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Downsizing needs attention

COMPANIES spend a phenomenal amount of time selecting and recruiting employees but neglect to analyse the effects of downsizing, according to recent research.

Edith Cowan University management lecturer Allen Clabaugh studied the link between organisational performance and the loss and retention of key employees after downsizing.

His research found that Australian companies were not managing downsizing effectively and losing important employees, which led to decreased financial and employee performance.

Dr Clabaugh’s nationwide survey of 432 public and private companies revealed that 51 per cent experienced declines in both financial performance and employee performance, 34 per cent improved both employee and financial performance, and 15 per cent gained an increase financially but suffered a decrease in employee performance.

“One of the key findings of my research was that successful restructuring doesn’t depend on how much money you save, or how many people you retrench,” Dr Clabaugh said.

“It depends on whether or not you can retain your key managers and key employees, which is a very, very different approach.”

His research found that the 34 per cent of companies to achieve improvements in both financial and employee performance retained two thirds of their key managers.

The 51 per cent of companies that experienced declines in both areas only retained a third of their key managers.

“The research showed that employees must be valued as strategic assets ... instead they are viewed as costs and their importance to the company’s successful operation, and why they were hired in the first place, is forgotten in times of economic difficulty,” Dr Clabaugh said.

However, knowing who your key employees are is not easy.

“It means you have to a have a sophisticated system of identifying key people and measuring performance. You have to have a skills inventory or a competency profiling system where you can measure their performance against a relevant indicator,” Dr Clabaugh said.

As well as identifying star performers, companies need to address the process in which they downsize.

Dr Clabaugh said offering redundancy packages often meant the stars of the organisation would be among the first to accept them and move on to another company.

“One organisation I surveyed made an effort not to provide any kind of redundancy package, it only provided retrenchment packages if a particular employee was forced to leave. It didn’t reward people for leaving and in this instance was able to retain most of its key employees,” he said.

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