Downsizing of International Air Carrier Staff in Global Financial Crisis - Term Paper Example

Topic: Title: Your student name Your student number April 2010 3 Executive Summary This paper seeks to advise the management of International air carrier on the challenges of downsizing resulting from global financial crisis. Ways of effecting responsible downsizing are elaborately explained so as to ensure that the management of International air career do not risk facing reputation and strategic risks as a result of poor downsizing options. It is in this document the outsourcings of corporate functions are also discussed and particularly outsourcing of aircraft maintenance by International air carrier which has been shown as a source of efficiency and faster service delivery. 4 Table of Contents 3Executive Summary 2 4Table of Contents 3 1Introduction 4 2Downsizing and restructuring 4 2.1Factors that cause downsizing 5 2.2Downsizing options for International Air carrier 7 3Outsourcing of aircraft maintenance functions 10 3.1Benefits of outsourcing 10 3.2Successful Change management 12 4Recommendations 13 5Conclusion 14 6References: 15 5 1 Introduction Business competition and profit motive has driven institutions to adhere to very high performance standards. Achieving competitive edge has been a driving force to aggressive expansion strategies which most institutions do appreciate, but it is also unthinkable that a business can still achieve competitive advantage through downsizing which implies shrinking of business activity and their operations. Measures of downsizing are far reaching and can sometimes result in reputational risk to the organization but with proper management, it results in business turnaround and successful institutions. With downsizing especially though layoffs and retrenchment organization tend to learn on outsourcing of its functions and this strategy seemly is becoming a trend even in airline companies where all auxiliary and support function can be outsourced. Both outsourcing and downsizing are measures of improving on operational efficiency (Cary LC 2000, p 350). This paper critically looks at the causes of downsizing and measures used to implement responsible downsizing strategies. It also examines the benefits of outsourcing to corporate institutions 2 Downsizing and restructuring Downsizing generally refers to the reduction in the scale of business activity mostly resulting from low relative return on investment to an entity. Business entities and institutions down an overpowering profit motive and when there are super profits shareholders’ needs will be almost satisfactorily been achieved. Low returns or even losses incurred by a business concern will immediately lead to shareholders dissatisfaction and a need for corrective action on the part of management. This has always resulted in restructuring and reengineering processes which leads to fundamental changes in organizational information systems. Downsizing is one of the ways of trying to achieve a competitive edge through reduction the asset base and manpower. For a demand driven service industries, when there’s foreseeable long term drop in demand, measures of cost cutting will always be put in place and this will result in reduction of the wage bill and facilitation costs. This will actually constitute reduction in staff through retrenchment and also reduction in asset base through reduction of some fixed assets through disposals. These measures however are not easily achievable since corporate social responsibility and legal responsibility especially regarding staffing matters will always be a challenge. Successful downsizing is always very challenging since a lot of interest groups with varied stakes are always involved. It usually the duty of the corporate entity to maintain its reputation asset and consequently downsizing procedures will require proper management in order to protect the business identity (Yehuda, B 2003, p. 131). In the case of international air carrier global economic recession is the cause of its low demand hence downsizing initiatives. Downsizing actually is a defeat to the concept of corporate expansion through acquisition of competitors since it insinuates that a smaller and lean corporate enterprise is more profitable. 2.1 Factors that cause downsizing Large corporations and multinationals are usually perceived to be very stable and profitable institutions and consequently most these companies usually have expansion aggressive expansion strategies. Downsizing is therefore not a growth decision for an institution rather it is a solution to the problem of low returns. Below are the factors that cause downsizing Internal factors Growth objectives of institutions have always lead to uncontrolled expansions of manpower and acquisition of more assets. This is usually a measure of success for most corporate institutions but in essence a diversion of its core objectives of providing value to stakeholders. With time, feedback from the environment will always indicate that the legitimate organizational structure has been neglected hence malfunction of the management and organizational information systems. This experience might lead to downsizing through realignment of various resources including labour in order to reflect the true and original corporate organization structure and conform to their charter. Industry trends Industry trends also forms some of the root causes of downsizing initiatives. Most corporations will try to mimic industry leaders’ actions mainly in order to maintain their competitiveness. Economic recession Economic recession is usually a problem to most business entities regardless of their industry. It results in low demand for products and services consequently fall in profitability. For the case of International Air Carrier this has been the reason for its downsizing agenda. Low global demand especially for an international business usually has significant consequences on their profitability. In order to minimize the effects of global recession downsizing options of layoffs, reduction in global presence and disposals of assets will always be invoked where necessary 2.2 Downsizing options for International Air carrier According to Richard, L D ( 2009, pp. 451)to effectively manage the low demand for the International Airline Carrier, necessary investigation of the impact will reveal the worst performing routers, hubs and stations. From this investigation proper mitigation measures will be put in place. Anyway, with the general knowledge of International Air Carrier several downsizing schemes are available; First, reduction in business operations is inevitable especially in routes that have reflected the lowest number of customers. It will amount to worsening of the problem to continue operating in a route that is obviously making losses but proper care must be taken as regards handling of customers who have already booked with the Airline. They should be given instant information and transferred to another airline carrier where possible in order to preserve the image of the organization. Secondly, International Airline Carrier should actually consider reducing the number of aircrafts it owns. If there is available competitive market for aircrafts then, International Airline Carrier should dispose aircrafts which are in excess of the optimal demand. This option will improve liquidity of the company and at the same time reduction in the aircrafts maintenance and operational costs. Layoff is a third option available to International Airline Carrier. Redundant employees will be of no values being in the company hence retrenched. This option is also a cost reduction option that mainly reduces the wage bill even though proper handling of these employees is necessary as a measure to curb legal cost implications where layoff are not handled professionally and humanly resulting in the infringement of employees rights. Almost it is necessary to protect the company from facing reputation risk which might further worsen demand for the airline services. Finally closure of some of the reservation offices might also be necessary in order to cut down on the operation costs. Organization challenges International Airline Carrier will actually be facing lots of challenges as it tries to implement downsizing measures as a competitive strategy. With proper planning these challenges will come to pass hence tactical skills and focus is a prerequisite tool the management should have. Staff size and who to retrench Deciding on whom to retrench is usually a challenge and proper list of staff to be retrenched with a laid down selection criteria should be put in place. Proper consultation with staff union and the government should also be enhanced in order to manage the process effectively. Deciding on the optimal staff size is a challenge to the International Airline Carrier since such decision is critical to service delivery. Proper and all inclusive consultation should be done in this regard and where the wage bill cut off is used proper outsourcing strategy should be included especially in the case of aircraft maintenance technicians. Communication and resettlement In case of staff layoffs, it is imperative to have an effective communication to the affected staff. Proper pre send off counselling, training and other preparations should be facilitated so as to reduce occupational health complications. A proper and appropriate package should be prepared for the staff to be retrenched. The challenge most institution face here is who and how to break the layoff information and also convincing the affected staff to accept the layoff package. Conflicting needs of the stakeholders International Airline Carrier has its interest in being profitable and competitive through layoffs and other downsizing strategies, while staff unions have an agenda of maintain the welfare of its members, government always would like to see that the welfare of its citizens are followed and that laws governing labour are actually heeded. Political leadership a stakeholder also would always brings controversy to the whole process. It is always important for the corporation to be tactical and firm on its objective in order to counter these challenges. Optimal asset base Establishing the optimal asset base is usually a challenging aspect especially where profitability and growth objectives are still being pursued. Optimal market size Business reduction through market reduction is usually contrary to the profit motive consequently establishing of the optimal market size is a tactical challenge. Moral and legal obligations Downsizing is usually brings moral and legal hurdles which must be crossed. Employees should be treated fairly when it comes to payment of its dues and communication. Legally binding actions as regards downsizing should be followed to the letter in order to avoid future liabilities. Maintenance of competitive edge Competitive advantage is usually achieved through market leadership, product differentiation and retention of skilled labour. Downsizing on the other hand deals with market reduction and staff layoffs which becomes a paradox to the whole idea of competitive edge. Organizational reputation Downsizing strategies to many looks like the organization is struggling with the going concern aspects. Many clients would not wish to be associated with failing institutions consequently it is imperative that the reputation risk facing an institution during downsizing moment be corrected via effective public relations mechanisms 3 Outsourcing of aircraft maintenance functions Business process outsourcing is strategy of getting experts subcontracted to work for the organization instead of recruiting staff. By outsourcing of aircraft maintenance services, International Airline Carrier would be able to get the best service from experts and at the cheapest means without incurring employee costs other than salary. Aircraft maintenance service vendors are actually large corporate institutions with their global geographic spread hence having staff in various routes will not be necessary. 3.1 Benefits of outsourcing Costs saving Outsourcing will cut down on the staffing costs associated with having internally recruited costs like leave days, insurance, retirement benefits and supervision costs. International air carrier will also be able to reduce on the maintenance costs of assets when there is disposal of fixed assets. Efficiency With the use of outsourced professionals work will be executed with highest quality. Unlike in scenarios where work is done by individuals with limited experience, out sourcing companies do have required expertise. Also International air carriage will be able to be efficient on its operations since it will focus on the core business other than auxiliary services like recruitment, orientation and training of new members of staff. Also existence of a lean staff will be a great advantage to the management. Production speed Outsourcing always supports segregation of duties and roles in an institution. For a business with strict timelines, outsourcing of different functions like aircraft maintenance facilitate faster processing since each function will be handled with people with requisite expertise. The overall service provision speed will be faster since each expert will focus on its own role on a timely basis. Specialization Focus on the core business is usually the aspirations of every business management hence for a global airline company like International air carrier human resource requirements are huge consequently their focus by management will be a great investment. With the case of outsourcing specialized functions, major cost savings will be achieved and specialization will be enhanced (Quinlan, M 2004, p.131). 3.2 Successful Change management When downsizing decision has been concluded it is imperative for the management to plan for the implementation of this strategy very well so as to avert its challenges. Most managers of international air carrier have never experienced implementation of this strategy therefore it is necessary that proper pre downsizing training is given to them especially on how to handle affected employees( Michael IH 2005, pp. 90). For the successful transition during this economic recession when critical downsizing strategy is to be implemented, the following core attributes should be kept by the institution. Effective communication As explained by Malcolm, W, and John PK (2008, pp. 5001) communication of downsizing plan is very important. The communication of this strategy should not include use of memos but a personalized communication that will express clearly why the company is opting for the strategy. All stakeholders should be informed on the challenges facing the institution. It is also important to clearly demonstrate to the staff the criteria for their selection for the retrenchment option. It will be easier when the staff will understand the challenges of recession as a cause of their exit rather than the management decision therefore full information on the performance of the company should be disclosed to the affected staff. Resettlement Corporate social responsibility requires that the institution undertaking retrenchment should appreciate the past contributions of the staff to the company consequently unfriendly send off is discouraged. Resettlement options will be varied but it should be humane and satisfactory to all concerned stakeholders. Temporary wage cuts, sabbatical leaves and even termination of employment should be done in a responsible manner. Risk evaluation and intervention Risk evaluation concerns with identification of potential areas and procedures that might challenge the going concern aspects of an organization. Proper analysis of risks that are involved with downsizing should be listed and clearly explained so that proper intervention measures should be implemented. 4 Recommendations It is important for International air carrier to examine its strategies of countering global financial crisis so as to be relevant and providing a long lasting solution to the competitive edge of the organization. Downsizing as an option is fairly challenging since it has wider implication on the International air carrier value and corporate identity which has been earned over a long period of time (Kim, SC 2008, pp. 34). Also the effects of downsizing can result in legal obligations which might curtail the future earnings prospects of the company. Proper planning and communication of downsizing strategies to all stakeholders is mandatory as way of enhancing responsible downsizing. Also the management must design good resettlement package that will handle the affected staff counselling in order to avoid occupational health issues and dissatisfaction of employees and other stakeholders. Outsourcing should only be allowed for non core functions but core business of the organization should remain within the organization. 5 Conclusion Downsizing and outsourcing strategies can only be effective if they can add value to the organization hence proper planning and implementation should be carried out diligently. With proper communication, resettlement and risk evaluation, downsizing can be handled successfully and to the benefit of all stakeholders irrespective of their conflicting interest. By opting to outsource manpower, organizations can achieve specialization benefits, effectiveness in the business activity and also faster service delivery and production speeds. 6 References: Read More