Studies reflect fewer than 30 percent of downsizing efforts have achieved anticipated profitability. This statistic suggests the real downsizing losers are organizations and stockholders. Similarly, the low unemployment figures reflect that downsized workers are no longer helpless victims. Many organizations are downsizing in one area while ramping up hiring in other areas. This decrease and expansion procedure has been coined as employee churning and this practice contributes to financial losses. The good news is every market imbalance finds ways to correct itself, and modifying strategies during downsizing can increase the statistics of profitability and organizational success.
Employee Churning Cost Stockholders Money
Lee Hecht Harrison, a firm that works with organizations in pre and post downsizing evolutions, engaged the Global Strategy Group to conduct a survey of 500 U.S. senior human resource professionals whose organizations had downsized at least once in the past three years. The research findings reported, “More than a third of the organizations re-hired employees who had been downsized . . .. More than half of the downsizing organizations created new positions to meet emerging needs.” Therefore, it appears that if organizations do a better job at identifying new business strategic needs, they could minimize employee-churning costs. According to David L. Stum, Ph.D., President of the Loyalty Institute, an Ann Arbor based research firm, “The cost of replacing an employee in today’s market is roughly one half of that person’s annual salary.” Replacement costs can include, “finding applicants, interviews; pre-employment testing and admin expenses; medical exams; travel/moving expenses and training.” Add new hire expenses with expenses associated with termination and this can be very expensive quickly. Best practices relating to employee churning include some of the following alternatives.
Minimizing Corporate Losses When Churning Employees
Train Current Employees. Utilizing the current talent pool, stakeholders could better be served by retraining current employees to fill shortages in vacant or newly created positions. This would save stockholders the costs of funding severance and recruiting of employees. Research reflects that even older workers can master new technologies as quickly as younger employees, and are just as flexible in accepting new work assignment. With more competitors in the marketplace, cross training current employees is not only cost effective, it ensures organizations a more loyal workforce already familiar with the corporate culture and policies.
Phased Retirement could minimize churning expenses. A Washington Post article highlighted the consequences of a downsizing evolution that negatively impacted the Washington, DC government. The downsizing of 3,200 people saved the local administration $100 million. However, the downsizing eliminated 64,000 years of experience. Included were an inspector who knew every bolt in the city’s bridges and a computer information services manager whose departure led to a failure to perform simple virus inspections leading to a huge systems crash. Offering employees a phased retirement opportunity is a win-win. It provides the organization access to the employee’s knowledge while providing employees opportunities to scale down their work hours and income on a gradual basis.
Minimize Outplacement Costs Through Strategic Alliances. If downsizing is still necessary, another cost-effective step is to partner with other organizations. For example, Emery Worldwide Airlines is eliminating 4,200 employees nationwide. The U.S. Postal Service, partnering with Emery, is hiring a number of the downsized Emery employees. This is a cost-effective win-win for employees, Emery, and the Postal Service because the employees are trained in mail handling and come with background and medical clearances. When Bank of America initiated a technology downsizing, they partnered with Citibank in which many Bank of America employees transited into Citibank positions. Winn-Dixie saved outplacement and unemployment funds during their work force reduction when a number of their trained employees quickly transited to other grocery-related industries. This strategy saves employees from the uncertainty of unemployment and reduces the severance and unemployment costs to the downsizing organization.
Timesizing. This strategy allows an organization to keep its talent by modifying the number of hours employees work each week. Employees at a unionized Saturn company voted to work four hours less each week to avoid an organizational downsizing. This provided a win-win for the employees, organization, and taxpayers. Business picked up and the trained workforce resumed their previous 40-hour work schedule.
While downsizing is always an undesirable corporate happening, the unemployment stats reflect that the downsized employee is no longer the loser. The shortage of available workers, on-line technology and an abundance of self-help career books have provided downsized employees opportunities to quickly find new employment opportunities. It appears the losers are the stockholders, and the organizations that have enjoyed less then 30 percent success rate toward increasing profits after downsizing. This financial picture can be turned around if leadership teams accurately project their future strategic needs and minimize employee churning.
Freda Turner teaches at the University of Phoenix and Embry-Riddle Aeronautical University in Daytona Beach, Florida. She may be reached at fturner@email.uophx.edu.
