Case study: Downsizing at St Bede’s

St Bede’s Hospital is a medium-sized, 400-bed hospital in a regional Australian city. It was established
in 1908 by the Sisters of Mercy, an order of Catholic sisters. The facility has grown gradually over the
years and is now the third largest hospital in the city. It is entirely non-union and has never experienced
an employee layoff since its inception.
Sister Mary Josephine has been the Chief Executive Officer on the hospital for 11 years. Eight years
ago, she hired Ms Sharon Osgood as Director of Personnel. Osgood has an M.A. in Human Resource
Management and has been instrumental in formalising the institution’s human resources’ policies and
procedures.
Hospital occupancy rates had run between 76 and 82 percent from 1970 to 1982. However, since then,
occupancy had gradually fallen to 57 percent. Such declines have not been unusual for this industry
during this time period as a result of changing reimbursement policies, emphasis on outpatient services,
and increasing competition. However, the declining occupancy rate has affected this hospital’s revenues
to such an extent that it ran a deficit for the first time last year. The only response to these changes thus
far has been a tightening of requirements for equipment or supply purchases.
At the most recent quarterly meeting of the Board of Governors, Sister Mary Josephine presented the
rather bleak financial picture. The projected deficit for the coming year was $3,865,000 unless some
additional revenue sources were identified or some additional savings were found. The Board’s
recommendation, based on the immediate crisis and need to generate short-term savings, was that
employee layoffs were the only realistic alternative. They recommended that Sister Mary Josephine
consider laying off up to 10 percent of the hospital’s employees with an emphasis on those in the
“nonessential” areas.
Sister Mary Josephine responded that the hospital’s employees had never been laid off in the history of
the institution. Moreover, she viewed the employees as part of the “family” and would have great
difficulty in implementing such a layoff. Nevertheless, since she had no realistic short-term alternative
for closing the “revenue gap”, she reluctantly agreed to implement a layoff policy which would be as
fair as possible to all employees, with a guarantee of reemployment for those laid off, and to find
additional revenue sources so that layoffs would be unnecessary in the future.
Sister Mary Josephine called Sharon Osgood into her office the next morning, shared her concerns, and
asked her to prepare both a short-term plan to save $3 million over the next year through employee
layoffs as well as a long-term plan to avoid layoffs in the future. Her concerns were that the layoffs
themselves might be costly in terms of lost investment in some of the laid-off employees, lost
efficiency, potential lawsuits, and lower morale. She was concerned that the criteria for the layoffs not
only be equitable, but also appear to be equitable to the employees. She also wanted to make sure that
those being laid off received “adequate” notice so they could make alternative plans or so that the
hospital could assist them with finding alternative employment. Since the hospital had no previous
experience with employee layoffs, and no union contract constraints, her feeling was that both seniority
and job performance should be considered in determining who would be laid off.
Sharon knew the hospital’s performance appraisal system was inadequate, and needed to be revamped.
While this task was high on her “to do” list, she also knew she had to move ahead with her
recommendations on layoffs immediately. The present performance appraisal system uses a traditional
checklist rating scale with a summary rating. Since there is no forced distribution, the average ratings of
employees in different departments vary widely.
Table 1 shows the summary ratings of employees in each department. Most supervisors in all
departments rate many of their subordinates either “satisfactory” or “outstanding”. Sharon has done a
quick review of those employees whose overall ratings were “unsatisfactory” or “questionable”. Most
are employees with less than three years of seniority, whereas the “satisfactory” employees had worked
for St Bede’s for an average of around seven years. Table 2 provides a summary of the distribution of
employees and payroll expenses by department for the most recent year.
Table 1. Percentage Distribution of Performance Appraisal
Summary Ratings by Department at St Bede’s Hospital
Department Unsatisfactory:
Needs to improve
substantially
Questionable:
Needs some
improvement
Satisfactory:
Meets normal
expectations
Outstanding:
Substantially
exceeds norms
Nursing 6.4 6.4 54.2 33.0
Allied Health 5.7 6.2 47.8 40.3
Central Admin 2.7 3.1 67.5 26.7
Dietetics/Nutrition 2.1 6.2 68.3 23.4
Housekeeping/
Maintenance
7.8 12.4 54.6 25.2
Medical Staff 1.1 6.2 63.8 28.9
Table 2. Employment and Payroll Expenditures Distribution
Department Number of
Employees
Payroll ($) Annual Turnover
Rates (%)
Nursing 602 15,050,000 12.2
Allied Health 261 5,742,000 8.7
Central Admin 154 6,160,000 3.5
Dietetics/Nutrition 65 1,430,000 7.3
Housekeeping/Maintenance 36 540,000 8.4
Medical Staff 32 1,680,000 2.1
Total 1,150 30,602,000 9.5*
*Represents weighted average turnover for all employees.

Task

As the Personnel Director at St Bede’s, you are charged with the task of developing a report that
informs the CEO of the options available to the hospital under the Fair Work Act (2009). The report
should explain the advantages and disadvantages of each option, and explore the consequences of the
various options for industrial relations and human resource management within the organisation. Your
report should offer the CEO concrete, actionable recommendations that will save the hospital the
required $3 million, and at the same time, minimise harm to laid-off workers, remaining staff, and the
hospital itself. Due attention should be paid to means of preventing any future need for layoffs. It is
important that your recommendations be based on appropriate HRM literature and properly referenced.
The report should be a confidential report for the Chief Executive Officer of St Bede’s Hospital, and be
presented as a suitably professional document.
This assessment item involves researching your assigned topic to enhance your understanding of Human
Resource Management (HRM) concepts and utilisation of academic literature. Whilst you should AVOID
using only textbooks, the prescribed textbook for the course should be cited in regard to broad human
resource management principles. You will be expected to present information and evidence from, and cite, at
LEAST eight (8) relevant peer-reviewed, academic journal articles (absolute minimum requirement). Refer
to your recommended readings for examples of academic journals. While you can cite these articles, you
must find eight (8) peer reviewed journal articles not listed in the course materials. The quality and number
of citations will demonstrate the breadth and depth of the literature used to answer the questions. Your
marker is interested in the analysis that you have developed from YOUR review of the literature and how
well you use the literature to respond to the topic.
AVOID presenting a descriptive account ONLY of your readings. What is required in this assessment is a
critical evaluation of the academic literature as it relates to the specific details of the case study. Your
marker is interested in the conclusions that YOU arrive at from YOUR evaluation of the literature and of the
case study.