Deck 14: Strategic Planning Options: Downsizing, Divestiture, and Bankruptcy

Question 1

Under what circumstances should a business consider a significant modification of its organization design?

Answer 1

$\bullet$ They are chosen, after careful study, as the best solutions to identified strategic challenges. The process begins by defining the areas of greatest concern. In a hospital, these might be miscommunication between nurses during shift handoffs, hospital-acquired infections, lack of integration with stakeholders like physician practices and long-term care facilities, and nurse shortages in certain specialties.
$\bullet$ The people who work in those areas (practitioners or managers), suffer the consequences (employees or patients), or are well informed about the sources of the challenges (managers or support staff) are consulted. The goal is to learn from them the root causes, not merely the superficial causes or the symptoms.
$\bullet$ Ask each contributor to the organization value chain to describe the activities he or she performs. In a group dialogue, the employees explore the strengths and weaknesses in those activities and how they might be improved. Working together, they develop change scenarios for making those improvements, including alterations to the value chain infrastructure itself.
$\bullet$ Do a virtual test run of the scenarios to see how they might function in practice and whether they would produce the desired improvements. It is important to base this investigation on the outcomes that the organization wishes to achieve, not on existing platforms, systems, or business models. To be true to the concept, those outcomes should be defined by customers and other relevant stakeholders.
$\bullet$ If the most promising scenarios seem to require redesign or reengineering, persons with experience in organization design should be involved in drawing up some prototypes. Like the scenarios, they should be tested with operating simulations.

Question 2

Describe three situations in which an organization may feel that it has to reduce the size of its workforce (i.e., downsize).

Answer 2

$\bullet$ Downsizing occasionally must be executed on short notice in response to emergency events like a sudden economic downturn or the loss of a major contract or customer. In all other cases, it should be the result of considered strategic planning: the organization has adopted a strategy to offer new product or services, cater to a new demographic customer group, or compete in a new geographic area. Current employees do not possess the new skill sets required and cannot be easily retrained. They must be replaced.

Question 3

Name three strategies an organization could implement to avoid downsizing.

Answer 3

$\bullet$ Redeployment
$\bullet$ Furlough
$\bullet$ Wage or salary cut
$\bullet$ Work sharing
$\bullet$ Attrition
$\bullet$ Early retirement incentives

Question 4

What are three costs (financial and otherwise) associated with downsizing that make it a questionable strategy?

Question 5

What is the difference between divestiture and closure? Under what circumstances would an organization make one of these strategic choices?

Question 6

Offer some recommendations for how to carry out a divestment. Which units will be divested? To whom will they be divested? How will the public relations surrounding the decision be handled?

Question 7

There are two kinds of bankruptcy proceeding - Chapter 7 and Chapter 11. What is the difference between them? When are they most likely to be used?