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Case Study of Organizational Decline BY rw2013 Case Study of Organizational Decline – RW Introduction This report is based on a case study of a large company with poor financial performance during the last few years and facing the falling of sales and profits and rising of employee turnover at the moment. The continuously worsening situation of sales and profits and employee turnover evidence the company is undergoing the organizational decline stage within the organizational life cycle.

The layoff and hiring replacement of a top level manager are signs of the company’s reactions for catering the organizational decline. Layoff of a top level manager prepared a foundation to end the past practice and the hiring of the replacement generates an atmosphere to implement organizational changes to revive the organization from decline. At the present moment, employees’ behavioral issues are at high priority. To improve the atmosphere will improve the employee turnover and retain more capable employees to help improve the company’s problems. . Problem identification The data of sales, profits and employee turnover are giving bad signals. The causes resulted these issues are to be identified. 1. 1 Possible causes of rising of employee turnover Employee turnover, stated as one of the two issues of the company, can be possibly resulted by different causes. Since 1950s, in the studies of employee turnover Job dissatisfaction is a basic tenet of cause (Holtom et al. 2008). In 2000s, Job dissatisfaction is still commented as a trigger to employee turnover (Wagner and Hollenbeck 2005, p. 43). According to the Hygiene Factor theory, the factors that generate Job dissatisfaction are including security, status, relationship with subordinates, personal life, relationship with peers, salary, work conditions, relationship with supervisor, upervision, company policy and administration (Herzberg et al. 1959). However, Job dissatisfaction is not the unique cause of employee turnover. Employees also quit their Jobs with more private and personal reasons that triggered by shocks (LEE and MITCHELL 1994).

The shocks can be neutral, negative or positive, from any place and any channel, covering the issues of family status, health, living environment and any other concerned area that initiate employees’ thinking and planning of quitting the current Job for achieving the new objectives while they do not feel dissatisfactory of their current Job. As a conclusion, the possible causes for the company’s rising of employee turnover are mainly Job dissatisfactions and personal reasons triggered by shocks. Shocks are neither predicable nor manageable but Job dissatisfactions are traceable and improvable. 1. Possible causes of falling of sales and profits The decrease of sales is proportionally relating to the dropping demand and consumption of the product or service by customers. The possible causes are resulted from the poor performance among the four elements of marketing mix (SKInner, 1 a. Product – is anything that satisfies a customer need or want and consumers would pay for it. . Price – is the value that consumers have to pay for obtaining the product. page 1 / 6 c. Distribution – is marketing activities that make products available to consumers in a place and time acceptable to consumers. . Promotion – is marketing activities that make products known and attracted by targeted consumers. The falling of profits can be resulted from poor internal effectiveness. Such ineffectiveness, no matter it appears in operation or production, will be resulted in a high output cost that makes few or no profit. Even if the high cost is substantially constructed by raw materials or taxation policies or other external ssues, once the company is in the market, its management is responsible to resolve the problems to retain competitive.

When putting the falling of sales and profits together, it matches the symptoms of during the decline stage of the product life cycle (Hunt, 2010; Skinner, 1994). The possible cause for a product approaching to the decline stage is because the high competition environment saturating the market or the product is become no more a consumer need. 1. 3 Possible cause of the falling of sales and profits and rising of employee turnover The company has been suffering for a few years of poor financial performance and is acing the falling of sales and profits and rising of employee turnover.

These elements are threatening the survival of the company. As promoted by Weitzel and Jonsson that when organizations enter the organizational decline stage, they fail to anticipate, recognize, avoid, neutralize, or adapt to external or internal pressures that threaten its long-term survival, (Weitzel and Jonsson, 1989). Russell (2011) states ten signs for indicating the business is about to decline in value and two of them are seeing a steady loss in profits and leaving of employees. Walonick (1993) views that decline as a symptom of ineffective performance and grees the common definition of decline is a decrease in profit or budget.

From the above findings, the company is in the stage of decline among the organizational life cycle. 2. Factors that affect performance When a company stays in the decline stage, the performance of individual, group and the entire organization are poor. There are different elements at individual, group and organizational levels contributing to the performances. The longevity of these factors determines the duration of the company staying in the decline stage or brings the company to either death or revival stage. 1 About individual performance Organization is formed by individual members and each individual is a central feature of organizational behavior, either in isolation or as part of a group, respon01ng to tne organlzatlon or external envlronment. Expectatlons 0T Inalvlauals and demands of the organization are incompatible. This incompatibility can be a source of frustration and conflict between individuals and the organization. During the decline stage, declining resource base has wide-spread effects affecting individuals’ mind which may change their career thought and manner of operating he business within the organization (Whetten, 1979).

The commonly perceived uncertainty of future generates worries about losing the Job, cutting salary and bonus, cutting fringe benefit, transferring to an inferior post, working more hours, losing familiar peers, heavier punishment for making mistakes, harsher company policy and administration. All these are hygiene factors (Herzberg et al. 1959) that formulate dissatisfactions, moreover, stress is also accumulated as time passed when no any good changes seen. age 2 / 6 Under such circumstance, the management is highly eager to get things done orrectly, the tolerance of mistake is absolutely low for not willing to bear any further dollar loss. Even the financial situation is not so worse but psychologically any mistake and any loss will add pounds to the heavy burden. This is actually the effect of stress. The managers are more stressful than general staff because they are required to give solutions and execute assigned tasks, especially those are sensitively relating to profit or loss – one mistake can be an excuse of layoff.

Layoff, indeed, is a common tool for organizations to cut cost for sustaining longer. The target of layoff is lways the middle managers, it is a common practice to cut the middle layers for bettering the communications for easier to execute top-down instructions. During this decline stage, the performance of individual is under-utilized and the common issue is stress. Under the stressful atmosphere, individual’s value and attitude are easily being challenged and then have changes. Moreover, as an individual but also a group member is affected by the group norms and dynamics.

If there is any stress and grievance spread within the group, the individuals are affected. And, via the sharing, individuals’ negative moods within the group are like nowballs to grow up. 2. 2 About group performance In organizations, group is common and crucial to the organizational performance. There are formal and informal groups generated by giving official tasks and/or social needs of individuals within the organization. Individuals in groups influence each other in many ways and groups may develop their own hierarchies and leaders.

Group pressures influence over the behavior and performance of individual group member. It generates what behaviors should and should not be performed in the group. This kind of standardized behavior is norm (Forsyth, 2010). Group dynamics are the actions, processes and changes that occur within groups and between groups (Forsyth, 2010). When an organization enters in the decline stage, more negative than positive feeling and mood are spread and shared within and between groups, the groups then respond accordingly and reflected from their norms and dynamics.

Ultimately, these are reflected in the organizational performance. During such moment, when one of tne group memoers quits ana nas a netter offer, tne otner group memoers are easlly affected and may trigger them as a shock to think about a quit plan. Under this atmosphere, the resources are less than before, hostility is easily generated for resources between supervisors and sub-ordinates and within peers. These hostilities are also spread within group and between groups, accumulating from-time-to-time, will damage the overall working spirit and unity.

Members within a group are usually with different roles, someone can be a leader or helper, no formal classification but depending on each individual’s influencing power. The performance of a group, to certain extent is also depending on the group leader and its member’s combination. To motivate and utilize a group to work for some tasks, knowing their strength and characteristics are important. 2. 3 About organization performance Organization is a formal structure for individuals and groups to interact and for establishing relationships between individuals and groups.

It also provides order and systems for individuals and groups to follow and to contribute their efforts to achieve the goals set by the organization. These goals can be broken down into tasks and objectives for individuals and groups to achieve. page 3 6 An organization is also a group but larger, it still carries norm and dynamics. The corporate value, culture and leadership are all affecting the performance at organization level. Organization cannot operate by itself, its performance is the output of individuals and mostly via the groups, like departments and sections.

As comparing with a group, an organization is with certain official formality, like the rules and regulations. Authority is also supported by formality, like position and grade. The individual, the group and the organization which collectively influence behavior in work organizations and such influence is usually reflected in the form of performance of the organization. 3. Measures recommended for improving performance WitteloostuiJn (1998) provides four possible outcomes as the consequences of downturn (decline as counted from a date), they are: b. . Immediate exit: when the profitability falls below zero, the company decides to exit. Turnaround success: The company successfully moves from negative to positive profitability. Flight from losses: After a period of losses, the company finally leaves the market. Chronic failure: Although profit remains negative, the company still stays in the market. The above analysis and design is good to help management to have a clear picture to ake decisions. As for this case, “c” and “d” are not applicable.

Among “a” and “b”, “b” Is more appropriate Oue to tne atmospnere Is sultaDle to make cnanges. ultimately, “a” may be used by top management as a bottom line. 3. 1 As to show the commitment to make changes to improve the situation, it is good for top management meet with the employees to announce clearly the coming turnaround plan. It is expected to let all employees receive the first-hand and consistent information which will minimize the rumors and miscommunication. Moreover, it is a symbolic action to buy-in the support and generate cohesiveness. . Management team should meet with all department heads and middle layer supervisors regularly to follow up and the communicate plan. This activity in fact serves as project progress meeting to monitor the progress and also give an impression to all employees that the company is really paying much effort to make the plan succeed. With Joining these regular meetings, the department heads and supervisors are expected to get released from stress. It is because they will know what are happening and going to happen without any uncertainty.

It is also expected that their capability can be utilized without blocking with worries and tress. 3. 3 Robbins (1990) has stated that the increased voluntary turnover becomes a major potential problem in organizational decline because the organization want to retain the most valuable employees, however, some of the most capable employees will leave voluntarily at the very beginning when the organization enters the decline stage. To successfully turnaround the organization, retain existing capable employees is definitely one of the priorities. age 4/6 Dissatisfaction is the major reason for this case and the factors are concerning Job security, salary and benefits, working conditions, working relationships and dministration. At a certain extent, this feeling is generated from worries but not actually happened. Therefore, the management will announce that all the terms and conditions keep unchanged for at least two years. It is expected that the employees’ worries will be disappeared for at least one year. With buying this one-year time, the management can rebuild and enhance the corporate cohesiveness and concentrate in implement the turnaround plan. . 4 So far the majority of the managers are male, if the condition allows, recruit or promote some female managers is helpful to balance the working authority and mprove the overall communications as males are not good at understanding females. 3. 5 In order to increase the corporate cohesiveness, the employees working in the branches can be rotated regularly with those sit in headquarter. It is expected to improve the mutual understanding and then better the communications. Moreover, the organization culture, norms and dynamics are to be aligned.

Job rotation is good to train up employees to work for different posts, to let employees feel more interesting and more being utilized. 3. 6 Senge (1990) defines learning as enhancing ones capacity to take action. “So earning organizations are organizations tnat are contlnually ennanclng tnelr capacity to create. ” (p. 127). It is believed that organizations are evolving from controlling to predominantly learning. One of the most serious disabilities is when people form a strong identification with their position. What they do becomes a function of their position.

They see themselves in specific roles, and are unable to view their Jobs as part of a larger system. This often leads to animosity towards others in the organization, especially when things go wrong. To implement the organization to become a learning organization is serving different objectives. . It is expected that the employees in a learning organization will be keeping alert to know more and learn more relating to the entire working environment. It keeps employees spiritually energetic and should be swiftly to react to any problem. b. Employees in a learning organization should share their knowledge and learnt.

This action is helpful to build up cohesiveness which will be good for catering future problems. c. It is expected that the organization can be benefited from upgrading the entire effectiveness and work quality which is be helpful to keep the organization at excellent condition all the time. . With adopting to be a learning organization for sometimes, it is expected that the organization is better equipped than before to take and new challenge and changes. e. The overall performance from individuals to groups and organization are expected to be improved. 3. People and organizations are slow to recognize gradual changes and threats, like the story of boiling a frog from cool water instead of hot water. This also explains one of the reasons that management cannot see the decline at the initial stage. To prevent the organization to enter the decline stage again, indicators n sales, profits, turnover rate, cash flow rate and reserve level are set. Once any such fgures reached the warning level, top management should react as facing decline. This scheme is to rely on data rather than people’s feeling and perception to remind the management timely to react for any adverse situations. age 5/6 The above measures are catering the atmosphere, communication and turnover immediately so that the entire company can concentrate and work together to turnaround the troublesome situation. Building the company to become a learning organization is a mid to long-term strategy, it is expected to help the company to face ny difficulty in future. References BIBEAULT, D. B. (1999) Corporate turnaround: how managers turn losers into winners!. Washington: Beard Books FORSYTH, D. R. (2010) Group Dynamics. 5th Edition. Belmont: Wadsworth, Cenegage Learning GRIFFIN, R.

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