Beach Bay Hotel: Downsizing Strategy

Subject: Strategy
Pages: 7
Words: 2187
Reading time:
8 min
Study level: PhD

Introduction

Downsizing strategy is aimed at reducing the size of the organization’s workforce in the bid to cut down cost and increase profitability. This strategy is normally formulated by the top management of my organization and then implemented by the middle managers at the human resource department. In this paper, a detail of my experience of the implementation of the downsizing strategy employed in late 2010 at the height of recession by my company’s human resource department will be highlighted. Reason for formulation of this strategy will also be explained and who were affected by this strategy (Speculand 2006, p.6).

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Downsizing strategies focuses on reduction of the overall number of employees and includes activities such as layoffs, attritions, retirement and early retirement. Other strategies include hiring freezes and buyout packages. Approaches to downsizing mostly attract negative reactions and are rarely successful. Employees see downsizing strategy as a method to eliminate them from the organization rather than a necessary step taken to increase organization efficiency. Criteria used during the downsizing process should be clear and transparent to avoid speculations and controversies. Downsizing strategy should incorporate all relevant departments so that it takes the holistic representation of the organization. Downsizing operations should include production methods, supplier, inventory and other aspects of the organization (Atkinson 2006, p.17).

Professional background

I work at Bay beach hotel as a restaurant manager. I joined the organization ten years ago back in 1999 and have seen the hotel grow tremendously over the years. The hotel now has four chains in Europe and one in the United States of America. My work involves supervision of the restaurant and conducting food inspection to ensure that healthy meals are prepared for the guest. By the time I was joining the establishment back in 1999, the hotel had only 150 employees. The number of employees grew significant to 650 by 2008.Today the number of employee has been reduced to 370 as a result of downsizing strategy utilized by the hotel management. Downsizing plans in Bay beach hotel was first communicated to the employee fraternity through the union in May 2007.

The message was that a major restructuring was to take place in the organization due to global recession that was looming in global economy during the period. It was speculated that up to 30% of employees would loose their job in the next financial year. Our organizational structure was said to be too large that it needed restructuring. The middle level manager’s positions were said to be more than enough and needed to be reduced. The number of supervisor per department was also a subject that needed consideration as far as organizational restructuring wasconcerned (Bailor2005, p.14).

Reasons for Downsizing Strategy at Bay Beach Hotel

By December2008, the global state of economic was starting to take all time low level. In hospitality industries such as Bay Beach, the situation was even worse. The number of guest visiting the establishment reduced significantly. The hotel was now incurring a lot of cost to maintain workers who had no guest to attend to. In January 2010, a committee was formed that comprised of top management of the hotel. The committee members included the human resource manager, hotel chief accountant, restaurant manager, general manager and hotel board members. The committee had a duty of formulating a strategy within one month of its initiation. The strategy’s main objective was to solve the problem of raising cost experienced in the hotel. The committee was also bestowed with a task of bringing back efficiency in the hotel. This they argued would save the hotel from making loses. After days of meeting and consultation we finally had a methodology to solve the problem in the hotel. Itwas unanimously agreed by the members of the committee that restructuring the organization by the way of downsizing was the way to go. This was after other options failed to effectively solve the problem at hand. This strategy hoped to reduce cost by laying off workers so as to save on cost and increase efficiency (Al-Ghamdi 1998, p.326).

Downsizing is one of the options employed by most companies to sustain organization’s cost and at the same time maintain high levels of operational standards. Downsizing process and strategy is implemented by the human resource department. Reasons for this strategy may include.

  1. Merging of two or more firms-When a number of companies merge and operate as a single entity, condition may be set during the agreement to ensure that the merger maintains a high level of profit and low cost even after joining. In such case, certain job positions become redundant from the effect. One job position might have several personnel from all of the merging companies. Downsizing may happen to cut extra cost and reduce work redundancy associated with the number of employees working at the merger. Downsizing is achieved by employee layoffs and voluntary leaving the job (Hrebiniak2005, p.21).
  2. Change in management:-An organization may have new management after acquisition or merger who may have new methods of organizational structure and new strategies. Significant change as a result of new management preference to the best practice to achieve their objectives may lead to downsizing strategies within an organization (Beer Eisenstat 2000, p.40).
  3. Economic crisis-experts refer this as the single most source of downsizing strategy within organizations. The process of downsizing here mostly involves layoffs by a number of organizations. Instances of economic global meltdown through recession have been responsible for much layoff across organizations allover the world. Layoffs have been even more in organization with higher percentage of middle managers than those with low numbers of middle level managers (Brauer2005, p. 27).
  4. Outsourcing practice-In the event of an organization focusing on core business, the firm may subcontract its other functions for the purposes of cost cutting and increase in the level of efficiency within the organization. Workers working in area already subcontracted may be forced to leave the organization to create room for companies that have been contracted. Outsourcing has become a common practice all over the world where organizations have to focus on core business to maximize efficiency (Dubrin 2001, p.40).

Strategy Formulation

Downsizing strategy in the organization was reached at after scanning the hotel environment for strength weakness and potential threats. It was agreed that there was no better way of cutting cost than to layoff workers. The question that came next was the criteria that will be used to identify the workers that will be laid off, the compensation budget to be used in the layoff process. Major weakness on our part was inefficiency in the hotel human resource management brought about by low job performance and high cost that was making the hotel incur huge losses. Threats came from looming recession in the world market.

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In strategy formulation, it is important to do a full environmental scanning so as to ascertain the environment at which the firm lays. Methods of environmental scanning can include SWOT and PESTEL Analysis.Pestle analysis in a strategic tool used to analyze the external environment that affects business.These forces are political, economic, social, technological, ecological and legal. These set of macro-environment factors that a company has to put into consideration in strategic formulation(Thompson 2004, p.8).

SWOT analysis is another analytical tool used in evaluation of both macro and micro environment into which the business operates. SWOT is an initial for strength, weakness, opportunity and threats. Strengths and weakness are used to analyze a firm internal environment while threat and opportunity are used to for evaluate the external environment. One element in analysis that is considered by one organization as strength may be weakness by another (Akan 2006, p.45).

It was decided by the committee that about 300 workers were to be laid off. The group to be laid off varied from department to department. The break down was as follows

department Laid off personnel number
House keeping Chamber maid 70
Room supervisors 55
kitchen Sous chef 10
cooks 45
Pastry chefs 10
Restaurant waiters 60
Bar tenders 20
Store keeping supervisors 20
security guard 10
Human resource mechanics 20

The criteria used to determine who was to be laid off was given by a developed score sheet whose mean grade pass mark was 60%.If any of the employee did not attained this marks then he or she would be laid off. The committee was to appoint a sub- committee from the human resource department to oversee the implementation of the strategy. The representation of the score sheet is portrayed below:

competency weight grade
Skills 15%
Work performance 30%
Academic competency 30%
General character 25%
TOTAL 100%

Strategy Implementation

The strategy implementation involves application of planned management process to achieve the organization’s desired objective. It can also be defined as the process in strategic planning where an organization develops, utilize, and coordinates a firm’s structure, resources, and culture to achieve organizational objective. To achieve the desired strategic results, an organization needs to allocate enough resources, have a good organizational structure and develop an efficient communication system. Intoday’s contemporary business organizations, focus has been put more in best strategic practices as a way to achieve organizational goals (Elliot& Goodwin 2006, p.6).

However, many of these corporations struggle to translate these strategic plans into actions plans. According to the recent study, most organizations, which form 70-90%, fail to executive appropriately, and then planned strategy. In the study done by Fortune Magazine, it was found that seven out of ten chief executive officers failed in their strategic plan not because of bad strategy but poor execution of the plan. This shows that successful strategy formulation does not guarantee a good strategy realization.

Important element of strategic implementation will include:

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  1. Developing operational plans:-This should be the first step in strategy implementation. In this step, objectives, responsibility, and policies are well defined. Action plan at this point should be realistic, achievable and is within a specific time bound. The action plan agenda should answer some basic questions. These question are
    1. What are the goals of the organization?
    2. How will these goals be achieved?
    3. When will they be achieved?
    4. Who are responsible in achieving them?
  2. Activity planning:-Tasks that are fundamental for the plan implementation are put in order of priority. This stage will see the implication of resource utilization in different activities in the budget.
  3. Budgeting-Expression of financial estimates is of paramount importance during the development of action plan. In this stage, activities in the plan are identified and sufficient resources in terms of finance and human capital is located.
  4. Plan evaluation and review:-A measure of how the implantation has contributed to achievement of organization goal and objective. Corrective adjustment are done in case of deviations

The major task in our strategy implementation was to develop a budget for which those that had been laid will be paid his or her arrears and at the same time paid compensation as a result of his or her untimely layoff. A process of also communicating this strategy to employee in a reasonable way was also at the top of the agenda. After much consultation with the committee members, a budget estimates were presented by chief accountant. In the estimates, it was decided that each employee who was to be laid off in addition to his basic monthly salary was to receive 2000 dollars as a compensation for his untimely end of his employment. The committee also came into conclusion that the best and humane way to communicate the strategy and its implication was through two sources. Each employee was to be communicated through an internal memo and a personal address letter stating clearly the position of the organization and the factors that have resulted in the state of affair. The committee also set on a schedule on how to implement the strategy in the organization. Date was also reached at when the committee will meet again and review the success of the implementation of the strategy for evaluation purpose.

Conclusion

Reasons for downsizing strategy in Beach bay hotel was largely caused by the global economic crisis that caused low business at the hotel. There were few customers arriving at the hotel and this reduced the profit levels. The hotel management with the objective to provide solution for the high cost and dwindling profit levels formulated a downsizing strategy. A committee was formulated with a mandate of formulating and implementing this strategy. Action plan that included a budget and schedule of events was formulated.

From this experience, I noted that communication in the whole process of strategy formulation and implementation was of vital importance. A successful downsizing strategic plan requires integration plan requires integration of all stakeholders.

In the implementation of this plan, it is important to establish the measure at which downsizing criteria will be based i.e. measure to which reduction of human resource will be based. This measure must be fair and acceptable.

Finally, post-downsizing actions are very crucial as far as employees affair is concerned. How to ensure that the employees who have lost their job position are compensated. Special training for these employees is also important in in providing them with entrepreneur and management skills to management their employment benefits.

List of References

Akan, O 2006,critical tactics for implementing porter’s generic strategies, Journal of Business Strategy, vol. 27, no. 1, pp.45-49.

Al-Ghamdi, S1998, Obstacles to successful implementation of strategic decisions: The British experience, European Business Review, vol.98, no.6, pp. 322-327.

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Atkinson, H 2006, Strategy implementation: A role for the balanced card,Management Decision, vol. 44, no.10, pp. 1-17.

Bailor, C2005, Marketing Automation Hits the Mark, Journal of CustomerRelationship Management, vol. 9, no. 2, pp.14-19.

Beer, M&Eisenstat, R2000, The Silent Killers of Strategy Implementation and Learning, Sloan Management Review, vol.41, no.4, pp. 29-40.

Dubrin, AJ 2001,Leadership, research findings, practice & skills, 3Edn,Houghton Mifflin Company, Boston.

Elliot, C&Goodwin, J1995, Exporting strategies: Developing a strategic framework, SAM Advanced Management Journal, vol.60, no.1, and pp.21-28.

Hrebiniak, L 2005, Business strategy: Execution is the key, Pearson Inform IT, vol. 9, no.3, pp. 21-25.

Speculand, R 2006, The great big strategy challenge, Strategic Direction, vol.22,no.3, pp. 3-6.

Thompson, A2004,Strategy: Wining in the market place, coreconcepts, analytical tool and cases, McGraw-Hill Irwin, New York.