsize

must do so in a way that does not jeopardise the company or the affected personnel.

Individual may suffer tremendously if the appropriate implementation is not

implemented, but shrinking organisations will suffer in the long term. Downsizing does not, of

course, automatically indicate that a company's operating expenses will be reduced. There have

been occasions where upsizing has produced better outcomes than shrinking.

Companies that want to downsize must thus thoroughly investigate all available choices

before proceeding with the implementation. However, if a company is sure that downsizing is

the best option after thorough consideration, the process must be carried out correctly.

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References

Allan, P., 1997. Minimizing Employee Layoffs While Downsizing: Employer Practices
That Work. International Journal of Manpower, 18 (7), 576 – 596.

Air, M. (2020, November 4). MALINDO AIR REFUTES BASELESS ALLEGATIONS OF

POCKETING SOCSO BENEFITS. MALINDO air REFUTES baseless allegations of
pocketing Socso BENEFITS. Retrieved September 24, 2021, from
https://www.malindoair.com/news-events/2020/11/04/MALINDO-AIR-REFUTES-
BASELESS-ALLEGATIONS-OF-POCKETING--SOCSO-BENEFITS.

Baumol, W. J., Blinder, A. S. & Wolff, E. N., 2005. Downsizing in America: Reality,
Causes, and Consequences. New York: Russell Sage Foundation.

Dolan, S., Belout, A. & Balkin, D. B., 2000. Downsizing Without Downgrading: Learning
how companys Manage their Survivors. International Journal of Manpower, 21 (1), 34 –
47.

Garber, P., 2008. Downsizing. Amherst, MA: HRD Press, Inc.

Karake-Shalhoub, Z., & Karake, Z. A., 1999. Organizational Downsizing, Discrimination

and Corporate Social Responsibility. Westport, USA: Greenwood Publishing Group.

Richbell, S., 2001. Trends and Emerging Values inn Human Resource Management – The
UK Scene. International Journal of Manpower, 22 (3), 261 – 268.

Rowland, M., 2011. How to Cement a Diversity Policy: The Key Role of Talent
Development. Human Resource Management International Digest, 19 (5), 36 –
38.

Smith, A., Oczkowski, E., Noble, C. & Macklin, R., 2003. New Management Practices
and company Training inn Australia. International Journal of Manpower, 24 (1), 31 –
47.

Yu, G. & Park, J., 2006. The Effect of Downsizing on the Financial Performance and
Employee Productivity of Korean companys. International Journal of Manpower,
27 (3), 230 – 250.

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