STRATEGIC HUMAN RESOURCE MANAGEMENT

Retrenchment, Redundancy, Downsizing, HR outsourcing, Employee Leasing

Retrenchment

When a company or government goes through retrenchment, it reduces outgoing money or expenditures or redirects focus in an attempt to become more financially solvent.

Many companies that are being pressured by stockholders or have had flagging profit reports may resort to retrenchment to shore up their operations and make them more profitable.

Retrenchment and Layoffs

Although retrenchment is most often used in countries throughout the world to refer to layoffs, it can also label the more general tactic of cutting back.

Layoffs is more associated with employees and it means about cutting the overall number of employees of the firm.

Tactics of retrenchment

Slash expenditures by laying off employees, closing superfluous offices or branches, reducing benefits such as medical coverage or retirement plans, freezing hiring or salaries, or even cutting salaries.

Can be non-employee related, such as reducing the quality of the materials used in a product, streamlining the process in which a product is manufactured or produced, or moving headquarters to a location where operating costs are lower.

Downsize in one market that is proving unprofitable and build up the company in a more profitable market. If one market has become obsolete due to modernization or technology, then a company may decide to change with the times to remain profitable.

Concept & issues of retrenchment

In capitalist nations, retrenchment is effected by lowering taxes in the hopes of pumping more money into the economy. This tactic is always healthily debated throughout all levels of government.

Employees are often the casualty of retrenchment, as the tactic does not take their interests into account. They are often considered simply as commodities that are either profiting or costing the company, and are therefore either a necessary expense or a financial liability.

Strategies for retrenchment

Captive Company - Essentially, a captive company's destiny is tied to a larger company. For some companies, the only way to stay viable is to act as an exclusive supplier to a giant company.

Turnaround - If a company is steadily losing profit or market share, a turnaround strategy may be needed. There are two forms of turnarounds: First, one may choose contractions (cutting labor costs, etc.) & second, they may decide to consolidate.

Bankruptcy - This may also be a viable legal protective strategy. If one declares bankruptcy with loyal customers, there is at least a possibility of a turnaround.

Strategies for retrenchment

Divestment - This is a form of retrenchment strategy used by businesses when they downsize the scope of their business activities. Divestment usually involves eliminating a portion of a business. Firms may elect to sell, close, or spin-off a strategic business unit, major operating division, or product line.

Liquidation - Take the book value of assets, subtract depreciation and sell the business. This may be hard for some companies to do because there may be untapped potential in the assets.

When to consider retrenchment

Divest businesses too small to make sizable contribution to earnings having little or no strategic fit with firm’s core businesses options.

Retrenchment revolves around cutting sales.

Retrenchment is a corporate-level strategy that seeks to reduce the size or diversity of an organization's operations.

This strategy is design to fortify an organization's basic distinctive competence.

Redundancy

An employee is said to be retrenched when his or her job becomes redundant and the employer either cannot offer the employee any alternative position or, any alternative position offered by the employer cannot be accepted by the employee.

An employee is often referred to as redundant but a more accurate description is that the job the employee was employed to perform is redundant (that is, the employer does not want the job performed by anyone, anymore) and the employee's employment is then terminated by reason of that redundancy. That is, a job becomes redundant, not an employee.

Organizational issues

In cases of termination by reason of redundancy (that is, retrenchment), the law requires an employer to treat the employee fairly and lawfully.

Redundancy and unfair dismissal laws interact in such a way that a retrenched worker can make a claim for unfair dismissal. However, the court will take the view that provided the employer has acted in good faith then the employer's needs must be respected.

Circumstances for redundancy

Worker was unfairly selected for redundancy The worker was selected for redundancy

because of work performance without having been given the opportunity to respond to the employer's concerns about his ability or performance

The worker was not properly consulted before the decision to retrench was made;in some cases non-award employees can attack the adequacy of the redundancy payments made to them

Downsizing

Downsizing is a commonly used euphemism which refers to reducing the overall size and operating costs of a company, most directly through a reduction in the total number of employees.

When the market is tight, downsizing is extremely common, as companies fight to survive in a hostile climate while competing with other companies in the same sector. For employees, downsizing can be very unnerving and upsetting.

Reasons for downsizing

To make the daily operations of a business more efficient. For example, a company may be able to replace assembly line employees with machines which will be quicker and less prone to error.

Downsizing increases profits by reducing the overall overhead of a business.

A company may decide to shut down an entire division; a car company, for example, might decide to stop making sedans altogether, thus cutting an entire department.

Employee downsizing

Employees may be terminated, fired, laid off, made redundant, or released. A business may be optimized or experiencing a reduction in workforce.

Since profit is an important bottom line for companies, downsizing measures should be expected by employees, especially when they observe a troubled market or they are working for a struggling company.

For employees, the process can be stressful, because they may feel uncertain about whether or not they will continue to employed. Sometimes, downsizing is very abrupt, with a huge batch of employees being released from employment on the same day, while in other cases it may be a more drawn out and nerve wracking process in which employees are slowly let go.

Employers should remember that downsizing is very upsetting and stressful, and they should take steps to make it run smoothly while assuring valued employees that their jobs are secure.

Organizational issues

Layoff, may refer to a mass temporary release of employees who will brought back in once business picks up, while a redundant employee is one who is asked to leave permanently.

In a business enterprise, downsizing is reducing the number of employees on the operating payroll. Some users distinguish downsizing from a layoff , with downsizing intended to be a permanent downscaling and a layoff intended to be a temporary downscaling in which employees may later be rehired. Businesses use several techniques in downsizing, including providing incentives to take early retirement and transfer to subsidiary companies, but the most common technique is to simply terminate the employment of a certain number of people.

Outsourcing

Very simply outsourcing can be defined as a process in which a company delegates some of its in-house operations/processes to a third party.

Thus outsourcing is a contracting transaction through which one company purchases services from another while keeping ownership and ultimate responsibility for the underlying processes.

The clients inform their provider what they want and how they want the work performed. So the client can authorize the provider to operate as well as redesign basic processes in order to ensure even greater cost and efficiency benefits.

HR outsourcing

HR outsourcing is the delegation of a human resources process or processes to an external HR provider that specializes in this service.

This provider takes charge of managing and administering the outsourced services for its client.

Strategies for HR outsourcing

Identification - While these processes are purchased from said providers, the ultimate responsibility for the processes still rests with the purchasing company. Outsourcing is an option that's being explored by an increasing number of companies for reasons that include increased efficiency and cost savings.

HR Functions - These key features include hiring, employee compensation, benefits, training and development, safety and wellness, employee performance management vis-à-vis company standards, evaluation, sanctioning and firing.

Details - The HR division or group may previously have administered said process or processes for the company but may have decided or have been instructed to outsource it.

Strategies for HR outsourcing

Reasons - reduced operations costs, increased company efficiency, access to HR expertise that may not be available within the company and which the company may not wish to acquire or develop, strategic reasons, such as a change in the company's goals and focus.

Qualifications – one factor is the range of HR services the provider can handle, as well as the HR resources it has at its disposal. Another is the provider's reputation in the industry. A third is whether the provider's strategy is in context with that of the parent company.

Organizational issues

Outsourcing operations happen for increasing the net profits of the companies as they find it cost effective very much in the long run by outsourcing their operations. However companies must look beyond initial cost saving and must analyze the impact of outsourcing on employee satisfaction and the overall organizational performance. Giants like PepsiCo and Duke Energy and other big companies have started outsourcing their Human Resource operations. This clearly shows the importance of firms understanding as to why the operations have been outsourced and matching metrics to those goals.

Organizational issues

By outsourcing, an organizations HR team can connect between recruitment sources and the performance of the recently hired employees. Trading investments and performance rankings can be connected. Employee exit data and their total reward programs can also be compared and connected. These things give an organization a better and an effective basis for evaluating its programs.

Employee leasing

Arrangement in which a firm (called subscribing firm) transfers its employees to another firm (called leasing firm) which specializes in human resource management, payroll accounting, and risk administration. The subscribing firm leases its employees back as employees of the leasing firm and usually pays more for their services than their salaries at the time of transfer. This way the payroll and associated expenses and taxes of the leased employees become the leasing firm's liabilities.

Organizational issues

Better management of workplace safety can help control the cost of worker compensation. Improved hiring practices and experienced representation in unemployment insurance benefit and tax matters can help keep the cost of unemployment compensation down. Because leasing companies represent a number of employers, and therefore a larger pool of workers, the cost of benefits can sometimes be lowered. In some cases, client employers, which could not afford to provide certain benefits such as health insurance, find it affordable to do so when taking advantage of the buying power of an employee leasing company.

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