Batziou, L. “Business Downsizing During 2018 Recession Period 2009 – 2017”
SCHOOL OF SOCIAL SCIENCES
Master Degree in Business Administration (MBA)
DISSERTATION
“BUSINESS DOWNSIZIMG DURING RECESSION PERIOD 2009- 2017”
Author: Lamprini T. Batziou
Supervisor: Aristeidis Bitzenis & Varvara Myloni
PATRAS, 2018
HELLENIC OPEN UNIVERSITY - DISSERTATION 1 Batziou, L. “Business Downsizing During 2018 Recession Period 2009 – 2017”
ΕΛΛΗΝΙΚΟ ΑΝΟΙΚΤΟ ΠΑΝΕΠΙΣΤΗΜΙΟ
ΣΧΟΛΗ ΚΟΙΝΩΝΙΚΩΝ ΕΠΙΣΤΗΜΩΝ
Πρόγραμμα Μεταπτυχιακών Σπουδών στη Διοίκηση
Επιχειρήσεων ( ΜΒΑ )
ΔΙΠΛΩΜΑΤΙΚΗ ΕΡΓΑΣΙΑ
“Συρρίκνωση των επιχειρήσεων κατά την
περίοδο της ύφεσης 2009 – 2017”
Λαμπρινή Θ. Μπάτζιου
ΕΠΙΠΒΛΕΠΩΝ: Αριστείδης Μπιτζένης & Βαρβάρα Μυλώνη
HELLENIC OPEN UNIVERSITY - DISSERTATION 2 Batziou, L. “Business Downsizing During 2018 Recession Period 2009 – 2017”
Πάτρα, Σεπτέμβριος 2018
Περίληψη
Το θέμα « Η συρρίκνωση των επιχειρήσεων» έχει απασχολήσει κατά καιρούς, τόσο την ακαδημαϊκή όσο και την επιχειρησιακή κοινότητα. Ο βασικός λόγος αυτής της έρευνας ήταν για να γίνουν αντιληπτά τόσο τα αίτια που οδηγούν μια επιχείρηση στη μείωση του προσωπικού, όσο και να γίνει μια σύντομη καταγραφή των συνεπειών αυτής τη πρακτικής. Η μελέτη έγινε με βάση τη θεωρία επικρατεί γύρω από αυτό το θέμα, καθώς και παρατάθηκαν ορισμένες «μελέτες περίπτωσης» εταιριών οι οποίες προχώρησαν σε βαθιά συρρίκνωση. Ακόμα, γίνεται λόγος για τα πλεονεκτήματα και τα μειονεκτήματα από μια τέτοια μέθοδο αναφέρονται εκτενώς, επίσης.
Δεδομένου ότι η χώρα μας έχει μπει σε βαθιά ύφεση, θεωρήθηκε αναγκαίο να γίνει μια αναφορά τόσο στον ιδιωτικό όσο και στο δημόσιο τομέα. Κατά πόσο δηλαδή, επηρεάστηκαν οι επιχειρήσεις που δραστηριοποιούνται στον ιδιωτικό και το δημόσιο τομέα. Η Ελλάδα είναι η μοναδική χώρα στην Ενωμένη Ευρώπη, η οποία βυθίστηκε σε βαθιά ύφεση ύστερα από το έτος 2010. Γι’ αυτό το λόγο, έγινε μια σύντομη αναφορά στο βασικό αίτιο που οδήγησε την Ελλάδα να ζητήσει τη χρηματοοικονομική στήριξη από τo Διεθνές Νομισματικό Tταμείο. Το διεθνές νομισματικό ταμείο, στηρίζει οικονομικά ασθενείς χώρες οι οποίες δυσκολεύονται να διαχειριστούν τα εσωτερικά οικονομικά τους ζητήματα.
Λέξεις κλειδιά: Διοίκηση Ανθρωπίνου Δυναμικού, Συρρίκνωση Επιχειρήσεων, πλεονεκτήματα και μειονεκτήματα, σύνδρομο επιβίωσης, Ελληνική Κρίση.
HELLENIC OPEN UNIVERSITY - DISSERTATION 3 Batziou, L. “Business Downsizing During 2018 Recession Period 2009 – 2017”
Abstract A lot of attention has been paid regarding Business Downsizing from organization and scientific world. For this reason, this research is made to understand not only the causes that force a company to downsize, but also the advantages and disadvantages of this practice. Apart from the report of case studies, there is an interview from food sector which implemented downsizing indirectly. There are negative side effects for the laid off workers, the remained employees as well as the firm, too.
Moreover, on the scope of the study is Greece, where I made a critical review over 2010, when the country entered IMF; Which was the most important cause of economic crisis; why the county asked for help, the impact in private and public sector, referring to pharmaceutical industry, banking sector, and to a positive example of constructions, too.
Key words: HR, HRM, business downsizing, advantages and disadvantages, survival syndrome, Greek crisis
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Acknowledgements
When you are emotionally well, even if there is a lot of pressure, all goals can be achieved.
I am grateful to my supervisor, Mr Aristeidis Bitzenis, for his support and for being in constant contact with me. I appreciated his fast response in every query that I had.
However, many special thanks to my family and friends for their understanding;
“Niko, Emma, Iro I wouldn’t have managed it, if it wasn’t for your help.”
Many thank’s again!
Lamprini Batziou
HELLENIC OPEN UNIVERSITY - DISSERTATION 5 Batziou, L. “Business Downsizing During 2018 Recession Period 2009 – 2017”
Table of Contents:
Πίνακας περιεχομένων Περίληψη ...... 3 Abstract ...... 4 Πίνακας περιεχομένων ...... 6 Acronyms ...... 8 Tables...... 8 CHAPTER 1 ...... 9 Introduction ...... 9 1.1 The Object of this thesis ...... 11
1.2 Questions over Business Downsizing...... 11
1.3 Objective of the thesis ...... 11
1.4 Methodology ...... 11
1.5 Conclusions ...... 12 CHAPTER 2 ...... 13 LITERATURE REVIEW OF “BUSINESS DOWNSIZING” ...... 13 2.1 Causes of employee downsizing ...... 14 2.2 Downsizing and HRM ...... 16 2.3 Advantages and disadvantages of Downsizing a company ...... 19 2.3.1 A list of Advantages ...... 19 2.4 A list of Disadvantages...... 23 2.4.2.1 “Survival Syndrome” ...... 27 2.4.3.1 The possibility of Bankruptcy ...... 30 2.5 Examples of Downsizing in the real world...... 31 CHAPTER 3 ...... 33 RESEARCH METHODOLOGY ...... 33 3.1 QUANTITATIVE METHOD ...... 33
HELLENIC OPEN UNIVERSITY - DISSERTATION 6 Batziou, L. “Business Downsizing During 2018 Recession Period 2009 – 2017”
3.1.1 Main advantages of Quantitative research ...... 35 3.1.2 Main disadvantages of a quantitative method/ research ...... 35 3.2 QUALITATIVE METHOD ...... 36 Basic Characteristics: ...... 36 3.3. STATISTICAL ANALYSIS ...... 38 3.4 OTHER STAITSTICAL TOOLS ...... 40 3.5 LITERATURE REVIEW ...... 40 3.6 DESK RESEARCH METHODOLOGY ...... 41 CHAPTER 4 ...... 43 RESEARCH ANALYSIS ...... 43 4.1 Companies that have downsized in Real Economy – America ...... 43 4.1.1 WALLMART CASE ...... 45
4.1.2 UNILEVER CASE ...... 47 4.2 Overall study in Greek companies & Greece ...... 51 4.3 First Business Bank (FBBank) went bankrupt ...... 54 4.4 Pharmaceutical sector and downsizing in Greece ...... 56 4.4.1. “Alapis” Pharmaceutical Company ...... 56 4.4.2 “Rizakos” company – a positive case in constructing sector...... 58 CHAPTER 5 ...... 60 CONCLUSION ...... 60
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Acronyms E.U: European Union
U.S.A: United States of America
I.M.F: International Monetary Fund
F.M.C.G: Fast moving consumer goods
E.P.S: Expanded Polystyrene
Z.B.B: Zero Based Budgeting
F.B.B.: First Business Bank
N.B.G: National Bank Of Greece
Tables 1: Companies in USA that have proceeded in massive lay – offs
2: Top companies that downsized on 2016
3: Companies that went Bankrupt in Greece
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CHAPTER 1
Introduction
My name is Lamprini Batziou and I am a 30-year-old Greek citizen. During the last decade of my life I confronted different living and working conditions. As student in the university of Patras, I imagined myself that I could work and live in a stable financial environment. However, soon after 2010 both citizens and society confronted a wide range of problems. Actually, we all noticed our income to decrease, year after year, while many young people were forced to look for job opportunities in foreign countries. Either friends or neighbors were dismissed from their jobs. So, I decided to make a research over Business Downsizing During recession period 2009 – 2017.
The purpose of this thesis is to make α literature review, over a crucial subject which is business downsizing during recession period 2009-20017. Based on articles, journals as well as, books I present the side effects, the pros and cons of such implemented methods in enterprises and organizations. Apart from the main purpose of downsizing, which is cost reduction, companies should consider the negative reaction of the remained employees; That is called “survival syndrome”, and it seems to be the most negative impact of all. Finally, there is a reference to the likelihood of bankruptcy and downsizing, too.
From the spectrum of HR management, a series of meanings regarding Human recourses are mentioned like, downsizing overview, downsizing process, after downsizing condition etc. Additionally, I refer the side effects of Business downsizing which are negative for both the departing employees, remained ones, as well as the for the firm. Following to the side effects, there is a special citation to companies that have downsized, globally. An elaboration holds for Walmart and Unilever global corporations. These case studies revealed that although, multinational companies thrived in the past, they were forced to downsize either for cost reduction or tax relief/ avoidance by moving their headquarters to different countries. Also, I found out that Unilever launched a new trend concerning downsizing in houses based on sustainable development.
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Moreover, there are references both on European and American companies as cases showing that this method of downsizing has created important problems. In fact, most of these companies have ended up in bankruptcy. There are examples of large companies, like HSBC which have proceed in downsizing, accepting all the inevitable consequences. A range of advantages and disadvantages are analyzed that affect directly the company and the employers, too. Moreover, there is a reference in the causes of Employee Downsizing, based on which many companies have adopted such method.
Additionally, there is an important reference to Greek economy that has suffered from depression for more than a decade. It comes that the country should enter IMF (International Monetary Fund) in cooperation with European Union, to handle financial crisis. Since then (2010), the country downsized both in is private and public sector. The main problem that should be solved was “shadow economy”, according to European Union.
In the territory of Greece, I will mention examples of downsizing in the pharmaceutical sector (“ALAPIS” company). Furthermore, banking sector is mentioned – “FBBank” case, as well as, “Rizakos” company from industrial – constructive sector, which is a positive example that overcame crisis. The latter is a positive case study that has managed to overcome crisis, successfully.
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1.1 The Object of this thesis On the scope of this research is to create a robust outcome over a controversial issue which is business Downsizing during recession period 2009- 2017. These corporations that downsized their company, were confronted with negative side effects. Such consequences concern the departing employees, the remained workers and the company, too. Also, I examined a few case studies, to be informed of how these companies implemented this practice and how many people were laid – off.
1.2 Questions over Business Downsizing The term Business Downsizing came up during last decade in Greece, since both society and business sector came across with recession problems. Such impacts and side effects appeared in different ways, catastrophic in some economies. These companies were forced to implement such method in order to reduce their costs. Thus, the pros and cons are analyzed in this research. Apart from the negative side effects, from HR point of view, it is noticed that employees faced important difficulties not only accepting being laid off, but also to choose who must be chosen to be fired. A sample of companies that have downsized globally, are analyzed. The financial situation in Greece, related to downsizing is also examined. Both Pharmaceutical sector (Alapis company) and banking sector (First Business Bank), as well as, a positive case that has overcome crisis are elaborated too.
1.3 Objective of the thesis The main target of the dissertation is to find out the special side effects that occur when a company or an organization decides to downsize. Also, I wanted to make a research concerning Greece; how the companies in private sector, went through the crisis.
1.4 Methodology As it is well known, there are different kinds of developing a methodology over a dissertation or a thesis. More commonly, we use Literature Review and evaluation, qualitative research, quantitative research, hypothesis testing,
HELLENIC OPEN UNIVERSITY - DISSERTATION 11 Batziou, L. “Business Downsizing During 2018 Recession Period 2009 – 2017” desk research and more tools, like, the questionnaire or sampling to reach a conclusion over a population examined.
For this subject, literature review, combined with qualitative method and desk research, were selected among other methods. For the main part I used case studies, to deduct a conclusion through reading and research based on articles, business universities, too.
1.5 Conclusions Based on the adequate research made all this time I concluded that the negative side effects of business downsizing lead to bankruptcy on the own company, let alone that employers face the survival syndrome. Since downsizing is the last, but not the best solution to overcome many problems, unfortunately small majority of these companies have not survived at the end.
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CHAPTER 2
LITERATURE REVIEW OF “BUSINESS DOWNSIZING”
Downsizing a company is a very difficult task. From one side, many employees get laid off and from the other side, the rest of them are restructured to take up new responsibilities. The main reason to proceed in downsizing is either to increase company value or to eliminate excessive costs. However, the most important causes to downsize are: cost reduction, productivity, value and outsourcing.
Concerning cost reduction, we mean the action of a business to reduce its salaries paid, along with other costs like employee benefits associating with production. Therefore, retained earnings and the owner’s equity increase. On productivity terms, employers are either replaced to machinery, or the remained workers on a company are pressed to keep up with the same level of production and productivity. As for value, when a company downsizes its employees it means that they undergo a process of restructuring in order to become more competitive, so as to appeal more investors in the stock market. Since investors are persuaded that the company is trying to increase its profitability, the value of the company increases automatically.
From times to times, companies vary on the services that they offer. For this reason, choosing outsourcing to support its production or services supplied, costs much less than being provided interior of the company. (Strain. M,)
Although there are significant influences in different sections in management, through the scope of Human Resource Management, the major topics that are examined belong to meanings like downsizing overview and decision, planning to downsize, managing the process and after the downsizing condition.
The national resource association declares that there is a reverse relationship between labor costs and reducing employees, because compensatory factors increase the cost of laying off eventually. Overall, stating that numbers and statistics, only 1/7 of employee reduction, covers the labor cost. If a company fires 7% of its workforce, it will reduce its costs by 1%.
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When a company decides to downsize, confronts with the choice of “Who” should be fired among a team. This decision is very difficult, since the majority of individuals cannot be replaced easily, in case of business improvement. Also, the identification of the problem inside a company or a team, as well its solution supposes a long and difficult pre-examining process.
Since it is a difficult process to downsize, many managers on HR have explored alternatives, so as to give out this project. It is very common to outsource traditional administrative functions, in order to become more competitive.
All the planning process must be fair and right. “If you must Downsize, Do it Right” as Wayne F. Cascio has pointed out in order to show that none of the employers should be affected disproportionately. (Cascio. W, 2011) Considering the planning, the alternatives, the overview of downsizing, there is a specific process that must be followed, which encloses the spread of the news on the company, and then, there must be a personal announcement on the fire person, as well as, time to say goodbye.
Once the whole process finishes, there is time after the Downsizing where, HR managers should help the employers to absolve any feels of guilt that may occur or stay in contact in case they may re-hire any of them in future. (Cascio. W, 2011)
2.1 Causes of employee downsizing
The main reason of employee downsizing comes from the intention of the entrepreneur to either increase the value of the company or to reduce excessive costs. Generally, the meanings that are encountered in this section are cost reduction, productivity, value and outsourcing.
Cost reduction: It is certain the balance sheet is composed of ASSETS, as well as LIABILITIES & STOCKHOLDERS EQUITY, which must be equal at the end of each period. Although, the Fixed cost remain stable through production period, variable cost follows the line for the production process, so the more o company produces, the higher becomes the variable cost. For this reason,
HELLENIC OPEN UNIVERSITY - DISSERTATION 14 Batziou, L. “Business Downsizing During 2018 Recession Period 2009 – 2017” when a company has excessive supply of working capital and there is a lack of income/cash must downsize its workforce, so as not to reduce its equity (“loss” or “minus” in balance sheet. Removing this liability/ obligation from the Balance sheet, the retained earnings are higher for the owners.
Productivity: Is an economic measure of output per unit of input. As inputs we consider labor and capital, whereas as output we consider revenues or other GDP components. Based on this theory, many companies try to have the same amount of output, using fewer inputs. Consequently, the productivity terms rise automatically since (labor productivity = economic output / labor hour). Moreover, in the highly technologically advanced period that we are going though, many fired workers are replaced of machines and equipment in order to do the same job.
Value: The goodwill of a company is an intangible asset which sometimes may be stronger than the real assets. The goodwill, generally, increases the value of the company. In hard financial times, while many companies downsize their employees it is because they want to increase the value of their company. As such, they restructure their business so as to maximize their profitability, thereafter all the shareholders, as well as the investors, are convinced that the company is subjected to a worthwhile process that strengthens each other’s business trustfulness. Also, new shareholders are appealed, so the price of the stock increases pushing up the general value of the organization.
Outsourcing: As it has been observed, many companies are used to overtake excessive products or services to satisfy their customers’ needs. Due to a reduce in the demand of the offered product/ service, every company must discard excessive offer of labor inside the company. As such, they decide to outsource certain activities to be more competitive, to increase productivity, as well as to reduce costs. Consequently, a reduce of the number of employees is inevitable. (Jared, L. 2017)
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2.2 Downsizing and HRM
Human Resource Management or HRM plays both administrative and operational role in the organization. Despite that, from early 1980’s, when downsizing appeared, HRM extended to a new dimension concerning workforce strategies in accordance with short – medium – long term objectives of the organization, according to “Ivey Business Journal” (Horrnstein. H, 2009). Thus, HRM is fundamental for strategic planning, considering that working conditions change radically.
Considering the frame of Downsizing process, we come across with meanings like,
• Overview Downsize, • Decision Downsize, • Alternatives, • Planning to Downsize, • Managing the Process • After the Downsizing
Downsizing overview As we mentioned above the main reason of Downsizing is to reduce the internal costs of a company. There are many cases that have managed to do so, but at the end the total outcome of this process was not positive, due to compensatory measures that a company must take. In fact, there is a mathematical relationship between reducing employees and labor cost which is 1/7. For example, reducing 7% of employees, reduces labor cost at 1%. Such information is derived from the National Human Resources Association. Moreover, the remained employees must be paid more to be efficient in their job tasks. Additional cost is considered every consequence related to the organization’s culture. Normally, downsizing reduces cost when a vertical lay off must occur especially in large companies or global corporations, where compensation rules vary from place to place, so the overall cost can be handled.
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Downsize Decision Before HRM decides to downsize, managers must consider several factors that influence such settlement. Firstly, there must be a process which recognizes both the problem and its solution in advance. As soon as the downsizing method is implemented, the resources that can be devoted must be assessed. Furthermore, managers must keep in mind that downsizes always affects company’s real assets in a long-term period. Finally, when better financial conditions return, how they are going to acquire high-skilled individuals that have been redundant.
Exploring Alternatives Very often HR managers must keep up with the downsizing process, which influences their job behavior since they are obliged to reduce their team’s capacity and efficiency. Inevitably, they become unable to maintain high levels of productivity. Therefore, they lose their role of hiring and compensating. Consequently, shrinking a department in a business sector, prompts HR managers to outsource traditional administrative functions.
Planning to Downsize Wayne F. Cascio writes: “If you want to downsize, do it right”. Apparently, there is a summation of a well-defined process that must be used, beginning with the criteria selection of the workforce that must be fired accompanied with all documents and recommendations till the compensation point. HR is mainly involved in the process of Downsizing, so this department is subjected to fire the existing employees based on their working performance. Also, they impose new working conditions, so as to keep a balance among the remaining workers. For sure, when a company downsizes, the process must be the fair and equal in every level.
Managing the Process In all aspects, downsizing comes from the top, where HR managers must handle this situation, avoiding any tensions among the employees. Any
HELLENIC OPEN UNIVERSITY - DISSERTATION 17 Batziou, L. “Business Downsizing During 2018 Recession Period 2009 – 2017” announcement regarding massive layoffs must be spread in a way that it will not create any poor morale problems that will affect emotionally the laid off workers. Thus, the supervisor manager should inform personally every worker about the change in the working space. After all, it must be clear that at any case, the company is willing to re-occupy the same person, if there are available job positions in future. Apart from that, terminated workers must have plenty of time to say goodbye to their colleagues and co-workers. Finally, fired workers must be offered the possibility to participate both to job training and company – sponsored career coaching. Thus, they will still feel valued for the company.
After the Downsizing Although, the whole process of Downsizing has been successful, HR managers should operate properly in order to increase morale, to avoid any stress or guilt in the remained workers of the company. Also, every change must be in a confident environment that ties up co-operations among workers and supervisors. It is wise that managers assure that the redundant workers may be rehired either as employees or as consultants. (Kelly, D.)
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2.3 Advantages and disadvantages of Downsizing a company
Downsizing a business is not the best option for a working place, but it may be urgent in some occasions. The most important factor is to put aside any personal feelings regarding the whole process and to be focused on the main goals and objectives of the practice. As a main cause of reducing the number of employees may be the size of the company; Normally, owners who want to be responsible for every operation in the business prefer not to hire managers, but to run a company themselves. So, it is a good solution to downsize in case of financial struggle. Nevertheless, there are important pros and cons of letting employees go. Above all, the illustration of doing the best for the company must exceed any negative feeling.
2.3.1 A list of Advantages
Downsizing the organization is necessary in some occasions, so it can be worthwhile for the business. It is very common that organizations in growth periods tend to absorb more people or machinery that may be not used properly. So, when financial crisis appeared it was time to scale down to more realistic and manageable size, leading to scaling operations.
Also, it is a great opportunity to re-evaluate its goals and its real condition of the present market, by rewriting its business plan and strategy to become more competitive in the future. Another pross of downsizing process is the Mutual Effect, which means that the owner of the company decides to impose cuts so as to become more competitive and more efficient for his business purposes. Also, managing many people in a team or in a company is very difficult for one person (manager). So, in case of downsizing there is stronger communication and control inside the team.
Among other benefits, financial savings are the most important. Less spending means more savings, so there is a better ability to infuse other sections of the company with cash. (Jane M. 2018) When more job positions exist in a company, repetition is inevitable. So, through downsizing repetition becomes smaller. Except for the above advantages, we should mention that
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there are indirect benefits which are creative approaches and additional considerations. As for creative approaches means “do more with less” which is an inevitable consequence on downsizing. Such slogan should be used even on better financial conditions. (Belcher, L. 2017)
Regarding additional considerations we mean that the owner of a company must do whatever is necessary to save its business. After this difficult process, everyone becomes stronger. It is important to say that sales may increase after downsizing, whereas the cost of sales is not related to downsizing practice (Chalos & Chen, 2002; De meuse et., al 1994;) referred at (Sheaffer, Z. 2009)
As for the fired employees, at the end of his career inside a company, normally they receive severance pay or lump-sum payment which helps them to re-build their career. Sometimes, the departing employees are helped to find a new job through outplacement support. As a result, new business opportunities appear, even with better conditions than the prior one. (Mac Donald L., 2018)
2.3. 1.1 Positive Side Effects of Business Downsizing I. Scaling operations II. Re-evaluation III. Mutual Effect IV. Management V. Financial Savings VI. Less Repetition VII. Creative Approaches VIII. Additional Considerations IX. Severance Pay X. Alternative Employment
Scaling Operations: In past, many companies tended to acquire more personnel believing that being more specialized in different business departments, increases the turnover. However, when financial crisis
HELLENIC OPEN UNIVERSITY - DISSERTATION 20 Batziou, L. “Business Downsizing During 2018 Recession Period 2009 – 2017” appeared, companies had to reconsider their business objectives, their orientation as well as their perspectives based on the new financial conditions. It was time to get adapted to new business data restructuring their operations, to remain profitable. Thus, these companies sized down in such dimensions that could serve their customers efficiently, preventing any loss. Apart from employee downsizing many companies, shrunk their facilities and their equipment, too. (George, N.)
Reevaluation: Although, reducing costs is the main cause of downsizing, this process is connected with re-evaluation. For example, every organization is forced to localize its current position, to rewrite its business plan, putting in front its productivity levels. A business should update its business plant in a manner that reflects all the changes in the marketplace, achieving to be in a better competitive position in the future. (George, N.)
Mutual Effect: Another advantage of Downsizing is that every department is affected equally, which at the end gains the necessary resources to operate properly. On detail, when an owner decides to cut or size down areas inside the company, it is applied in every level equally, even if it is not seen positively from the point of view of the employees. Therefore, the owner can develop a balanced plan. (Jane, M. 2018)
Management: It is rational that a larger company needs more departments to operate properly, so more managers are necessary to perform these roles. In case of downsizing, the owner of the company cannot control every project, task or decision of his business successfully. Thus, the smaller is the size of the company, the better is the communication among the members of the team. (Jane, M. 2018)
Financial Savings: As it was mentioned above, cost savings or a reduce in financial costs is the main advantage of business downsizing. It is the greatest benefit, since money is saved when there are there are less liabilities to be paid. Thus, the prosperity of the company can create new job positions and business opportunities in future. (Frost, S.)
Less Repetition: All companies and organizations have some level of repetition not only in the different departments, but also among workers. In case of downsizing this repetition is eliminated, since there are fewer people
HELLENIC OPEN UNIVERSITY - DISSERTATION 21 Batziou, L. “Business Downsizing During 2018 Recession Period 2009 – 2017” to do the same job. So, the company become more efficient and saves money that would be spent more efficiently. (Belcher, L. 2017)
Creative Approaches: Very often managers are forced to give out tasks with less or the same resources. In this way, self-competency is achieved which helps to personal evolution in a business environment. Both employers and workers must come up with ideas that ensure the goals of the company. Each member must become more efficient through an effective process. (Belcher, L. 2017)
Additional Consideration: Downsizing is a rebuilding process which helps the company to go further with its future plans, preventing the closing of the company. Even if it necessary to cut or downsize, everyone inside the company must consider that it’s worth for the saving of the company. For sure, constant communication between the workers and managers can reduce stress. Also, it is fundamental that top level managers encourage the staff telling that the company will end up being better. (Belcher, L. 2017)
Severance Pay: If middle or Large sized companies (when the number of employers is more than 100), declare massive lay-offs, by law, they must inform the employers 60 days earlier in order they have time to get prepared and compensate, too. Despite of the earlier announcement, many companies must offer severance pay to fired people, if such term is included in the initial agreement. Generally, such amount is big enough that can cover either old debts or to establish a new depositing program. (Mac Donald, L. 2017)
Alternative employment: Even though, being fired is not the luckiest thing that can happen to an employee, yet other business opportunities may come up. Many companies seek for support which helps the departing employees to find another job, even with better conditions than the previous one. However, a few of them take advantage of the severance pay and they establish their new business venture. So, losing a job may be the hint to find a better job position. (Mac Donald, L. 2017)
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2.4 A list of Disadvantages
Downsizing generates serious consequences as it reported in management and business journals. An extensive look on the related literature presents a complex of side effects. Despite the extensive research, there is efficient evidence concerning overall success, effectiveness and efficiency from financial, organizational and HRM point of view (Burke & Greenglass, 2000; Gandolfi, 2009; Littler & Gandolfi, 2008) cited at p. 356-360 (Cooper. C & Quick. J, 2012)
Personal choices, reduction cost, decrease in demand of the company, changes in the exterior market environment may force a company to downsize the employees. However, there are primary and secondary disadvantages that influence directly either the fired workers and the remained ones or the organization.
When a company decides to dismiss people from its workforce, inevitably loses partners who have contributed in the development of the company. So, decision making of who is going to be fired includes a percentage of risk, too. Another disadvantage concerns the reputation of the company, especially in the case that the company has downsized because it has outsourced business responsibilities. (George, N.) Regarding the remaining employers, there is a lack of opportunities simply because, less job positions imply less effort. From company’s point of view, its public image may be influenced negatively on the perception of its partners and clients, too. (Jane, M. 2017)
There is a loss of communication among the employers, plus the external partners of the company. Consequently, there is a gap in the field of communication which must be filled by the remained workers, which necessitates time and effort.
When employers leave the company, there is skill and knowledge loss, too. Although, files and documents are left behind, special preferences of the clients or the history of the company is taken apart. (Acevedo, L.)
However, the remained job and tasks must be shared to the remained workers which causes employee stress, along with survivor’s remorse or survival syndrome.
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It is important to mention that there is psychological and financial impact on the dismissed employee. Fired workers may consider themselves as victims (Dolan et al.,2000; Gandolfi, 2007) referred at (Gandolfi, F. 2016). Such perception is due to job loss which results in ill health, family problems, depression, helplessness, anxiety and social isolation (Gandolfi, 2007; Havlovic, Bothillette, & Van der Wal, 1998) referred at (Gandolfi, F. 2007). In order to avoid any emotion of bitterness, many companies offer counseling support. Every person who receives a stable income monthly, builds a lifestyle based on that income. By the time he loses it, he is confronted with many financial problems which must be solved.
Furthermore, it is observed that career consciousness, work quality, organizational involvement, and organizational commitment are decreased, too. (Freeman, 1994; Makawatsakul & Kleiner, 2003; Freeman & Cameron 1993; Littler et al., 2003;) referred at (Littler, C. & Innes, P. 2003) It has also been observed that other negative side effects include guilt (Allen, 1997;), anger and arousal (Cutcher – Gershenfeld, 1991) anxiety (Staw Sandelands, & Dutton, 1981), relief (Allen, 1997) and job insecurity (Hansson, 2008 a), referred at (Freeman, S. 2006)
Moreover, it has been reported, that in long term period, companies that upsize observe their stocks, they rise in the market share, whilst these that downsize either in asset or in employees, observe their market price to decrease.
On other occasions, when a corporate decides to downsize, there are the same consequences, as in a small company, but the clear numbers are higher. For example, financial costs that occur may value a fortune, like severance packages and payments for the dismissed workers, which are much higher in large corporations than in smaller companies. In case of a sole action of downsizing, the corporate can handle it properly. But, if there is a repetition in firing employers, there is a morale decrease. After that, the company loses trust and respect.
We should also consider that productivity and creativity drop, according to Teresa Amabile from Harvard Business School. Apart from this, employers
HELLENIC OPEN UNIVERSITY - DISSERTATION 24 Batziou, L. “Business Downsizing During 2018 Recession Period 2009 – 2017” who may consider that they were dismissed unfairly may cause potential legal issues, exposing the company to expensive lawsuits. (Frost S.,)
2.4.1 For the departing employees
Basically, there is both psychological and financial impact to an employee when he is announced that he is made redundant. (Mac Donald, L. 2018) First of all, he faces an emotional contradiction thinking that he was chosen to lose his job among his co-workers. As a result, feelings like bitterness, loss of confidence in his skills and abilities, depression or melancholy may be developed. Also, it is common that anger against the company or the colleagues appears. Considering, financial consequences, negative emotions become even stronger in the progress of time. Every employee, when he receives a certain income in constant time-basis, he built a lifestyle based on that income. In case of being dismissed, even if he finds another job quickly, he may not be able to cover all his expenses, debts, mortgages or everyday life. So, the crash that goes through is very strong. Theoretically, departing employees receive a severance pay or unemployment benefits. (Mac Donald, L. 2018) Yet, the overall living costs may extend such income. For this reason, a lot of companies offer counseling support, so as to help them as much as possible. Last but not least, massive layoffs may confront the company with legal issues. (Frost, S.) Despite the fact that a company may have valid reasons to downsize, yet the terminated employees may sue the company for discrimination or unfair dismiss. Apart from psychological pressure, the cost concerning lawsuits may be very expensive.
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2.4.2 Negative side effects for the remained workers
As soon as it is announced that the company is going to downsize, probably the company’s morale is reduced. This happens because, all the employees are anxious about keeping their jobs. Even if they are not affected, directly, they are worried that they may be fired in near future. Regarding, the remaining employees, they take up more tasks without more payment, which declines morale even more. In case there is an unaccepted excuse, it may break both trust and respects bonds in the organization. As for the remained workers, a downsizing business cannot offer challenging goals and achievements, for a worker who wants to advance inside a single company. In fact, there is a lack of opportunities, since job positions are less, business departments are shrunk, as well as products and services offered are decreased. (Jane, M. 2018) Therefore, the working environment is not challenging enough, leading the remained workers to look for new jobs.
Yet, these workers who stay behind to continue their job, they are overload with more bulk. Although, they may be thankful for keeping their job, they are full of employee stress, due to additional responsibilities (Acevedo, L.). In the beginning, their productivity is boosted, but it reduces later on. Except for working pressure, they experience survival’s syndrome/ survivor’s remorse (Drzensky, F. 2016). Such meaning is related to the phenomenon that remained workers feel sorry for their friends or relatives who have lost their job; at the same time, they may feel guilty for having a job. Another, negative impact that influences both remained workers and the company is the communication between them (Acevedo, L.). It is certain that all networks are affected when a company reduces its workforce. So, the loss of communication breaks all channels that have been created during the operation of the company. It is needless to say that the workers are discouraged to exchange new ideas for the prosperity of the company. Not to mention that hierarchy breaks, which means that the workers are confused to whom they must be directed in order to solve a problem.
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2.4.2.1 “Survival Syndrome”
Recent studies and citations make an extent report to the survival syndrome, as it was written since 1988; So, this syndrome is a sum of negative outcomes and consequences (Appelbaum et al., 1997, Brockner, 1988; Brockner, Grover, Reed & DeWitt, 1992;) These psychological impacts generate new psychological conditions/ agreements between the employer and the employee (Barker & Duhaime, 1997; Sparrow 1998) referred at (Hansson, M. & Gndolfi. F, 2010)
According to a recent survey made by Frank Drzensky and Mathias Heinz (The hidden costs of Downsizing, Economic Journal, Volume 126, December 2016), when a company decides to downsize there is a significant reduction in the working performance by the side of remained workers. This phenomenon is called as “survival syndrome”. During the last couple of years, there has been a great reduction in the workforce globally, especially in EU, in countries like Germany with developed economies. As I mentioned above, there are positive and negative side effects in this process. According to the experiment on the survey, the survivors reduced their performance in response to the lay- off, of their co-workers. (Drzensky F. & Heinz M., 2016) Another source indicates that the remained employees are considered as survivors, too. Such term is based on the emotions, on the behaviors, as well as, on attitudes that are demonstrated, before and after downsizing practice. The symptoms are called as survivor “sickness” (Appelbaum & Donia, 2001)
Additional information coming from the experiment signified that top managers improved their turnover after downsizing. Apart from the severance pay, that was referred earlier, many companies provide financial offers for voluntary leavers (e.g. public or semi-public sector in Greece used this method to reduce its workforce to 2/3, during recession period).
The research that Frank Drzensky and Matthias Heinz completed concerned the impact of downsizing to the remained workers of a company. Since, the remained staff was called as “survivors”, the corresponding phenomenon was called “survival’s syndrome”. Generally, the focal point of this phenomenon is the reduction in their working performance, from the “survival workforce’.
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Such behavior performed due to unfair lay-offs of their colleagues, considering that the main reason of such an action was boost the profit. Apparently, the decrease in motivation is the most important impact. According to an experiment with 400 students at Goethe University, Frankfurt employees should choose one of his/her colleagues to be fired, based on the working performance. At the end, it was obvious that the remaining workers reduced their working productivity and efficiency, as a response to the unfair dismiss of their co-workers.
Supplementary results from the survey make a reference to possible explanations and excuses for business downsizing. Firstly, firms should avoid massive lay-offs in order to reduce the survival syndrome. Instead, they could reduce working hours for every employee. Secondly, many organizations may excuse themselves that the only way to survive was to cut down their workforce, since “they had no choice” Of course, they use it only as a communication tool to convince their workers. Yet, it is very questionable if they manage it.
Also, the research showed that top managers increase their working performance after downsizing. It is rational, because they do not want to be criticized by the following managers. Finally, many firms provide financial offers for volunteer leavers (e.g Greek public sector), even if it is over expensive for the company. The corresponding explanation reveals that the firms want to minimize the negative impact, protect its reputation, as well as to provide positive signals.
2.4.3 Negative side effects for the Company
For sure, downsize reduces costs and payments concerning salaries. However, depending on different contracts, accompanied expenses may occur concerning severance pay or other benefits that departing employees may deserve. Also, the remained workers take up responsibilities of those who have left, putting aside their job tasks. Consequently, it may be necessary to re-hire new personnel either part-time or full-time. In a positive growing future, the company must spend a chunk of money for advertising, recruiting
HELLENIC OPEN UNIVERSITY - DISSERTATION 28 Batziou, L. “Business Downsizing During 2018 Recession Period 2009 – 2017” and hiring employees. More or less, the saving costs will be spending indirectly in future needs. So, financial costs remain approximately the same.
Once downsizing is implemented, automatically productivity and creativity drops (Frost, S.). Considering that the working environment is not challenging any more, they do not put any effort to be creative or productive. On the contrary, they may think of moving to a competing company, where they will be paid better. As a result, less innovating ideas lead to a less competitive company.
By the time a company decides to downsize goes through a selection process of whom and why should be fired. This decision-making process may be correct or not, which will be understood in future (George, N.). Nevertheless, al the terminated employees take with them experience and knowledge that will be missed from the company. Both skill and knowledge loss are inevitable disadvantages for the proper operation for the company. For example, in specific cases where a client or service was handled in a certain way from one of the dismissed employees, then both the productivity and the profitability decline. Very often, these employees with a long experience inside a company are considered as the greatest knowledge loss because their opinions are missed. Apparently, the most important points are solving methods; customer preferences, company history, critical skillsets and business information are taken with when employees leave the company.
The above negative side effects are the most obvious and they are reflected in the dynamic environment of the organization. But, there are meanings like reputation (George, N.), public image (Jane, M.) and negative corporate image that affect the opinion of the external environment of the company. Such example may be clients, suppliers, external co operations or competitors, too. Either it is one of the above side effects or all together, the company may be hurt in revenues and close up at the end.
In case that the company is supported by outsourced services, these business relationships are very fragile because of the rumor which is spread that the company faces financial problems. Either repeated customers or new clients, may prefer a different cooperation. Although, the owner or the stockholders may be positive in downsizing, layoffs always affect the credibility of a
HELLENIC OPEN UNIVERSITY - DISSERTATION 29 Batziou, L. “Business Downsizing During 2018 Recession Period 2009 – 2017” business. For this reason, the owner must be vocal of the reasons that forced him to take such decision. The image of the company is damaged because it loses top talents and faces difficulties to hire or retain them inside the working place, too. Last but not least, the public perception is negatively affected due to the fact that there is the misconception that a failing business cannot offer the same services or products, keeping a stable product quality. Summarizing, the company earns a bad reputation that can further hurt the business. (Jane, M.)
2.4.3.1 The possibility of Bankruptcy
During the great recession of 2008, companies around the world downsized their workforce. In America, almost 8 million workers from 2008 to 2010 were dismissed. Considering the debate that burst out, over the downsizing or not, a research from Auburn University, Baylor University, and the university of Tennessee, indicated that downsizing may actually increase the likelihood of bankruptcy. The research examined on 2010 data of 4,710 publicly firms and determined whether they bankrupted or not in the subsequent five-year period. They found out that 24% of the sample firms reduced their workforce by 3% or more on 2010. Also, downsizing firms were twice as likely to declare bankruptcy as firms that did not downsize. On the contrary, intangible resources played an important role so as to avoid the potential of the bankruptcy. More specifically, cash flow helps to overcome difficulties, however the experience as well as, the human capital is more effective to the solve different problems. E.g, a company may hire new employers with less cost, but a well matured employee along with experience inside the company works like a knowledge bearer and cultural contributor, too. So, it is wise that the firms that plan to downsize should consider on their intangible resources, rather than financial of physical one. (Zorn. Michelle L, 2017)
Nevertheless, existed companies that even if they downsized, they did not go bankrupt. Such case was under examination, too. All the interest was congested of how these companies, avoided bankruptcy. Thus, intangible resources, financial resources and physical resources were on the scope. So, it
HELLENIC OPEN UNIVERSITY - DISSERTATION 30 Batziou, L. “Business Downsizing During 2018 Recession Period 2009 – 2017” was revealed that even if there are plenty financial resources, it is not a panacea to solve problems. On the contrary, deeper knowledge and long-term experience inside of company are more efficient in hard periods.
Other sources declare that downsizing produces a wide range of financial consequences. While, some companies demonstrate positive financial savings, (Belcher, L.) a large majority of downsized firms are not able to take advantage of this practice. So, efficiency, effectiveness, productivity and profitability drop. (Cascio, 1993; Gandolfi, 2008; Gandolfi & Neck, 2008; Guthrie & Datta, 2008; Love & Nohria, 2005; Sahdev, 2003) referred at (Gandolfi. F, & Hansson. M, 2015) For instance, there are some outcomes that they are counter to one another. Certain studies report that return on equity (ROE) and return on Assets (ROA) are the same. Whereas, other studies show that they are not related (Cascio et al., 1997; Dawkins, Littler, Valenzela, & Jense, 1999; De Meuse, Bergmann, Vanderheiden, & Roraff, 2004; De Meuse, Vandeheiden, & Bergmann, 1994) Moreover, downsizing on assets, rather than on employees, may be more sufficient for the company (ROS;, Cascio et. Al, 1997; Worrel et al., 1991) Concerning profit margin, there is not enough evidence that EBITDA improves (Dawkins et. Al., 1999; De Meuse et al., 2004, Macky, 2004) referred at (Cascio. W, & Young. C.E, 2003)
Overall, downsizing is the main part of the general restructuring plan of a company. So, managers must pay attention that they should keep these resources that could decrease all negative outcomes.
2.5 Examples of Downsizing in the real world
According to a more recent article in a financial magazine “The Fiscal Times” (by Millie Dent, 2016,) the most important cause of massive layoffs in U.S.A is due to the decrease in price in oil industry. Thus, many corporations announced massive layoffs in thousands. For example, retail industry fire 36,977 employees in the second semester of 2016. As a result, the value of the cost in labor market reduces. (Dent, M. 2016)
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i) HSBC Holdings Company has laid off 5,000 people on 2011 and is planning to lay off 25,000 more. Already, Mother Company has shut down its operation both in Russia and in Holland. ii) General Motors laid off 75,000 to 100,000 workers during 2008 and 2010, watching their sales dropping, too. iii) Borders, the bookstore chain went bankrupt on 2011 and laid off 10,700 employees. iv) Boeing is a successful example of downsizing. Although, the company dismissed approximately 55,000 employers, they owners created Reemployment Centers that helped re-used their workforce for new jobs. v) General Electric, laid off more than 100,000 employers based on the theory that only the excellent should remain as active workers. (Strain, M. 2018)
Also, there are mentioned 10 top largest companies that have reduced their workforce significantly in the article “America’s top 10 job – killing companies”, posted in money.cnn.com (Long H., 2016)
Even if companies employ less workforce, they proceed to downsizing as it is written in the press; QUIKR from advertising sector, FLIPKART e-retailer, TWITTER – on line networking service, OLA–online cab service, CISCO e- commerce, ASKME e–commerce, GROFERS–online grocery, have dismissed employees, in their branches, too. (The economic times, 2016) However, the practice of Downsizing is appeared on consumerism of food products. For example, it is noticeable that many companied offer the same product in relatively smaller packages, keeping the same pricing levels. This is an indirect way to reduce production cost, without affecting their income. The new mainstream is called “shrinkflation” according to a writer in the web magazine “Independent” (Chapman, B. 2017).
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CHAPTER 3
RESEARCH METHODOLOGY As it is academically known there are different methodologies based on which a dissertation or a thesis that can be developed. The most common methods are Qualitative methodology, Quantitative methodology, Literature review & Evaluation of results. Moreover, desk research, statistical analysis, econometric studies, are useful in order to make a scientific study.
3.1 QUANTITATIVE METHOD
In the quantitative method the focal point is that every person is obliged to make a choice every day, both in its personal life and to its professional life. The decision-making process includes well defined steps that are followed, so as to reach a conclusion. Firstly, we define the problem or the situation that must be solved. Secondly, we develop a problem of the model (e.g if we produce the product X or product Y). Thirdly, we make some kind of test (e.g market research, SWOT analysis) in order to take a result. We repeat the same test that we compare it to the initial problem. Once we have the desirable outcome. Finally, we make the Decision. ( www.eap.gr)
It is important to say that the decision-making process is based on a real model, whose outcome will affect the final decision. It is certain that the more the problem is closed to reality, the better is the quality of the decision, which prevents the uncertainty of the decision making. On the contrary, when the problem or the situation is more complex, (e.g. there are more than one variable to take into account), scientific research is needed to so as to build the model.
Apart from numerical data (statistical, clear numbers), there are empirical data, too. Such data are given in order to compare it with a given theory, so as to confirm or reject it. In other words, it acts as the fundamental formulation of the own theory. Mainly, a quantitative research/ method is used when the researchers aim to test a predefined, theoretical hypothesis, relevant to the situation/ phenomenon/ problem which is under study. (Null Hypothesis is the most common method as primary data). As it was said earlier, this
HELLENIC OPEN UNIVERSITY - DISSERTATION 33 Batziou, L. “Business Downsizing During 2018 Recession Period 2009 – 2017” method is more statistical and numerical, because every result – solution is derived from a more logical and data approach. The outcome that arise signify people’s opinion from a numerical aspect. (www.eap.gr)
In accordance to this methodology, the tools that we use very often are: questionnaires and surveys that the participants choose from a pre-defined list of answers. It can be carried out personally, through the post, over the phone, on line or through social media which is a new trend. After that, the collected data are manipulated according to the researcher’s goals, which are later presented in repost analysis.
Compared to the Qualitative methodology/ research, the latter is used when the researchers aim to formulate a theory or reach a theoretical outcome, through the research. Furthermore, it examines what kind of feelings people had when they made a certain choice. On the questionnaire basis, the respondents reply to open questions so as to express their opinion/feeling and why they had made a specific decision. Overall, discussions and opinions lead to certain concepts or ideas. The qualitative methodology is carried out through focus groups, that are relevant to the population. The research made for quantitative methodology presupposes a more fixed and rigid structure, which means that both the data, the hypothesis test and the outcome are very specific. For this reason, it allows the correlation of a sample examined to the population or even to create a general trend/ outcome of the deducted relationship. The theory which is under study is consists of the theoretical hypotheses and the test to accept or reject this theory, coming from empirical data. All the collecting data refer to the various characteristics of the units collecting the most common source of the data are the questionnaires.
Regarding the theoretical hypotheses it is wise to mention that it is formed in the beginning of the research, it does not change through the research, as well as, it determines the type of data that are necessary to test it. Finally, the problems that occur from the change in the theoretical concepts into empirical variables and indices, as well as, how they are treated determine the measurements validity and reliability. (www.eap.gr)
Taking into consideration all the above information, we can suggest that the quantitative research consists of the stages below:
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i) Collecting of the theoretical elements which is the fundamental basis for the analyzed phenomenon regarding the study of examination. ii) Formulation of the appropriate hypothesis which comes from the theory iii) Coming up with the plan in order to gather the suitable data iv) Once the data are gathered, they are analyzed by using statistical methods v) Interpretation of the results in order to accept/ modify or reject the theory.
3.1.1 Main advantages of Quantitative research
1) The result may have a general use, because it involves a wide variety of subjects in order to gather different sources of information 2) There can be a comparison among categories across a long period of time 3) There is little personal bias since, this method deals with unknown subjects, so the results are not affected by personal influences.
3.1.2 Main disadvantages of a quantitative method/ research
• Since there is lack of narration, the results are very limited and specific due to its numerical description. • The existence of preset answers prevents people from expressing their real feelings and opinion over an issue • Considering that the questions are standard, may lead to standard or “structural” and false interpretation, where the data show the preference of the researcher rather than of the participants. (www.eap.gr)
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3.2 QUALITATIVE METHOD
To begin with, this method is mainly used for qualitative results. Apart from business researchers, social and sociology researchers use such method for their studying purposes. The main tools that are useful for this method are: case studies, interviews focus groups. The latter is mostly used for marketing research, while the other used more commonly. It can be regarded that there are two stages concerning data collection and data analysis. Finally, there are a few limitations conducting this method.
Basic Characteristics: Opposite to quantitative methodology, qualitative research contains less mathematical techniques, as well as, the result is strongly connected with the researcher’s opinion. So, there is an inception of bias. The main target is to find a meaning in the collected data and present them properly as useful information. Also, it is accepted that human knowledge is dispersed and not specific. However, some form of counting is found in the qualitative method.
Although, in quantitative research the data are specific and compact, in qualitative method the study that is made, contains “things in their natural settings”. Based on the theory written, every researcher withdraws his results. Additionally, this method is more coherent because researchers try to interpret situations in terms of the meanings and feelings that are connected with people. Every study in this method uses empirical data using tools, like: case studies, personal experience, life story, interview, observational, historical, interactional material, too. Last but not least, the main purpose of this method is to explore and collect a variety of material and information, to combine them and, afterwards, to deduct a result.
Summarizing, the main objective of qualitative research is to gain an understanding of deeper causes and motivations, regarding a specific topic or study. The material/ sample that is examines is quite small, because there are not many representative cases. As for the data, they are unstructured and dispersed in different sources, which consumes more time and energy to collect them. The data analysis is non-statistical, for this reason, the outcome cannot be rigid, but it can be more flexible in its meaning. Consequently, the researcher is able to develop only an initial understanding of the study.
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In order to fulfill a successful research is to be able to respond in certain questions like: “how”, “what”, “when”, “why” certain things happen. After that, meanings like: “discover”, “generate”, “explore”, “identify”, “describe” must be referred in the research whose outcomes develop the thesis. We must keep in mind that these meanings are important and must be referred during the whole period of the research. As it was mentioned earlier, there are three frequent methods that are used, like case studies, interviews, focus groups and a combination of the three of them.
Focus groups are frequently used in marketing field, in order to obtain pieces of information about a topic of the researcher’s interest. Along with this process, comes up additional research for more approaches and topics. Also, other problems can be diagnosed, since a new program, service or product is examined. It is normal that the results of these groups create an aspect which originates from the respondents of a questionnaire. These results are first data, that are used to interpret the corresponding results.
Interviews are categorized in structured, semi-structured or unstructured. In first case, the purpose is to gain consistent type of data. Therefore, closed ended questions or questionnaires are used very often. In case of semi – structured interviews, the researcher aims to reach a conclusion, in a wider basis, because the questions are open – ended without limited responses. Lastly, the unstructured type relies on open ended question, conversation style, narratives, too.
Case study is the most popular technique, because it examines a single phenomenon of e special interest or a problem/ situation. Of course, this survey may enclose more than one examples/ cases. Very often, this technique includes different methods for the data collection, e.g. interview, observations, records of conversations or personal notes. Certainly, a combination of different methods helps to take the best results, although, it may be confusing in some cases. But, we are able to triangulate these types, or to achieve to analyze the context of the cases in a more flexible manner.
Regarding the sample size, in qualitative research, it is more important to be adequate and simple, rather than complicated. So, the number of cases, is less important. The basic element is to be properly specified all the cases that are
HELLENIC OPEN UNIVERSITY - DISSERTATION 37 Batziou, L. “Business Downsizing During 2018 Recession Period 2009 – 2017” under examination. After all, since we can abduct the information needed, our sample size is enough. Furthermore, a combination of qualitative and quantitative approach can be used simultaneously. Then, we gain a deeper view on a topic, as well as, we can be more precise in our results. A well-set questionnaire helps us to derive numerical and empirical data. (www.eap.gr)
3.3. STATISTICAL ANALYSIS
There are two main categories in statistical analysis; Descriptive statistics which mainly characterizes a set of data, in order to describe the features of the set. Also, inferential statistics exist, which mainly provides results for a population, based on the analysis that take place for a single sample. Both these categories of statistics need critical thinking and deeper knowledge of the phenomenon that data comes from.
Statistics is a science which basically contains techniques, by which pieces of information are collected, organized, analyzed and finally interpreted. Especially in business world, statistics are of great importance. In terms of data, we use Qualitative and Quantitative data, too. In qualitative data we have categorical observations, whereas in quantitative data there are numerical observations. In order to measure the data, we use different measurement scales; Nominal and Ordinal Scale is for qualitative data, whereas interval and ratio scale are for quantitative data. Both qualitative and quantitative data are presented either with tabular methods (e.g frequency distribution) or graphical methods (e.g bar chart) for qualitative data and graphical methods (e.g histogram) for quantitative data.
In this method, variability is the most important term. Understanding variability in a data set is the main objective of the statistics. This term distinguishes the use of statistics instead of mathematics. Mathematics deal with a certain process, defined by clear rules and terms, which gives specific results. On the contrary, statistics deal with phenomena that even if they take place under the same mathematical conditions, they give different results due to variability. Summarizing, we can say that statistical analysis is a set of rules which admits that variability exists in all phenomena. Also, statistical analysis
HELLENIC OPEN UNIVERSITY - DISSERTATION 38 Batziou, L. “Business Downsizing During 2018 Recession Period 2009 – 2017” provides better knowledge and improves management decisions, too. (www.eap.gr)
Generally, it holds that the main process we follow is:
➢ Consideration of the problem ➢ Collect the required data ➢ Proceed to statistical analysis ➢ Gain knowledge / improved decisions ➢ Knowledge of the problem / critical thinking.
This rotation route can last as long as we want to go deeper to a problem.
Inferential statistics can provide us with results for a population only by a sample examination. Thus, it is not necessary to examine the whole population. There are two basic techniques (confidence intervals & Hypothesis testing). Both examine or compare a data with the population. Moreover, we encounter correlation analysis, regression analysis and logistic analysis, too. Additionally, there are multivariate techniques that contain principal component analysis, factor analysis and cluster analysis, too. Statistics is a science that through examining a small sample can solve problems and provide results for a whole population.
Considering the above characteristics and limitations, I rejected this method because it does not correspond to the needs of my dissertation.
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3.4 OTHER STAITSTICAL TOOLS
Econometrics or econometric studies belongs to the statistical methods, that gives empirical content to economic relations. It concerns quantitative data aim to analyze economic phenomena, based on theory and observation. At it was referred above, lineal regression that is a statistic tool is part of econometrics. The main limitation of this tool is that even if tow variables are correlated, they may be unrelated. Also, a difficult decision concerns the model selection, as well as, which variables must be included in regression. (www.wikipedia.com)
3.5 LITERATURE REVIEW
Initially, the purpose of a literature research is to prepare a literature review. As literature review we consider the results that come up, after a research is made. Then, we describe the outcomes and the corresponding theory, as the state of the art, originating from the academic study. Thus, we inform about the most dominant ideas, notions, concepts, on a specific topic. Describing the strengths and weaknesses of the topic which is under research. Furthermore, we identify a less debated point of view, or another less important problem in the area that we examine.
As a main source of ideas, we derive from the corresponding literature. Based on the adequate literature, we are able to connect our special ideas/ notions/ considerations with the available literature. Through this process we target to conclude with conceptual directions that will help us to reach an empirical conclusion of the study. Apparently, a literature review is not a collection of summaries, written in a piece of paper. Similarly, a literature review is not a summary of concepts or ideas that originating from other writers. (www.eap.gr)
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3.6 DESK RESEARCH METHODOLOGY
Desk research is considered as a low-cost technique in the collection of data. The most important tool is to use a telephone or another way of communication in order to collect the necessary pieces of information. This research may be achieved only by sitting in a desk. However, it is time conservative so, someone must have the proper knowledge to complete successfully. It is very common that they use it especially in market research concerning goods and services.
There are two main categories that someone can proceed to a desk research, internal desk research and external desk research, too. Internal desk research can hold inside a company or an organization. For example, a company may want to be aware of the level of sales of a product concerning its geographical position. This research is very important since its results can be used from the company to solve a problem or to develop a new product/ service.
On the contrary, external desk research involves research that is done outside the company to collect the relevant information. Apparently, there are three categories of external desk research (online desk research, government published data, customer desk research). Online desk research: There is plenty knowledge and information on the web, concerning different topics. So, using the appropriate searching machines, like www.google.com, www.yahoo.com, www.google.com/scholar, www.heal-link.gr, or open libraries for scientific research, we can take all the working material.
Government published data: The government publishes in constant period of time, data related to financial, social and economic issues. Thus, this information is verified and can be used for every subject. Customer desk research: On the center of this research is the customer. For many organizations and companies, customers are more informed about trends and innovations. So, asking their opinion over an issue is more valid than any other sort of data.
For me, he best way to source the appropriate information in order to write literature review is from Academic books, Journal articles, government reports, policy statements, articles from daily press, conference proceedings
HELLENIC OPEN UNIVERSITY - DISSERTATION 41 Batziou, L. “Business Downsizing During 2018 Recession Period 2009 – 2017” and web sources, too. Taking into consideration the above information, my research for this thesis is mainly based on the literature review and qualitative analysis and online desk research, too. Provided that all the information is derived from writer’s point of view over downsizing, and the reference of different cases studies, I was directed to the combination of these methodologies.
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CHAPTER 4
RESEARCH ANALYSIS
4.1 Companies that have downsized in Real Economy – America
During the last 20 years many corporations In U.S.A have downsized in different business sectors. There are examples that have proceed in massive layoffs in financial sector, in automotive industry, in editing field – book purchasing, in aircraft manufacturing and in electrical appliances too. The majority of these corporations are established in different markets globally, so the decision to downsize affected employees of different culture. Thus, not only the implementation, but also the side effects vary from place to place. Considering that downsizing a single company is a very difficult task, let alone when it concerns breaking working agreements or firing people in a global basis.
Regarding the corporations that have downsized I mention only a few of them which are: HSBC holding (financial sector), General Motors (automotive industry), Borders, (the largest bookstore) Boeing (aircraft manufacturer), General Electric (electrical appliances)
Table 1: Companies in USA that have proceed in massive layoffs.
Company Name Fired workers in Time period Business Sector thousands HSBC holding 5 - 25 2011 - 2015 Financial & Banking General Motors 75 - 100 2008 - 2011 Automotive Industry Borders 10,7 2011 Bookstore Boeing 55 1997 - 2002 Aircraft Manufacturer General Electric 100 2000 Electrical Appliances
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Table 2: Top Companies that downsized on 2016
Company name Business Sector Job Cuts Reason National Oilwell Oil Industry 17,850 Low oil price Varco Walmart Retailing 16,000 Store closings Schlumberger Oil Industry 12,500 Low oil price Intel Computer 12,000 Restricting Science Dell Computer science 10,000 Restructuring Halliburton Oilfield Services 10,200 Low oil price Chevron Energy sector 7,500 Low oil price Buffets LLC Restaurants 6,000 Bankruptcy DuPont Construction 6,000 Merger Weatherford Oil & Gas 6,000 Low oil price International Industry
Critical points of the companies that have downsized:
➢ Massive layoffs ➢ Closing stores & branches ➢ Drop in Sales ➢ Bankruptcy ➢ Successful downsizing ➢ “Underperforming” Employees
Based on the above cases, we observe that there are a couple of common characteristics concerning the side effects of downsizing.
First of all, the main element is that all of them proceed in massive layoffs, approximately 5- 100 thousand workers in a time period from 1997 – 2015. Also, they were forced to close up stores and branches globally in order to reduce costs. The main cause of downsizing was the drop-in sales and in
HELLENIC OPEN UNIVERSITY - DISSERTATION 44 Batziou, L. “Business Downsizing During 2018 Recession Period 2009 – 2017” revenues, too. However, not all of them downsized successfully like “Borders” one of the largest bookstores globally, that went bankrupt. Hopefully, “Boeing” corporation in the sector of aircraft achieved a successful process in cooperation with government where they created new job opportunities for the departing employees. It is essential to refer that “General Electric” in the sector of electrical appliances used marketing and communicating tool, like “we fire all the underperforming employers every year, so we can keep the excellence”. Such excuse – explanation is easily accepted, which damages less its public image.
4.1.1 WALLMART CASE
Walmart Corporation belongs to Broad Line and Apparel industry. It is a corporation that operates as a large chain of hypermarkets, discount department stores and grocery stores, too. The company is headquartered in Bentonville, Arkansas, U.S. The company is the largest private employer with 2.3 million employees, regarding a mensuration on 2016.
It is widely common that very big corporations like Microsoft and Walmart have downsized their employees. According to Russell Flannery, it is inevitable to avoid downsizing due to global economy. (Flannery, R. 2018) All these changes in global economy, in microenvironment, forced companies to look for new opportunities in order to invest in. Based on this article, the most important impact on the employees is that it breaks the psychological contract, as it is defined by Denise Rousseau. For him, such contract includes mutual beliefs, perceptions and obligations between the company and the employer. Unfortunately, a percentage of fired employees, especially middle – aged, committed suicide, once they were announced that they were dismissed. After that, many companies declared a slogan “The company is not my home”, so as to encourage people not to reach in such a dead end. The most essential factor that either leads to such conditions or prevent them, is trust, Although, it is very difficult to keep it in a team, it is very fragile, too. (Flannery, R. 2018)
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Although, Walmart corporation thrived for a long period of time, it was affected from financial crisis forcing it to downsize its employees. According to Russell Flanery, an executive writer in Forbes magazine, both Wallmart and other companies such as, Microsoft, General Electric, Siemens, Oracle, Bank of America and Cisco, inevitably downsized because of the financial global situation. Therefore, they cannot remain active and prosperous in micro and macro environment which changes in high speed. Apart from the structural and operational changes which happens inside the company, the most negative impact related to the remained workers is the loss of trust, according to Denise Rousseau, an organizational researcher. For her, the break of psychological contract between the employer and the employee smashes their self-worth, due to the fact that mutual beliefs and perceptions do not exist anymore. On certain negative occasion, the terminated employees may show symptoms like domestic violence or crime in their closely communities.
Another valid source, “CNN Money” reveals that during 2016 Walmart was the second largest company that downsized in U.S.A. The head office announced that 269 stores would close, influencing 16,000 associates. The main excuse was that consumers do not buy traditionally, but via web. So, there is a deep reduction in sales. The same post implies that most of the companies call downsizing practice as a restructuring process, which indicates a slimming everything down. (Long, H. 2016) Observing the consequences of Downsizing, the main disadvantages, e.g the survival syndrome for the remained workers and the negative working environment are obvious. Also, the public image, as well as, the bad reputation for the company caused great reduction in sales.
Moreover, it is profound that not every manager is appropriate to handle the process of Downsizing; informing the employees that they are going to lose their job. The majority of them consider that it is a certain administrative process, ignoring the shattered psychology of the departing employee. On detail, a laid off staff from Lenovo company wrote once: “The company is not my home”. Therefore, this expression must be considered as an advice for the HR managers that are obliged to do their task by carrying out termination procedures that are written in employment contracts.
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Since, the most fragile element is trust, it essential that open communication, vocal announcements, clear objectives and causes must be well understood so as it is easier to keep a safe and trustful environment inside the company. Last but not least, according to certain posts in a webpage where disappointed workers put their comments, a large majority of the employees in Walmart were alerted that the company was going to cut job positions. For them, it was obvious that due to sudden closing of stores, as well as, unjustified product offers, the corporation was not going well. From the point of view of the fired workers, a large percentage of dismissed workers were angry and found unfair that they lost their job, cited in the same blog.
4.1.2 UNILEVER CASE
Unilever is a British – Dutch transnational consumer goods company which is headquartered both in London and in Rotterdam, in E.U. Its product catalogue includes food and beverage, cleaning and personal care products, too. Also, it is the 7th most valuable company in Europe, considering that its revenues on 2012 announced it as the largest consumer goods company in the world. Unilever’s products are available in more than 190 countries. It was founded in 1930 by the Dutch Margarine producer, named as Margarine Unie and the British soap maker Lever Brothers. In 2016 presented annual turnover
HELLENIC OPEN UNIVERSITY - DISSERTATION 47 Batziou, L. “Business Downsizing During 2018 Recession Period 2009 – 2017” of 50 billion euro, originating from the sales of more than 400 brands. The facilities of the company are located in United Kingdom, the Netherlands, China, India and United States.
This is a good example of UNILEVER COMPANY where a 30-year-old HR manager- Operation Specialist, as ex-worker on global corporate talks about her experience, when she was obliged to downsize the employees in the company, in Switzerland, during 2015 – 2016. According to her, it was a process that should be followed, so there was way to avoid it. In this case, the corporate decided to rotate its employers in different job positions or even in different countries. Since, some of them did not accept the new offer, then, they had to be dismissed. So, indirectly the corporate downsized the employers. The main outcome of this case is that apart from cost reduction, another important factor that obliges company to downsize is tax avoidance.
Apart from job position reduction, the firm reduces its budget concerning marketing and communication, a lot. The owners pay attention to FMCG products, rather than inventing shiny new products (Roderick, L. 2017)
More sources and references concerning UNILEVER and its downsizing practice support a new trend about downsizing. The firm has launched downsizing in houses, too, using a slogan like: “Less is beautiful”. This theory indicates the production of consumer goods in smaller packages. Thus, they reduce their variable cost, as well as their business culture is more concerned about the environment. Producing less, we consume less, so there is less waste for the environment. However, neither the quality nor the efficiency of the products decreases. In order to cut down packaging, they support buying in bulk or consuming more healthy products. Overall, Unilever aims to a Sustainable Living Plan (The small is beautiful, 2014)
This plan involves less usage of plastic, less waste for the environment, as well as, the re-use of first material and plastic.
Just like other large corporations, Unilever implemented downsizing procedure globally. Since the year 2000, UNILEVER started announcing massive lay off due to profit reduction. Basically, workers lost their job, but
HELLENIC OPEN UNIVERSITY - DISSERTATION 48 Batziou, L. “Business Downsizing During 2018 Recession Period 2009 – 2017” many brands were expelled from mother company the cut down in Europe, in North and South America, too. Despite profit loss, the company practiced downsizing as a response to other global corporations that had already reduced their workforce, e.g. CISCO.
According to an article, posted in the electronic magazine “Marketing week” on April 13th, 2017 by a journalist named as Leonie Roderick, the main reason of downsizing was budgeting cut. The main sector that should be cut off was the advertising and marketing department. Therefore, more than 3,000 agencies should close up globally. Unilever’s target plan is to double efficiency savings from 1bn to 2bn by 2019, which will be reinvested in the product efficiency, rather than in shiny new products. In this way, occurred a new meaning Zero – based budgeting (ZBB) which is mainly used by consumer goods companies. The main priority is to spend on current needs, not on previous activity, that’s why these companies are devoted in FMCG products (Fast moving consumer goods). Very often, such products are on offer or on discount package, too. On the whole, companies prefer to invest their money as long as the return of an advertisement is accurate and efficient. Otherwise, there is no budget for marketing communication.
Another point of view supports that downsizing should be adopted by families and houses as a parameter to sustainable development. For this reason, the firm innovated in producing the same products, but in smaller packages. Manufacturing compressed products, with the same quality is the new target for the future of the company. Generally, the project is called Sustainable Living Plan. On the center of this plan there are specific targets:
o Developing methods that avoid the usage of plastic, in order to reduce the pollution in the environment. o Smaller packages for every product o Re-usable packages for the goods that are produces o Reduce wastes.
Interview of a 30 – year old HRM as an operation specialist, ex – worker in Unilever corporation from 2013 – 2016.
“”””I have been working in Unilever global corporation, in the offices that are located in Switzerland during 2013 – 2016, as operation specialist. At the end
HELLENIC OPEN UNIVERSITY - DISSERTATION 49 Batziou, L. “Business Downsizing During 2018 Recession Period 2009 – 2017” of 2015, HR supervisors announced us that plan of the company was to reduce general costs and avoid tax charges, too. For this reason, the majority of the workforce should move to a different business department inside the company or to change place, too.
Mostly, work exchanges would be in the territory of Europe. In my area, more than 350 workers lived and worked in Switzerland. So, my task was to announce to at least 60 workers their new job conditions, asking whether they could accept it, or they preferred to be fired. Since Unilever was undergoing a restructure process in Europe, the employees should either relocate or accept new job positions. Hopefully, there was not any discrimination or personal reasons in the selection process. The decision making was based on the job position that should be erased from the organizational program. Also, the age of the employee did not matter at all and the age range was from 25 to 60 years old. All these tasks that were considered useless should be eliminated. Consequently, all these employees behind these job positions should be transferred in other branches or should be dismissed. Unfortunately, half of them did not accept the new job offer, so they were fired.
Based on the initial plan, Unilever proceed to an indirect method of downsizing so as not to deviate from its business strategy. Of course, they were offered all their rights that were written in the job contract, like severance pay. As for the after-downsizing condition, we tried to remain in constant contact with the remained employees, so as to ensure them that everything was under control. However, the communication channels were either broken or disrupted, since the basic issue of conversation was the downsizing procedure. We tried as much as possible to prevent our employees from the survival’s syndrome phenomenon, avoiding emotions like anger, bitterness or depression. From my point of view, I faced all this heavy process as an everyday task, because I did not want to be affected emotionally. Finally, the empty job positions that occurred did not get replaced from new employees. On the contrary, these tasks were shared among remained workers or they got replaced from machinery and automatic processes, too. The most important fact is that there was significant cost reduction, so profit was gained for the corporation.”””
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Overall, this case study indicates that either directly or indirectly, downsizing method was implemented on the name of cost savings.
4.2 Overall study in Greek companies & Greece
On May 2010, prime minister Mr. George Papandreou, the son of Mr. Andreas Papapandreou announced that Greece entered International Monetary Fund, European Union and European central Bank (ECB) to receive a financial support, because it was undergoing a debt crisis. Just like other countries, e.g Cyprus, Hungary, Ireland, Latvia, Portugal, Romania and Spain, Greece accepted a similar Economic Adjustment program. Greece confronted itself with a sovereign debt that could not be managed any more. The main reason was the “shadow economy” as it is referred on the book (Marangos, J, “The internal impact and the external influence of Greek financial crisis – 2017” chapter 6, A. Bitzenis & V. Vlachos “Unregistered economic activities during the Greek multidimensional Crisis” (Marangos, J. 2107)
Also, tax morale, tax evasion, undeclared work in Greece and corruption are under discussion. Moreover, the main reason of systematic corruption is clientelism and rent-seeking behavior. As for shadow economy, it is in the center of discussion in Europe strategy 2020. The most negative effect is that shadow economy was 25.4% of GDP according to measurements (2003 – 2014). Thus, the economic adjustment program aimed to reduce public sovereign debt by chasing corruption which causes shadow economy. As unregistered economic activities have deepened Greek economic crisis, all efforts should be put to improve citizens’ and state’s tax morale.
Moreover, a comparative study on downsizing processing in Greece, during financial the crisis, from University of Gothenburg mentions that Greek economy entered a hard-economic period due to severe austerity and increased taxation, too. Therefore, many companies confront reduction in sales, performance and margins. Thus, the level of unemployment increased from 11.3 % in January 2010 to 27.4 % in September 2013 (statistic.gr).
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Obviously, a great number of people were dismissed both in private and public sector, as a result of downsizing. (Tsalvaridis, P. 2014) Apart from direct layoffs, many companies used different methods to push their workforce to quit their job. For example, early retirement packages, reducing work hours, job rotation and hiring freeze were some effective ways. It is needless to say that in Greece, a large majority is small or medium sized companies. Overall, the focal point or the direction from E.U was to deregulate the market, breaking bonds like Working associations and trade unions, too.
Additionally, “reduce public expenditure created a suffocating framework for HRM policy” (Katsimardos, B. & Bouas, K.) Since the number of employees was extremely big, HRM should find a way to reduce it. One way was to reduce salaries in order to be public sector less appealed. The target was clear, 150,000 employees should leave public sector, by the end 0f 2015. The depreciation of public employment causes more corruption inside the country, let alone that productivity drops, too.
As a consequence, both private and public sector downsized. Private sector reported reduce in sales, whereas public sector should dismiss a majority of employees, so the debt remained sustainable (Tsavlaridis, P, 2014, master thesis “Downsizing in crisis”). As recruitment can be in large number, the same can happen with massive lay-offs (Boxal. Β, & Purcell. J, 2003). In the case of Greece, I mentioned the impact of downsizing in pharmaceutical sector. (Papadomarkaki, A. 2018). Also, how the same sector can help the country to overcome financial crisis. (Pharmaceutical Executive editors, 2017). Different good examples that concern Greece are “Alapis” Pharmaceutical company and FBB bank from banking sector. Finally, i make a reference to a Greek company that managed to stay alive, during financial crisis. Two factors supported “Rizakos” company, the first one which is investing in new products, as well as the influx of tourists in Greece. (Papadogiannis, J. 2018)
Although the plan was to overcome crisis, however Eurostat revealed on 2016 that the program did not stand for its achievements. At the end of 2015 GDP was 2/3 of the one in 2007. Except for the year 2014, where GDP marginally increased, the country experienced an economic depression
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It is very important to mention a list of the most important companies that downsized & bankrupted in Greece, during recession period.
Table 3: Companies that went bankrupt in Greece
Name Closing Year of Fired Business stores closing Employees Sector
Softex Own Factory 2016 200 Paper manufacturing
Sprider 45 2013 800 Clothing Stores retailers
Electronic 47 2016 450 Electrical Of Athens appliances
Atlantic S/M 182 2011 3.500 Super Market
Nutriart Own factory 2013 500 (Katselis)
Agno Own factory 2014 375 Milk industry
Alapis Branch 2013 545 Pharmaceutical Company Sector
Sourcing information from the Hellenic Statistical Authority, (ELSTAT) reveals that too many companies have applied on the bankruptcy court, during 2004-2014. All these data, are collected by the competent Courts of first Instance (Bankruptcy Courts), containing data on business that declared bankrupt according to the relevant court orders. In addition, data are also collected on bankruptcies for which the claims of creditors were verified. Based on the available data, on average 1,061 bankruptcy claims were listed every year, during 2004 – 2014. It is observed that 914 cases were found
HELLENIC OPEN UNIVERSITY - DISSERTATION 53 Batziou, L. “Business Downsizing During 2018 Recession Period 2009 – 2017” eligible (86.0%) of the total of bankruptcy claims. However, only 457 were declared bankrupt, almost 50% of the eligible bankruptcy claims.
As it is mentioned on the official data of ELSTAT, during the period 2004-2014 show that, on average:
➢ 42.0 % are “sole proprietorship” companies,
➢ 11,0 % are companies with individual ownership
➢ 47% are business partnerships
Also, by section economic activity, the data represent that 45.7% (on average) belong to section “wholesale and retail trade, repair of motor vehicles and motorcycles”. Additionally, 22.8% belong to section “manufacturing”, 11.6% to “accommodation and food service activities” section and 5% to “construction section. (ELSTAT, 2016)
In other words, from 2008 – 2015 official data from European Commission reveal that 244.712 businesses were closed, so 842,670 working places were lost. More recently, from 2014-2015, 16,077 businesses closed down, whereas 45,000 job positions were lost in the private sector. Furthermore, the disappearance of these job positions, provoke a loss of 30,31 billion euro in products. The decrease in these numbers come from either bankruptcies / closures or from companies that have moved their offices abroad, for tax avoidance. (keeptalking.com, 2016)
4.3 First Business Bank (FBBank) went bankrupt
First Business Bank was established on November of 2001 in Greece. Initially, FBB acquired the assets and liabilities of the Greek branch of Nova Scotia, which already had a presence in Greece for more than 30 years. Although, Bank of Nova Scotia managed relationships of industrial and commercial enterprises, FBBank offered services for businesses and private customers, too. (FBBank, Wikipedia).
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During the year 2013 FBBank (First Business Bank) went bankrupt after a short period of operation. According to a corresponding article, FBBank was absorbed by NBG group (National Bank of Greece), one of the largest banks in Greece, with more that 50 years of operation. FBBank owned 19 different banking stores all over Greece. However, FBB did not manage to overcome its financial difficulties, so the president as well as the administrative council claimed bankruptcy.
FBBank was divided into two parts, “good” and “bad” one. The “healthy” part was absorbed and administrative by NBG bank. The formal process both of the bankruptcy, and the acquisition finished normally. So, both depositors and workers we transferred to NBG bank. FBBank was not authorized to work properly any more. For this reason, every license was cancelled, since the bank was under liquidation. However, all the requirements will be satisfied under the rule of the corresponding Greek law. Neither the depositors, not the clients were not disrupted of this process. So, every process was under the surveillance of NBG bank. Thus, trust can remain strong through merging process. (Markou, 2013)
Many valid articles in the news, refer that the most important cause of the bankruptcy was the non-efficient management of the top managers. More specifically, granting blindfold loans caused the financial catastrophe of the bank. Actually, the owners, among them mr Viktor Restis, lended himself / his company putting as a mortgage / warranty an asset of originating from his property. Non-transparent transaction, without market morale took place between the owners. It is referred that almost 62 million dollars were lended that way. For example, CEO, mr Restis, took a loan of 24 million dollars to buy a ship. The same ship belonged to his property, which was used as guaranty to withdraw it. (Xinou, A. 2017)
It is certain that the term “corruption” matches at all at this case. Overall, it was the problem of corruption that forced Greece to ask for financial help and support, too. Finally, it is mentioned that the economic crisis revealed a deeper structural problem of small and medium companies. Such a problem is based on the heavy reliance on domestic demand, as well as, the under investment in the production of products that can be internationally traded. (Keeptalking, 2016)
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4.4 Pharmaceutical sector and downsizing in Greece
ICAP group, a survey and statistical company confirms that the pharmaceutical business industry in Greece belongs to the top of 40 most successful business sectors. As it happened with other business sectors, pharmaceutical industry was affected from financial crisis, too. Due to unstable financial conditions, investors were not willing to invest in such a venture. By the time, the economy stabilizes, there will be enough cash influx, so the industry will recover crisis. A large majority of the companies that operate in the industry are trade import companies, whereas a smaller percentage is mainly a producer company. Other reports and statistic surveys showed that the sector declined, soon after 2010. On the contrary, during 2002 – 2010 there was significant improvement. The most important factor of this reduction was the overpricing that was imposed from public administration. Although, the sector downsized there are significant indications that the industry will overcome crisis, very soon. Such consideration holds, due to the fact that it is the second largest of the national economy, as well as it is the sixth largest pharmaceutical industry, after Belgium, Switzerland and Austria. (Pharmaceutical Executive editors ,2017).
4.4.1. “Alapis” Pharmaceutical Company
Alapis company belongs to the pharmaceutical sector in Greece. It was founded on 2005, by mr Lavrentis Lavrentiadis, who initially founded Alex Pack retail company (1974-2008). Alapis operated until the year 2012. Unfortunately, it is a bad example of a business downsizing because the company went bankrupt during recession period in Greece. Actually, the Administrative council of the company asked to Article 99 (Bankruptcy code). Alapis is a branch company whose mother company is K.P MARINOPOULOS A.E (supermarket chains). The claim on the article 99 was on 07.11.2011 according to a financial newspaper (Application for Article 99, 2011).
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Soon after its opening, Alapis expanded its operation by opening new Branches in Europe (e.g Serbia & Hungary) according to (Alapis Opens Veterinary Companies in Serbia and Hungary, 2007). During this period the company thrived, all over Europe. Due to financial problems, the company, especially the owner was sued for illegal off- shore companies that caused bankruptcy. The most important factor was that Alapis was strongly connected with Proton Bank, whose foundation was by the same owner, mr Lavrentiadis, due to suspicious transactions.
Concerning the workforce, their desire was to remain the company active, so they can keep their job, as far as possible. They believed that the company had the appropriate technical and manufacturing infrastructure to develop a successful business, based on real transactions and normal profit, too. (Alapis and Proton Bank collapsed, 2011). As a unique solution on behalf of the remained employees is a different administration that focuses on the proper operation for the company, with even less employees, but avoiding any stock- transactions or non-transparent transactions.
It is obvious that a series of important problems arose both for the company and the workforce. This issue was discussed in the parliament, concerning the actions that should be taken. Mr Katsotis (Speech of mr Katsotis, 17-12-2012) a member of the Parliament who belongs to K.K.E party (mainly a defender from the part of the employees), states all the unsolved problems, as well as, the rights based on the collective agreements between the employer and the employees.
For him, all the collective agreements were broken from the side of the company. Thus, massive layoffs were announced; 5% of its workforce every month was dismisses. Thus, 700 workers out of 1400 (50%) were dismissed from the Alapis Group, which includes Also, unpaid salaries, unpaid travel expenses for the workers, unpaid compensation payment for the fired workers were on the center of the discussion. On the whole, 545 employees worked on Alapis Company. However, 245 of them where dismissed by taking their severance pay at 80 % of their income. The last payment of their severance pay, was not paid at all. Concerning the 300 remained workers they claim that they haven’t be paid their salaries for more than one year. (Workforce in Alapis: We are unpaid, 2012). Last, but not least, it was still
HELLENIC OPEN UNIVERSITY - DISSERTATION 57 Batziou, L. “Business Downsizing During 2018 Recession Period 2009 – 2017” unknown who is the owner of Alapis Company, both for the sole company and the group.
However, information based on articles that were written one year after, revealed that mr Lavrentiadis sold on 2010 his 15,2 % of the ownership to his partner, from Lamda Partners, named as Mario Al Tzibouri. Furthermore, Alapis company officially declared bankruptcy on 2013. More specifically, Alapis declared bankruptcy in accordance with the corresponding decisions (1190) on 09-11-2013. Such decision was announced by the Court of First Instance’s Judgement. Thus, the creditors of Alapis will claim their requirements, supported by the bankruptcy trustee. The main cause was the contract termination of loan agreement between Alapis and Paribas Securities which protected the interests of «ABM AMRO ΒΑΝΚ N.V», «NATIONAL BANK OF GREECE A.A», «COMMERCIAL ABNK OF GREECE A.E», «PEIRAEUS BANK A.A», «BNP Paribas Ireland», «GENIKI BANK AE», «ATTICA BANK A.E», «BANK OF CYPRUS», «ALPHA BANK», (Bankrupted Alapis Company, 2013)
4.4.2 “Rizakos” company – a positive case in constructing sector.
“Rizakos” Company was founded on 1980, from George Rizakos. The first factory was in Stylida. This brand is an industrial company that produces mainly EPS – “filezol”, which is used as heating nonconductor in construction sector. It is a positive example, during financial crisis, since the owners plan to invest more in future. Although, construction sector declined after the year 2008, nowadays it seems to improve since tourist sector has raised the demand of these products.
On that time, working capital declined of 35%, whereas on 2010 another reduction for 14% occurred. Consequently, on 2014 downsized its workforce from 120 employees to 50; More than half of them were dismissed. In order to overcome crisis, the company moved on cost reduction, while it invested in the development of new products, related to packaging sector. As a result, on 2017 sales rise to 30%. On the bottom of the restructuring process, the head
HELLENIC OPEN UNIVERSITY - DISSERTATION 58 Batziou, L. “Business Downsizing During 2018 Recession Period 2009 – 2017” managers plan to invest in new facilities in near future. As long as the investment is completed, the workforce will be 65 employees again.
During recession period, managers were obliged to use the methods referred above in order to lay off almost half of their workforce. However, severance pay and alternative employment were implemented. Concerning the process, it was as fair as possible, considering both the experience and the special needs of every fired worker. Since it is a medium-size company, they tried not to bankrupt, but to just shrunk for a short period of time.
It is very important to mention that this company proceed to innovating ideas and products, (Reevaluation) in order to overcome their problems. For example, EPS product is not only used in the constructions, but also to any product that needs folding. This is called protecting packing and it is suitable for electrical appliances, electronic products, shelf-products, printers, scanners, marble and even more. Finally, this product is necessary to transfer medicine, seed trays or even cars. (www.rizakos.gr)
Considering that this product is used in a wide category if products and services, yet it is low cost, the company managed to take advantage of niche market, since they offer a unique product, without certain competition inside the market.
HELLENIC OPEN UNIVERSITY - DISSERTATION 59 Batziou, L. “Business Downsizing During 2018 Recession Period 2009 – 2017”
CHAPTER 5
CONCLUSION The controversial issue of business Downsizing was on the scope of this literature review. From web resources, as well as papers and reports, i studied on detail the theoretical framework based on case studies, the economic environment in Greece. Also, I made a reference on companies in Greece that either failed or handled successfully downsizing. Between the methodologies that were used, I chose to work on a literature review method, accompanied with qualitative research, through desk research, too. In the beginning, I studied the causes of employee downsizing. Mainly, the most important reasons that push a firm to downsize is cost reduction in all levels of the company. Except of cost reduction, there are other reasons, for instance increase in productivity and in the value of the company, too. Finally, outsourcing products or services to support either the good quality of the product/ service or the low cost, seems to be an important factor.
Moreover, the section of HRM and Downsizing is developed referring to a whole aspect from HRM point of view. Initially, an overview is described, which is followed by decision downsizing. This means that managers should consider both the causes and the side effects of this practice. Since the company loses a percentage of its active workforce, the firm may look for alternatives or outsource support in order to work properly. Another critical point is that “in case a company must downsize, should do it right”. In a few words, this means that the cut down must be equal in all departments and levels of the company, so as to be considered as unfair. Regarding the process, any announce of dismissals must be vocal and in person to every dismissed employer. Once the implementation is completed, the after downsize condition implies that there must be constant communication with the remained workforce. As such, they are emotionally supported that they don’t feel guilt for not being dismissed, as their co-workers. More or less, top managers should decrease the “survival syndrome” in the remained workers.
On the one hand, such a practice contains positive side effects that improve the firm to get better. It is admitted that since a company announces to downsize it’s because there is either a decrease in demand or forces from
HELLENIC OPEN UNIVERSITY - DISSERTATION 60 Batziou, L. “Business Downsizing During 2018 Recession Period 2009 – 2017” external market environment. So, the main advantages that come up concern cost reduction and financial savings for the company. Also, fewer employees are easier to be managed from an owner. Not to mention that there is less repetition, since fewer employees do the same tasks. As for the dismissed workers, severance pay can be efficient either to deposit or to examine a new business opportunity.
On the other hand, this practice causes negative side effects in the laid off, in the remained workers and the company, too. To begin with, fired workers face financial difficulties that affect them psychologically. Thus, they may sue the companies in case they consider unfair their redundancy. Concerning the remained workers, they are exposed to go through “survival syndrome”. For sure, there is a decrease in morale, employee stress and disrupt in communication, too. There is a lack in job opportunities, since job positions are less. From company’s point of view, there are financial costs which are connected to with severance pay. Moreover, productivity and creativity drop, leading the company to a worse condition. The departing employees take with them both skill and knowledge, which decreases the prosperity of the company. Nonetheless, downsizing process creates a negative public image, let alone the likelihood of the bankruptcy. Mainly, companies that have downsized, double their possibility to close up, compared to other that has not.
In business world, many companies have downsized, especially after the crisis in 2008. A few examples that are mentioned on the text concern different industrial sectors, whose mother company is located to America. Thus, i chose cases of different business sectors, e.g. financial and banking, automotive industry, on line bookstore, aircraft manufacturer and electrical appliances, too. Additionally, elaborated on two more companies like Walmart (trade retailer) and Unilever (food sector) in order to present a deeper view on downsizing. Unilever launched a new trend concerning business downsizing, which is related to sustainable development. For this reason, started a new campaign by producing the same product in smaller packages. However, many consumers in food sector complained, since the price levels did not decrease, accordingly. In Walmart case, there is an overall view of how downsizing practice was implemented pointing that managers and workers must distinguish their working environment from their home. On detail, it
HELLENIC OPEN UNIVERSITY - DISSERTATION 61 Batziou, L. “Business Downsizing During 2018 Recession Period 2009 – 2017” means that every working situation must be managed calmly, without any stress. Regarding, Unilever, the main reason of downsizing was cut off and cost reduction, too. Such implementation affected marketing budget and job positions globally, too. Another reason for massive dismissals globally, was the decrease in the price of oil. However, smaller companies proceeded in downsizing practices as an imitation in the big corporations, too.
An interview from an ex – worker on HR department, as Operation Specialist, declared the reasons, the process and the outcome of downsizing in the firm. At Unilever case, I found that an indirect way to downsize your company is to create such a job rotation that will make the employers, either to resign or to be fired.
Considering the financial crisis that occurred in Greece, soon after 2010 that the country entered International Monetary Fund, we accepted an Adjustment program whose main consequence was cut off both in public and private sector, too. Due to tax increase and the decrease in sales, unemployment levels increased, so many small and middle-sized companies had to fire their employees to survive. However, the most negative factor that should be controlled was shadow economy which constituted almost ¼ of GDP. HRM in public sector was committed to European Union that by 2015, thousands of employees should be fired. For this reason, public administration came up with volunteer leave measures.
Furthermore, Pharmaceutical industry in Greece is one of the most important both inside the country and in Europe, too. Although, the main activities concerning import and trading, there are producer companies, too. According to a survey, made from ICAP company, the sector declined a lot, after 2010. However, there are significant indications that the pharmaceutical sector will overcome crisis, if there the financial condition becomes more stable. As pharmaceutical industry, Greece belongs to one of the most powerfully in Europe. So, it will be easy for the industry to recover, by the time economy improves. However, Alapis company is presented as an example that downsized and eventually, went bankrupt.
Finally, another example that overcame crisis is “Rizakos” manufacturing company which is specialized in producing EPS, an element suitable for
HELLENIC OPEN UNIVERSITY - DISSERTATION 62 Batziou, L. “Business Downsizing During 2018 Recession Period 2009 – 2017” constructions. Alike other firms, “Rizakos” should cut off his workforce more than half of them, to survive, considering that constructions were limited, after 2008. However, the owner decided to develop an innovating product, suitable for packaging that helped the company to increase its sales. Also, the new investment concerning new facilities, predict that the company will be able to fire workforce and almost double it, by the time the investment is completed.
As a conclusion, I can say that business downsizing took place in different places in the world, in different business sectors, too. Losing your job, may change somebody’s life suddenly. Concerning companies, these that choose to downsize, they close up eventually. Both companies and employees lose from such a practice. Since, this phenomenon is inevitable, the negative impact should be predicted and avoided, too. Maybe in near future, both scientific and business people would come up with a manual that can predict such harmful conditions in order to avoid any negative circumstances.
HELLENIC OPEN UNIVERSITY - DISSERTATION 63 Batziou, L. “Business Downsizing During 2018 Recession Period 2009 – 2017”
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