The effectiveness of retrenchment in the banking sector in Zimbabwe between 2009–2011

The purpose of this paper was to understand the effectiveness of the retrenchment strategy by the Zimbabwean banks between 2009–2011 after the dollarization of the economy on January 29 2009. The paper also set to explore whether the retrenchment strategy was the best strategy and the methods of retrenchment used. The research adopted a survey research design soliciting data from 8 commercial banks that retrenched their employees during this period. Data collection was through questionnaires and interviews from head of departments, chief executive officers (CEOs) and board members in the financial services sector. Judgmental sampling was used and a total of 102 questionnaires were sent out and were 10 interviews were scheduled of which 5 were with the RBZ managers. Data from the Reserve bank of Zimbabwe was presented separately because the retrenchment was as a result of a legislation passed by the Parliament of Zimbabwe on 31 March 2010. This entailed that the reasons for the RBZ to retrench were different from those of other commercial banks, although the institution was facing similar viability problems. The findings indicate that the majority of banks experienced an improved performance through savings in labour costs, and other labour related costs due to a reduction on head count in the short run. This was because of the mismatch between the income generation and business costs that resulted after the contraction in business activity at the onset of the multicurrency regime. However, the results also indicate that the seemingly positive effect did not persist as most of the banks reported a decline in profitability in the long run. The study recommends that organizations should not retrench for the sake of reducing head count, but the exercise should be accompanied by changes in strategy, organization structure and culture for it to be effective.