Chief Executive of the Huge Consulting Company Lou Gerstner Said: “Shortly After I Joined, I Set as My Highest Priority to Rightsize the Company as Quickly as We Could.” Downsizing Was at Its Most Intense in the Late

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Jul 28th 2008 •
Downsizing is the process whereby a corporation makes itself smaller in response to changed market circumstances. Although downsizing implies a reduction in assets, it is not (as its critics often maintain) merely a reduction in human assets. Other terms have been used to distance the concept from its association with ruthless job-slashing—for example, rightsizing and restructuring. In the first IBM annual report after his appointment as chief executive of the huge consulting company Lou Gerstner said: “Shortly after I joined, I set as my highest priority to rightsize the company as quickly as we could.” Downsizing was at its most intense in the late 1980s and early 1990s. In the United States alone, some 3.5m workers lost their jobs to downsizing in the decade after 1987. The losses had much to do with getting rid of layers of middle managers—a move enforced by increasing competition and the growth of information technology which reduced the need for human ciphers. Some saw this as a return to organisational structures of times gone by. In a 1988 article, Peter Drucker wrote that one of the best examples of a large and successful information-based organisation that had no layers of middle managers was the British civil administration in India. It never had more than 1,000 members, most of whom were under 30 years of age. Each political secretary (a senior rank) had at least 100 people reporting directly to him, “many times what the doctrine of the span of control would allow”. It worked, added Drucker, “in large part because it was designed to ensure that each of its members had the information he needed to do his job”. By the late 1990s there was a sharp reaction against downsizing. Companies started asking themselves whether it had gone too far. By then they knew that there was a considerable downside to downsizing. First, it left organisations shell-shocked and...
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