What is downsizing

I. Conceptual basics

 

Downsizing / layoffs


Contents overview
I. Conceptual basics
II. Goals and causes
III. Factors influencing the release decisions
IV. Personnel layoff measures
V. Critical appreciation


Downsizing includes the quantitative reduction of the workforce through external redundancies (& # x201E transfer to the labor market & # x201C). The aim is to eliminate a personnel & # x201E overhang & # x201C. The reduction in personnel can be carried out evenly across the entire organization or only partially in some sub-areas. The layoff of staff goes beyond the decline in the number of staff and, taking economic and social aspects into account, also includes alternatives to cross-organizational cutbacks through various measures of quantitative, qualitative, temporal and local variations in the company and staff structure. Examples of stock-neutral release are the relocation of employees from shrinking industries to growing or promising areas or the reduction of overtime (Park, 1999, p. 5; Wagner, 1992, column 1546; Hentze, / Kammel, 2002, p. 304 ff. ).
Downsizing and layoffs are closely linked to the corporate and personnel policy of an organization as well as to the planning and design of personnel management tasks such as determining personnel requirements, personnel deployment or personnel development. A strategically designed control of the workforce and especially an anticipatory approach to the layoffs is extremely difficult due to the limited ability to plan and forecast future events, since competitive structures, technological developments and demand usually change discontinuously. Nevertheless, longer & # x201E planning runs & # x201C are advantageous and should therefore be aimed for, as this gives the opportunity to include conflicts of interest between employers and employees in a negotiation process. This can help to find a mutually acceptable solution.

The personnel management functional area & # x201E staff reduction / redundancy & # x201C represents a major challenge in terms of the realization of capacity-variable economic performance in view of the largely rigid, contractually fixed usage options for human resources, high personnel costs and restrictive legal norms. In addition, the employer has a social responsibility to take into account the individual interests and social concerns of employees in an appropriate manner.
The aim of downsizing and other redundancy measures is to remove excess staff in terms of quantity, quality, time and location. The reasons for the need to lay off staff are diverse and affect the organizational environment, organization and individual levels. The most common occasions are (Wagner, 1992, Sp. 1547; Hentze, / Kammel, 2002, p. 296 ff.):

1. Organizational causes


In relation to the markets, economic and structural changes in the demand and supply situation on the sales market are particularly difficult to calculate variables, as well as changes in the competitive environment. Furthermore, legally relevant changes (laws, collective bargaining agreements, works agreements) can prompt companies to initiate measures to lay off staff. Technical progress leads to rationalization. In many cases, human labor can be replaced by technology by improving the efficiency of task implementation. When new technologies are implemented, the requirements placed on personnel also change in many cases. While new, particularly qualified jobs are being created, others, often those with a highly repetitive character, are disappearing. For some industries and companies (e.g. in tourism, with seasonal goods and services), the problem of different personnel requirements depending on the respective occupancy arises due to the seasonally strong fluctuations in demand.

2. Organizational endogenous causes


Endogenous causes fall into the areas of organizational change, innovation and deterioration in the economic situation of the respective company.
Reorganization includes changing the structure and process organization with the aim of making the assignment of subtasks, people and material resources more effective. For example, automation, the elimination of individual hierarchical levels and / or the reduction in vertical integration lead to redundancies.
Declining sales and production volumes and falling profit expectations in connection with (personnel) cost reduction requirements are further reasons for redundancies. As a result, location analyzes can show the advantages of a change of location for individual companies. The perception of location advantages such as low wage costs and taxes, extensive infrastructure or low environmental requirements can go hand in hand with plant closures at the place of origin. Staff layoff effects are also triggered by management errors, increased work performance and falling absenteeism rates. In the case of technological innovation, product innovation or variation of the service program, it is not only necessary to make redundancies, but also to include measures for personnel development or retraining as part of the implementation and restructuring of the existing workforce.

3. Individual causes


Individual reasons concern performance, willingness to perform and behavior. In individual cases, inadequate suitability profiles, lack of motivation and blatant misconduct can be responsible for an extraordinary termination or the relocation of an employee.

1. Legal framework


The decisions in the field of personnel layoffs are exposed to numerous influences and restrictions (Hentze, / Kammel, 2002, p. 300 ff.). Particularly in the case of termination, the legal framework conditions are decisive for the design of the release process. Attention is drawn to legal regulations, among other things

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the Dismissal Protection Act,

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the civil code,

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the Works Constitution Act,

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the Employment Promotion Act,

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the Workplace Protection Act,

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the Maternity Protection Act,

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the Youth Labor Protection Act,

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the Partial Retirement Act,

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the Disabled Persons Act and

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the Vocational Training Act.


Furthermore, there may be design regulations from:

surrender.
The design and implementation of layoffs reflect the result of free entrepreneurial decisions only to a limited extent (Bitter, 2000). This applies in particular to vulnerable persons (groups). The collective labor law, in particular the Works Constitution Act, also defines the participation of the works council in the decision-making process.

2. Framework conditions of the labor market


The decision as to whether internal or external release should take place is also based on the circumstances of the labor market. If there is a need for redundancies on the one hand and personnel recruitment on the other hand, it is advisable to check whether and to what extent a transfer of the released employees - possibly combined with training measures - is promising. Analyzes of the quantitative, qualitative, temporal and local availability of personnel on the external as well as on the internal labor market (workforce structure) provide information about the advisability of downsizing or the current and future additional personnel requirements and the extent to which these should be recruited internally or externally . For example, key figures can be used in the area of ​​vocational training research, demography and the development of certain sub-labor markets.

3. Social framework


The assessment of corporate decisions by the public is of increasing importance for the corporate image. Since a loss of image with negative effects on the company's success is to be feared due to significant downsizing, decisions about the release also depend on the & # x201E communicability & # x201C of certain measures and the public's sensitivity to corporate social responsibility. Not least for this reason, many companies initially resort to & # x201E soft & # x201C forms of release (Hemmer, 1997a, p. 102).

Fig. 1: Forms of downsizing / redundancies

1. Release of staff without changes in inventory


Staff can initially be laid off by reducing working hours and transferring staff, without any downsizing. If the need to lay off staff is likely to be of a temporary nature, companies can reduce their current wage and salary costs to the extent of the reduction in working hours by temporarily reducing overall working hours in certain areas and at the same time maintain their workforce. Loss of income by employees can be compensated for by short-time work benefits in accordance with the Employment Promotion Act. The advantages of short-time work are essentially the retention of the workforce while at the same time reducing personnel costs and the relatively high level of acceptance by the employees due to the short-time work allowance. The previous structural and operational organizational conditions can essentially remain, so that temporary declines in performance due to organizational changes that have not been carried out are of no consequence. In contrast, the planning and administrative requirements prove to be very complex because of the large number of regulations to be observed. Another disadvantage is the signal effect: If a company introduces short-time work, it may be classified as at risk of crisis, which may lead to increased employee turnover, but also to a decline in orders and a loss of image.
By converting full-time to part-time jobs, work performance can be reduced without affecting the inventory. Part-time work is understood to mean employment relationships that are designed for the long term and for which shorter working hours than the agreed working hours are agreed. According to the Part-Time Workers Act (Section 3, Paragraph 1, Sentence 2), the employer must fill the vacant position or a position that becomes vacant in connection with the changeover with an employee who is registered as unemployed or has just completed training. The company can use partial retirement measures to rejuvenate the age structure, adapt the qualification profile to current requirements and in this way increase the performance potential of the staff. There is no reduction in the workforce.
The reduction in overtime reduces personnel costs disproportionately, as there are no overtime supplements. Once the employees have got used to the income improvement resulting from the overtime, the reduction in this can become noticeable in dissatisfaction that promotes fluctuation.
Employees to be released can be transferred to other areas of the company, provided that there is a need for staff there. Horizontal relocation is associated with remaining at the previous hierarchy level, while vertical relocation is used if the employee moves up or down in the company hierarchy. Transfers are only possible if the required qualifications for the new position are available. This is often not the case in the short term, especially in the case of qualified jobs. The necessary flexibility in personnel deployment is achieved or increased by preparing and training employees in good time as part of long-term personnel planning.

2. Release of staff with changes in inventory


As a & # x201E soft & # x201C measure of downsizing, fluctuation can be used to prevent vacant jobs from being filled again by hiring freeze. Reasons for fluctuations include retirement, termination of employees and amicable termination of contracts. Release effects can also be achieved in the & # x2013 but less significant & # x2013 cases of automatic contract expiration for temporary employment relationships without continued employment or replacement, due to & # x201E absences & # x201C due to military and community service or parental leave, by dispensing with representation.
Ordinary termination terminates an employment relationship at the end of the effective notice period. The legal minimum deadlines are regulated by § 626 BGB. If the Dismissal Protection Act applies, a distinction must be made as to whether the termination is personal, behavioral or operational. The dismissal is only socially justified if she can invoke one of these reasons. The so-called social selection based on characteristics such as age, professional age or maintenance obligations often does not correspond to what would be operationally opportune. In a multi-stage company decision-making process, the employer must first explain and explain in detail any redundancies for operational reasons, before the employee can submit well-founded objections to which the employer can in turn respond with amendments in his / her presentation (Bitter, 2000, p. 1767). In the event of dismissals, the existence of any special protection against dismissal & # x2013, e.g. according to the Maternity Protection Act or the Disabled Persons Act & # x2013, must be checked.
In the event of extraordinary termination, the continuation of the employment relationship for & # x201E important reasons & # x201C (due to misconduct capable of being punished) is unreasonable (§ 626 BGB).
Mass layoffs (Section 17.1 KSchG) are subject to a balance of interests between employer and employee. A social plan must be drawn up to compensate for or alleviate possible economic disadvantages resulting from a change in the company. The employees concerned are therefore entitled to compensation payments, the amount of which is primarily based on the length of service, age and monthly income. In individual cases, the financial burden on the company can reach dimensions that threaten its existence (Hemmer, 1997b, p. 174).
The termination of an employment relationship is possible at any time in accordance with the principle of freedom of contract through the amicable conclusion of a termination contract between employer and employee, without the employment protection regulations being applied.
Advantages of termination agreements compared to terminations for the employer are that

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the costs can be calculated with a high degree of certainty,

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the employees concerned can be specifically addressed and in this way an active design of the personnel structure can be sought,

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the ability to terminate is high (possibly with immediate effect),

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the operational peace is maintained and

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The company's image losses are of no consequence.


The employee does not experience any disadvantages as they can result from the entry of a notice of termination in the CV.
The termination of personnel leasing contracts or temporary employment contracts means that the & # x201E temporary employers & # x201C will be terminated or that contracts for temporary employment to temporarily bridge short-term staff shortages will no longer be extended.
The placement in & # x201E friendly companies & # x201C and services in the context of outplacement (Mayrhofer, 1989) have developed out of the awareness of the social responsibility of companies towards their employees. The separation from a company is accompanied by advice and usually also financial support in the search for a new job. In practice, outplacement is mainly given to executives whose area of ​​responsibility and position fall victim to restructuring, e.g. in the event of a merger, the abandonment of a business area or a flattening of the hierarchy.

3. Institutional requirements


The reduction of personnel capacity requires an intensive and, if possible, trusting cooperation between the personnel department, managers of the specialist departments and the works council with the following intentions (Gaugler, 1994, p. 6 f.):

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Analysis of personnel costs and identification of optimization possibilities,

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Overcoming resistance from the works council and from among the workforce,

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Regulation of complaint procedures,

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timely and well-founded information from executives and works council as well

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Implementation of staff redundancy measures more smoothly, because they are conflict-free, if consultation and decision-making participation were practiced beforehand.


In rare cases, drastic measures to lay off staff must be implemented against resistance or by circumventing the interests of the works council.Badly justified rejection of suggestions and demands of the works council is of little help in solving serious HR problems that do not only have cost-related implications. Instead, Gaugler (Gaugler, 1994, p. 7) suggests setting up joint working or project groups, within the framework of which proposals for personnel measures are drawn up with the participation of the works council. However, this presupposes a minimum level of willingness and ability to cooperate on the part of those involved and affected.

4. Process of the layoffs


An anticipatory approach has the advantage over the spontaneous reaction to certain events that social hardship, conflicts and costs of short-term measures of the release are limited and alternative adjustment possibilities of the company can be analyzed at an early stage. The following phases of a systematic release process as a problem-solving process can be distinguished:

a) Identification of the causes of layoffs and specification of objectives


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Analysis of main influencing variables / internal and external early detection indicators and their effects on future personnel requirements,

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Analysis of the current and future workforce or the composition of the workforce,

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Setting goals while integrating different interests.

b) detailed problem analysis and search for alternatives


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Strengths / weaknesses analysis and prognosis in the personnel area with regard to overarching goals and market requirements,

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Generating problem awareness by informing important decision-makers and contributors,

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Collection and analysis of relevant data (e.g. personnel statistics, statutory and collective bargaining regulations, job-related information, labor market information and information compression,

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Coordination of the cooperation between the people involved,

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Decision preparation by collecting ideas and conceptualizing promising release alternatives and individual & # x201E building blocks & # x201C of the catalog of measures.

c) Evaluation of alternatives and decision


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(first) evaluation of alternative approaches,

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Forecast of the individual target effects of alternative solutions,

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Integration of different opinions and negotiation of disputed points,

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Definition of short-term measures and anticipatory release strategies,

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Selection of individual measures,

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Determination of employees to be dismissed according to previously defined selection criteria,

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Determination of re-use options for & # x201E not to be dismissed & # x201C and definition of measures to adapt the remaining employees to changing requirements and working conditions

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Summary (final evaluation) and preparation of a decision paper.

d) Realization and success control


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Taking information policy measures with regard to the concept to be implemented and persuading them to do so,

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Elaboration of implementation instructions / designation of responsible persons,

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Granting incentives to promote fluctuation and mobility,

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Plan progress control / continuous monitoring of the effects and deviations from goals during implementation,

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Analysis of the causes of the deviations and, if necessary, correction / redesign of the original release plan,

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if necessary, elaboration of social plans.



In the scientific discussion and in management consulting practice, personnel is now no longer viewed as a cost factor, but as human capital that must be preserved, used & # x201E optimally & # x201C and continuously developed (Staehle, 1988; Wächter, 1992; Ulrich, 1998). Release planning & # x2013, although subject to great uncertainties in the prognosis, & # x2013 should, in order to enable increasingly & # x201E softer & # x201C variants that are as neutral as possible, be anticipatory and be closely linked to strategic management. Since the following applies in many cases: & # x201E Structure follows Strategy & # x201C (Chandler, 1962), ongoing effects on the job structure and job requirements are to be expected. Proactive and integrative strategic human resource management is an essential success factor for creating lasting competitive advantages (Tichy, / Fombrun, / Devanna, 1982; Wright, / Snell, 1992; Ferris, et al. 1999). The quality of human resources is a critical success factor in the implementation of market-oriented corporate management (Fritz, 1990) and in the formation of core competencies of a company (Becker, / Gerhart, 1996).
Protagonists of organizational economics considerations of human resources and personnel management warn of a & # x201E hectic & # x201C staff reduction triggered by recession or corporate crises (Eigler, 1997; Barney, / Wright, 1998). Externally released employees have, depending on their position and seniority, important company-specific knowledge and skills as well as a wealth of experience that is irretrievably lost and cannot be easily recovered if the order situation improves. Competitiveness can be threatened if continuously built human capital and functioning networks are destroyed and company-specific know-how is lost. If there is also an increase in workload and overload in the company, production stoppages and an increase in the complaint rate are not surprising. An anticipatory approach to staff layoffs must therefore obey the principle that qualified staff is initially retained in order to avoid these negative effects.
From a business point of view, the central question for evaluating release measures is: How can the desired effects be achieved with measures (combinations of measures) in a specific context? The following can be used as assessment criteria for individual concepts and measures for the layoff of personnel (Limbach, 1987, p. 157 ff .; Gaugler, 1994, p. 10):

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Design effects under certain design conditions: quantitative and qualitative performance potential of measures (combinations) of staff lay-off (impact prognosis),

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Deadline and duration of target-appropriate consequences: Speed ​​of taking effect and period of effectiveness of certain measures (bundles),

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Controllability and target conformity: direct / indirect possibilities of influencing certain target states and secondary effects / interdependencies / undesirable side effects (e.g. effects on the working and organizational climate),

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Reputation and legitimation: acceptance and willingness to cooperate with the workforce, with the supervisory and works council as well as effects on the corporate image,

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Reversibility: flexibility in the event of changes in the constellation of conditions (e.g. if demand starts to pick up at short notice),

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Maintaining / improving the quality of the company's own human resources: consideration of a possible irreversible loss of valuable know-how and experience as well as effects on core competencies and organizational learning,

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Financial expenditure of measures: costs, follow-up costs, public services and available budgets,

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Information foundation: information expenditure, accuracy and timeliness of information, number and quality of the alternative proposals from which a selection was made.


Analyzes can show, for example, that preventive & # x201E soft & # x201C measures in the event of & # x201E natural & # x201C fluctuation depend on the age profile of a company and the tendency to fluctuate. The reduction of overtime and special shifts is a flexible, temporary and short-term effective measure that is only relevant if there is a significant & # x201E overtime volume & # x201C. Mass layoffs may have lasting adjustment effects, but are associated with limited & # x201E sanction tolerance & # x201C and & # x2013 costly, especially in the case of social plans.
Exact evaluations are only possible to a limited extent due to the difficulties in operationalizing the various possibilities of influencing certain measured variables, causality problems and the limited validity of indicators. Instead, the assessment can often only be based on plausibility considerations, subjective perceptions, descriptions and assessments. General design recommendations are & # x2013 - as in other areas of human resource management & # x2013 - not appropriate, rather the relevant information should be relativized depending on the situation.
Literature:
Barney, J. B./Wright, P. M.: On Becoming a Strategic Partner: The Role of HR in Gaining Competitive Advantage, in: Human Resource Management, vol. 37, 1998, p. 31 & # x2013 46
Becker, B. E./Gerhart, B.: The Impact of Human Resource Management on Organizational Performance: Progress and Prospects, in: Academy of Management Journal, vol. 39, 1996, p. 779 & # x2013 801
Bitter, W.: On the entrepreneurial decision for the purpose of downsizing, in: Der Betrieb, vol. 53, 2000, p. 1760 & # x2013 1766
Chandler, A. D.: Strategy and Structure & # x2013 Chapters in the History of the American Industrial Enterprise, Cambridge, MA 1962
Eigler, J.: Mismanagement due to hectic downsizing in times of crisis, in: Personal, vol. 49, 1997, p. 176 & # x2013 179
Ferris, G. R.: Human Resources Management: Some New Directions, in: Journal of Management, Vol. 25, 1999, pp. 385 & # x2013 415
Fritz, W.: Marketing & # x2013 a key factor in the company's success? A critical analysis against the background of empirical success factor research, in: Marketing ZFP, Jg. 12, 1990, p. 91 & # x2013 110
Gaugler, E.: Personnel management in economically difficult times, in: Personnel management depending on the economy, ed. v. Scholz, C./Oberschulte, H., Munich et al. 1994, p. 1 & # x2013 14
Hemmer, E.: Criticism by companies of social plan regulations, in: Employer, Vol. 49, H. 4 / 1997a, p. 102 & # x2013 105
Hemmer, E.: Social plans and personnel adjustment measures & # x2013 an empirical study, Cologne 1997b
Hentze, J./Kammel, A.: Personalwirtschaftslehre 2, 7. A., Bern et al. 2002
Limbach, M.: Planning of personnel adjustment, Cologne 1987
Mayrhofer, W.: Outplacement & # x2013 Status of Discussion, in: Die Betriebswirtschaft, vol. 49, 1989, p. 55 & # x2013 68
Park, Y. K.: Personnel lay-off strategies and personnel lay-off alternatives & # x2013 a transaction-theoretical study, Munich et al. 1999
Schaub, G.: Personnel adjustment and downsizing in the company, 2nd A., Cologne 1997
Staehle, W. H.: Human Resource Management (HRM) & # x2013 a new management direction from the USA ?, in: Zeitschrift für Betriebswirtschaft, vol. 58, 1988, p. 576 & # x2013 587
Tichy, N. M./Fombrun, C. J./Devanna, M. A.: Strategic Human Resource Management, in: Sloan Management Review, vol. 23 1982, p. 47 & # x2013 60
Ulrich, D.: A New Mandate for Human Resources, in: Harvard Business Review, vol. 76, H. 1/1998, p. 124 & # x2013 134
Wächter, H.: From Human Resources to Strategic Human Resource Management. A status report based on the more recent literature, in: Managementforschung, Vol. 2, 1992, p. 313 & # x2013 340
Wagner, D.: Staff reduction / release, in: Handwortbuch des Personalwesens, ed. v. Gaugler, E./Weber, W., 2. A., Stuttgart 1992, Sp. 1545 & # x2013 1556
Wright, P. M./Snell, S. A.: Toward an Integrative View of Human Resource Management, in: Human Resource Management Review, Vol. 1, 1992, pp. 203 & # x2013 225

 

 


 

 

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