Downsizing: Layoff and Employees

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A Project Report on:
Corporate Downsizing in the Indian context

TABLE OF CONTENTS

1. Objective3
2. Introduction4
3. Why do Firms Downsize?6
4. Downsizing – Indian Perspective10
5. Effect of downsizing on organizations13
6. Survey Analysis and Results18
7. Process of Downsizing24
8. Suggestions to improve the morale of survivors post downsizing27 9. Conclusion29
10. References30

1. Objective

Corporate downsizing is very common in the US corporate sector but it has till recently not been adopted by many Indian companies. This is changing nowadays, with many Indian companies going in for downsizing as an organizational strategy to cut costs or get rid of non-performing employees.

Our objective in this project is to analyze some of the reasons why firms are taking up downsizing. We have studied the effects of downsizing at the organization level, the managerial level and the survivor level. As part of our project, we conducted a survey on survivors of downsizing from Indian companies which have conducted mass or individual layoffs in the recent past. Since downsizing is still relatively new in the Indian context and in most cases, the survivors do not wish to delve further on this topic, our responses were limited in number but they were sufficient to give us an idea of downsizing in the Indian context.

Apart from this, we have also studied the actual downsizing process in companies and how it is carried out. We have given some recommendations on steps to be followed by organizations to make sure that they do not acquire a negative image post downsizing. Also, steps to boost the survivors’ morale have also been suggested. If this is not done, downsizing typically leads to increased turnover among high performers in the organization.

Downsizing may be unavoidable in some organizations to cut costs – however the HR departments and managers should handle this issue with utmost sensitivity – to avoid any long-term negative effects to the organization.

2. Introduction

Layoffs, frequently called downsizing, describe the process in which companies remove temporarily or permanently a number of employees from their payroll. The general purpose of this practice is to reduce the organization’s burden of excess labor costs when human resources cannot be used effectively.

Charles Handy first predicted that the technological revolution, which was beginning to make its force felt back in the mid-1970s, would transform the lives of millions of individuals through a process he termed .down-sizing. Downsizing is not a new phenomenon. Downsizing came into prominence as a topic of both scholarly and practical concern in the 1980s. It became a management mantra. (Lecky, 1998) in the 1990s which subsequently became known as the downsizing decade (Dolan, Belout, & Balkin, 2000).

In the early 1990s, CEOs and executive management were being targeted more and more by the shareholders. The merger wave of the 1980s taught executives that any company trading at price-earnings multiple lower than the industry-wide multiple was considered undervalued, or a poor-performer, and ripe for a takeover, or messy shareholder law suits. CEOs used to be concerned with optimizing production and cutting costs, which they hoped would engender profits and therefore shareholder wealth. The focus moved on to convince the market of the upward potential in their stock prices. In other terms, it doesn’t matter whether you really have good project or potential to grow but what matters is whether the stock market believes that you have such strength.

To handle such pressure many CEO’s looked for the quick fixes which would reflect immediately in the profit margins of the organizations. Instead of focusing on the long terms planning, short terms goals were set which to project good picture of company’s status. And the easiest way to go around it was to cut down labor cost as it has a significant contribution to the expenses...
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