Downsizing – an Effective Form of Organisational Change That Seeks to Improve Business Performance?

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DOWNSIZING – AN EFFECTIVE FORM OF ORGANISATIONAL CHANGE THAT SEEKS TO IMPROVE BUSINESS PERFORMANCE?

Personnel restructuring, right sizing, reductions in force or the most common term used; downsizing, is defined by Budros (1999 : 70) as “An organization’s conscious use of permanent personnel reductions in an attempt to improve its efficiency and/or effectiveness”1 Downsizing has occurred throughout the industrialized world (Ryan & Macky, 1998)2, affected blue and white collar workers (Littler et al., 1997)3, targeted lower-level workers, professionals, middle managers, and higher-level workers (Littler, 1998)4, and permeated all industries (Morris et al., 1999)5.It is simply known as reductions that organisations make in the number of employees that are on the payroll. Numerous organisational sociologists notably Freeman & Cameron (1993) state that downsizing is a strategic decision made by the organisation and that the term should not be confused with the term layoff. They state “The difference between layoffs and downsizing is that layoffs are solely concerned with the individual level of analysis, while downsizing is a broader concept applicable to other levels of analysis than solely the individual level. Additionally, downsizing is a strategic decision while layoffs are an operational mechanism used to implement a downsizing strategy.”6

Since the 1980’s downsizing in organisations has become a ubiquitous feature of all modern organisations with reductions of cost being the main catalyst for the decision by management. Many individuals believe that the main reason for downsizing is because “Foreign competition compels domestic industry to downsize by trimming fat.”7 With the prevailing gusty winds of global economic recession, the topic of organisational downsizing is making the headlines, while the question ‘Are we going to be next?’ is nervously being asked by employees around the water cooler who are anxiously waiting to find out if their position is being made redundant. Currently downsizing is in full swing, with company management and directors giving the now infamous topical spiel to their employees about the organisation being hit hard by the harsh economy and they cannot afford to keep the employees on if the organisation is to remain profitable and competitive. Companies in all sectors are cutting costs on downsizing its workforce. From computer company Dell wanting to ‘trim’ $3billion from its budgetary expenses by downsizing 8800 employees of its workforce to international coffee chain Starbucks having to shut down 600 of its coffee shops in the U.S., downsizing its workforce by close to 12,000 people, all organisations are feeling the pinch of the recession. Both companies stated the same reason for their recent moves; save costs due to the flailing economy, which is ravaging through the U.S. and beyond. Yet, it is not always in bleak and dire economic situations when companies downsize. Research by the American Management Association found that an overwhelming percentage of US firms downsized during the 1980’s and 1990’s even when profitable, stating “Data collected for the American Management Association show that 80 per cent of US firms that downsized were still profitable at the point of downsizing, and that on the day of announcement of rationalization their stock prices typically rose by 7 per cent.”8 In the summer of 2001, a survey conducted by PricewaterhouseCoopers found that fifty percent of the 114 companies surveyed stated that they downsized within the previous 18 months, and of those companies that downsized, fifty percent planned on downsizing again within the next 18 months.9

So why do organisations engage in downsizing even if the organisation is prospering and their stock prices are on the rise? Or the economy is not being hit hard by crises? Do management of the organisation believe that the organisation can continue to grow by scaling down on its workforce? Do technological...
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