Business Scenario

BUSINESS SCENARIO
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Business Scenario
As market conditions keep on changing, an organization needs to carry out adjustments to order to acquire a competitive edge. Deployment and use of human capital are one of the aspects that companies change in an effort geared towards execution its strategy. The organizations leverage on skills and efficiency when designing an intended change. A company’s reputation, as well as capacity for skills, comes under threat when staff cuts take effect. According to Gittell et al. (2005) layoff as a form of organizational restructuring during times of crisis has a detrimental effect on performance of an organization. These include: (1) Shattering interpersonal relationship; (2) Limitation of sharing of information; (3) Upsurge in formalization, conservatism; (4) Pent up anger and increased conflict; (5) Dwindling teamwork including cooperation and voluntary turnover.
A no lay off approach confers benefits like maximum employee loyalty, increased productivity and prerequisite innovation needed for recovery. Additionally, shunning layoff results in quick recovery of stock prices, which serve as an indicator of resilience. Depletion of the relational reserve due to layoffs ignites detrimental effects. To keep off the idea of personnel reduction, the airlines had to possess the financial ability to overcome short-term losses. Maintenance of low levels of debt before encountering a crisis, coupled with cash on hand supply being adequate equips an organization with the necessary financial reserve needed to avoid whittling down of the staff numbers.

A conservative approach to business helps in the building of the required financial reserves that help in coping during lean times. Elimination of downsizing through sharing of work by redistribution of employee hours to fellow workmates thus shortening work schedules is in use (Hizjen and Venn, 2011). Work sharing is common in European countries since there are legislations that anchor severance pay. The different cultures in various countries and companies influence decisions to downsize and management during the post-downsizing period. An example is how different cultures value psychological contracts variedly.
Cisco Systems is a giant telecommunication company that deals in equipment and software used in networking. The company experienced a boom during the late1990s that saw it double its workforce to over 44,000 employees. It embarked on a mission of acquiring seventy firms that provided the necessary talent pool. Poaching of individuals from competitors also became synonymous with Cisco. A switch towards the internal development of talent brought about sharing of the attributes with fellow workmates. However, things took a turn for the worst during late 2000 with the revenue levels plunging as sales fell by 30% and stock prices by 68% in two and a half months. As a result, in 2001 the company had to take the drastic step of cutting its workforce by 8,500 employees. The company CEO initiated programs that focus on identifying and building talent within the organization in preference to acquiring human capital. Moreover, he took a salary cut to 1 dollar, an effort undertaken to save jobs. Employees who were not lucky to avoid the chop got a six-month severance package, and Cisco went a step further and made contact with recruiters on their behalf. Moreover, those who were foreigner got guidance in tackling immigration issues. These steps conferred hope of reabsorbing the same employees when the need arose in the future. As part of efforts aimed at a creative program, development employee offers included a third of their pay in addition to health benefits and grants on stock option provided they chose to work in locally based organizations. Integration routing achieved working together of different teams and reduced overlapping of tasks and competing projects. The company has also been involved in staff cuts when in a healthy state like in 2013 when despite making profits it sent home 4,000 workers. John Chambers the then CEO pointed to an unpredictable economy as the motivation towards taking the step (Chatman et al. 2005).
The terrorist attack that the US faced on 11th September 2001 had a devastating impact on the airline industry. Mind boggling financial loses, a decline in bookings and death of employees were a hallmark of this period. While some airlines emerged stronger, others languished behind. To avoid incurring the cost of severance pay, American Airlines invoked clauses in their labor contracts that touched on national emergencies citing the financial position that they were in and the need for survival. The company’s stand did not go down well with the union leaders who decried the worker’s lack of severance pay despite offering assistance in aiding the firm in getting a federal bailout. It is worth noting that statutory requirement that obligate companies to award severance pay is absent in the US. Shareholders rights suffer neglect and find replacement with those of the stakeholders. As a result, employee commitment and morale dwindle, affecting operations (Gittell et al. 2005). Don Carty, the CEO of the company, then tried to mitigate the damage occasioned by this move by pledging not to have a salary for the subsequent three months. He further reduced the downsized number of employees from 20,000 to 11,000. However, there was still a decline in relationships thus affecting the company’s resilience. American airlines faced litigation from employees, switched occupants of senior leadership positions and suffered bankruptcies.
Southwest Airline tackled the crisis differently by adopting a strategy that exempted layoffs. The firm invested more on the relationship pitting the airline and employees with Jim Parker, the CEO during the period, suggesting that the company was willing to suffer losses if that is what it took to protect their workers’ jobs. Being vocal about this resulted in shoring up morale among the workers. To Southwest, the crisis provided an opportunity for expansion of the airline’s presence and cementing relations and its caring tradition. The company earned the tag of a trailblazer in labor relations since it is highly unionized (Gittell et al. 2004). Herb Kheller a one-time CEO credited the no-layoff policy with breeding loyalty, trust and leads retention of employees. There was a resultant continuous satisfaction of employees and good ratings for the firm.
In 2009 General motors was also involved in scaling down its workforce by 47,000 as a cost-cutting measure meant to check the dwindling revenue margins experienced because of recession. The firm eventually feigned bankruptcy and signed up for a federal bailout. Facing pressure from investors for instant returns, the leadership turn to layoffs. After acquiring Electronic Data Systems, technology firm, Hewlett Packard also downsized its workforce to eliminate redundancy (Datta and Basuil, 2015).
Relationships are a coping mechanism that requires a collective effort during times of crisis yet they tend to suffer during layoffs. As depicted above some firms choose to carry the burden of short-term costs that occur due to staff retention in to cultivate a human relationship. The resultant positive relationship acts as coping resources in the form of a cohesive and innovative response from the employees during a crisis. Consequently, the slump that the organization experiences during the upheavals undergoes amelioration. There is a guaranteed quick return to the levels observed during the pre-crisis period. The company has to have a financial reserve to see it through the tough times and enable resurgence after the turmoil.
Designing of compensation models should be with a purpose of retaining and attracting the best skills available in the market. Factors that would inform designing of the system include the individual’s experience, knowledge, skill level and the working environment. Additional the requirements of a specific job go into determining the individual’s worth. To achieve profitability, the organization should endeavor to attain maximum productivity and efficiency. Organizational factors that have a role when designing a compensation model encompass technical requirements, the scope of tasks, financial prowess, and the number of job level and cost of used technology. Competitive and product cost aspects also deserve consideration (Milkovich & Broderick, 1989). Wage increases should be affordable with the salaries pegged at levels that are no less than that offered by competitors. Prosperity results in high wages while depression attracts frugality meaning wage cuts.
The supply and demand of a particular skill also determine remuneration with the rare strengths necessitating higher wages. Increased need for a specific ability would similarly mean better compensation. A grasp of the prevailing market rates would be advantageous as this is specific to industries and sectors. Government regulations and judicial pronouncements are tailor-made to achieve uniform packages. Trade unions are also complicit in the achievement of similar pay packages with stronger bodies advocating for higher pay. Gauging the strength of the trade union takes into consideration its membership base, financial resources at its disposal and the character of its leadership (Naparthorn & Chanprateep, 2011).
The requirements for a particular job also come into play in the designing of the system with higher pay being in tandem with the level of difficulty of the work. Designing the compensation strategy can be performance based. Other forms of compensation to be included include incentives, allowances, bonus, claims, gratuity and fringe benefits. Non-monetary benefits impart longevity of employees to a company. The salary would need regular reviewing for example annually. The pay negotiations to determine pay and schedule of re-evaluation should involve the management in conjunction with the labor unions. Collective bargaining agreements are a product of such meetings and include dates for reviews. To avoid comparison of wages pay secrecy is appealing but would phase jeopardy from union contracts that spell out compensation. Availing information to the employees would also confer the advantage of breeding equity and satisfaction and would serve as a motivating factor since it would be evident to all that effort would lead to rewards (Milkovich, 2010). Disclosure of average and range of pay for employees, with a clear explanation of the processes involved in cobbling the pay structure, would thus quell dissatisfaction. As depicted in the companies above the CEOs do not shy from discussing their pay, similarly it would be easy to explain the rationale behind wage reductions during lean times.
References
Hizjen, A. & Venn, D. (2011). The Role of Short-Time Work Schemes During the 2008-2009 Recession. OECD Social, Employment and Migration Work Papers No. 115.
Gittell, J.H., von Nordenflycht, A., & Kochan, T.A. (2004). Mutual Gains or Zero Sum? Labour Relations and Firm Performance in Airline Industry. Industrial and Labour Relations Review, 57(2), 163-179.
Milkovich, G. Jerry, N & Gerhart, B. (2016). Compensation. Vital Source Bookshelf Version, 12th edition.
Milkovich, G. & Broderick, F.R. (1989). Developing a Compensation Strategy. Center for Advanced Human Resource Studies Working Paper No. 89-119.
Naparthorn, C. & Chanprateep, S. (2011). What Types of Factors Can Influence the Strength of Labour Unions in Companies and State Enterprises in Thailand? International Journal of Business and Management, 6(2), 112-124.
Gittell, H.J., Lim, S., Cameron, K., & Rivas, V. (2005). Relationships, Layoffs, and Organizational Resilience: Airline Industry Responses to September 11. The Journal of Applied Behavioral Science, 1-38.
Chatman, J., O’Reilly, C., & Chang, V. (2005). Cisco Systems: Developing a Human Capital Strategy. California Management Review, 47(2), 137-167.
Datta, K.D., & Basuil, A.D. Does Employee Downsizing Really Work? Human Resource Management Practices: Assessing Added Value, 197-221.