1. In 1982 it seems the company will have to downsize. What are the factors that are forcing the company to make that decision? (10 marks)
Downsizing is a strategy to improve an organization’s efficiency by reducing the workforce or changing and restructuring the systems of the organization (Belcourt & McBey, p. 260). There are multiple factors that are forcing Stonewall Industries to make the ultimate decision to downsize. Environmental factors play a vital role in effective Human Resources Management, impacting the strategy of any organization, including the decision to downsize. If Human Resource Planning is not adaptive to relevant environmental factors and change, then the organization can seriously suffer.
One of the major factors that forced Stone wall Industries to make the decision to downsize was the economic climate. In 1982, Canada experienced inflated interest rates, too high for consumers to make any investments. In addition, there was overall high levels of unemployment across the nation. These factors adversely affected consumer demand for product which created a mass labour surplus in the firm’s operations. Because of the decline in housing starts and high interest rates, the market for construction materials severely declined which posed a threat to Stonewall Industries as there was little consumer demand for their goods. Even though the Plastics Division was supposed to decrease the vulnerability of this decline in the marketplace, the demand for this new product was similarly affected and impacted by economic downfall. As labour is a derived demand, Stonewall Industries experienced over-capacity and was put in the position of having to downsize their operations.
Another major environmental factor that may have affected the decision for Stonewall Industries to downsize is demographic and labour market forces. Out of Stonewall Industries’ five plants, the operation in Vancouver was their highest cost production operation. Because labour costs were approximately 25% higher in Vancouver than in other plants per unit of product, it may have been seen as strategic to downsize this operation as a means of cost reduction. 2. What alternatives should the company explore prior to making its downsizing decision? (10 marks) In an effort to reduce costs and improve organizational efficiency, downsizing can be counterproductive as it is often a costly strategy for organizations. There are several short-term and medium-term alternatives that Stonewall Industries should explore prior to making its downsizing decision. These alternatives to employee cutbacks are cost-adjustment strategies aimed at helping organizations face the challenge of cutting costs.
Cost adjustment strategies are examples of interventions from a gap analysis that recognized a gap in which supply far exceeded demand. Short-term cost adjustments are ideal in situations where the company is experiencing a temporary setback because of a slight downfall of the business. Short-term cost adjustments include a hiring freeze, mandatory vacation, reducing the workweek, reducing overtime, reducing salaries, and short-term facility shutdowns (Belcourt & McBey, p. 265). Organizations can consider job sharing, in which two more part-time employees perform the duties of one full-time position (Belcourt & McBey, p. 131). This techniques allows companies to retain valued and experienced employees. A similar technique is worksharing, which is a program offered by the federal government that helps companies avoid layoffs by offering income support and redistribution of work to employees while the company undergoes recovery.
It may be more ideal for Stonewall Industries to explore medium-term cost adjustment strategies, in comparison to the short-term adjustment interventions, as the current economy proved evident of the need for longer and more cost-effective solutions. Medium-term cost adjustments include extending reductions in salary, voluntary sabbaticals, exit incentives, and lending employees (Belcourt & McBey, p. 365). Another option would be to provide employees with assistance with the expenses associated with moving to a better labour market, referred to as geographic mobility (Belcourt & McBey, p. 131).
In this case, the Calgary plant indicated potential for expansion and had a favourable business climate. Stonewall plants in suffering provinces may consider assisting transferring their employees to this geographic location rather than having to downsize. Economic forecasts must be consulted to determine if the current low-business cycle would likely recover within a short enough period of time to avoid downsizing. Because of the implications of downsizing, unless there is effective development and implementation of a downsizing strategy, it should be considered as a last cost-reduction decision when all other alternatives have been explored. 3. Which plant should the company downsize? Why? (10 marks)
There are many factors to consider when developing and implementing the downsize strategy. In this case study, there is no obvious plant the company should downsize as there are many apparent risks and implications when downsizing. From the information presented, it seems most ideal for the Stonewall Industries to downsize its Vancouver plant. Overall, this plant is Stonewall’s highest cost production operation, with labour and capital costs far exceeding all of the other plants. In addition, preparing for the future economic situation, if housing starts and interests rates stabilized or if Canada experienced a period of growth, this specific operation would not be able to expand since the plant was situated on property next to the ocean. The property that this plant is situated on is also of high value to real estate developers in the area and in this time of recession it may ideal for Stonewall to take advantage of this by the closure of this operation and gaining value for this property.
Stonewall can consider expanding the Calgary plant in the future, and provide product for the Vancouver market without needing a plant situated in Vancouver – similar to how the Montreal plant produces wallboard for Quebec and the Maritimes, or how the Winnipeg manages the Manitoba and Saskatchewan market. If downsizing was inevitable, for effective human resource planning, downsizing this operation would be the most economically sound decision in the long run. 4. Explain, in detail, the implications of the downsize decision. (10 marks) When considering downsizing, one of the most vital questions to consider is whether downsizing will improve organizational efficiency, productivity, and performance. If so, Stonewall must then consider what practices of downsizing to implement – workforce reduction, work redesign, or systematic change (Belcourt & McBey, p. 263).
If reducing the size of the workforce, things to consider are whether cuts will be either targeted or across the board, and whether the cuts will be carried out all at once or staged over a period of time. Although, downsizing strives to improve competitive position and emerge from the challenges of a suffering economy, there are many implications of a downsize decision. Although perfectly legal, downsizing is often considered unethical, having negative impacts on all parties involved – laid-off employees, survivor employees, and downsizers. For example, downsizing may infringe an individual worker’s perception of the agreement he or she has with the employer, and may violate social contracts, resulting in the organization being considered a poor corporate citizen and overall giving the organization a negative reputation (Belcourt & McBey, p. 267). Employee morale is often severely lowered due to job insecurity, resulting in lower performance among employees and reduced employee commitment.
A negative effect on an organization’s reputation for corporate social performance (RCSP), although an intangible asset, will consequently result in lowered demand for Stonewall’s products (Belcourt & McBey, p. 277). This can have large implications as gypsum wallboard is an extremely elastic product in the market. Sociological implications of downsizing include social isolation, a decline in personal health and well-being, an increase in family related problems, and an overall heavy emotional burden (Belcourt & McBey, p 274). Much evidence shows that many organizations that downsized fell short of actually achieving their goals and organizational objectives that were expected (Belcourt & McBey, p.283).
This is often the result of poor development and implementation of an effective downsizing strategy. Too much focus on cost-reduction strategies and trying to improve financial issues might cause organizations to fail to recognize the costs of the actual downsize and its complexities. In this case study, there are many implications if Stonewall decided to downsize the Vancouver plant. As Stonewall’s oldest plant, most of these employees had been with the company for over twenty five years. Provisions in layoff and termination in the collective agreement in Vancouver and many employees entitlement to significant termination packages under common law precedent would be extremely costly to the company. It is imperative that Stonewall Industries consider long-term effects of downsizing to determine a balance with the implications of the downsize decision. Along with the downsize decision, Stonewall Industries must identify where redundancies and excess costs exist, and how their strategy can tackle these areas while gaining competitive position within the industry.