Downsizing has become an extremely popular strategy in today's business environment. Companies began downsizing in the late 1970's to cut costs and improve the bottom line (Mishra et al., 1998). The term "downsizing" was coined to describe the action of dismissing a large portion of a company's workforce in a very short period of time. According to online encyclopedia http://en.wikipedia.org downsizing refers to "layoffs initiated by a company in order to cut labor costs by reducing the size of the company." Downsizing became a familiar management mantra in the late 1980's and early 1990's. In fact, three million jobs were lost between 1989 and 1998 (Mishra et al., 1998). More than 350,000 jobs were lost in 2001 (DeSouza & Donaldson, 2002). Downsizing has become almost a way of life for U.S. companies. Typically, the first round of job cuts are followed by a second round of cuts a short time later. Not everyone agrees with the reasoning behind downsizing. According to an article in the Journal of Banking and Financial Services, downsizing is merely "a short-sighted business strategy motivated by arrogant CEO's eager to appease shareholders (Unkles, 2001). Others feel downsizing is a necessary tool to ensure business survival in the face of a changing economy. Regardless, the costs of downsizing are high, and the payoffs of downsizing are mixed at best. This paper doesn't serve as an approach to downsizing, rather, it explores the many aspects of downsizing, from when it's time to downsize to what steps that can be taken to avoid the process altogether.
Corporate Downsizing: An Overview
There are many reasons why a company downsizes. Layoffs began as a way for companies to offset a decline in earnings, but quickly became a popular practice even in companies that were doing well financially. A 1994 survey by the American Management Association found that two-thirds of all workers who were laid off were college-educated, salaried employees (Downs, 1995). Today, the term downsizing is used to refer to a narrow effort to reduce the workforce and also to broaden efforts to improve work systems or redesign the total organization. Companies may downsize to increase capital, as a result of a merge with another company (where additional staff are not needed), poor cash flow (which results in payroll issues), changes in technology, and lastly due to a change in organizational structure (Krepps, 1997).
Companies often "downsize" using the following techniques:
Reorganization/Restructuring. Reorganization involves changing the distribution of responsibility. It also has technical, political, economic and social aspects. Restructuring involves moving, adding, or the elimination of departments which aren't needed. Restructuring also helps by focusing on the strengths of the company (Hoskisson & Hitt, 1994). b.
Workforce reduction. Downsizing or workforce reduction is a strategy to streamline, tighten and shrink the company structure with respect to the number of people the company employs. c.
Reengineering. This involves changing the way work processes are carried out (to better serve the client or customer). This method is also used to redefine and reduce the business practices of an organization. d.
Rightsizing. Rightsizing can involve reducing the workforce as well as eliminating functions, reducing expenses, and redesigning systems and policies. e.
De-layering. De-layering involves removing one or more levels of management (those deemed least necessary). The Upside of downsizing
Even in an ideal economy, downsizing can occur. Although downsizing is typically thought in a negative respect, there are some benefits to downsizing. Such benefits include: a.
Harder working employees. Remaining employees may see this as a wake-up call, thus improving their performance. b.
Having fewer employees forces managers to carefully control work flow. In some cases, these layoffs may result...
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DeSouza, W., & Donaldson, S. (2002, Feb). Where the jobs are: this economy is both the best and the worst of times. Black Enterprise. Retrieved April 22, 2004, from http://www.findarticles.com
Downs, A. (1995). Corporate executions: the ugly truth about layoffs-how corporate greed is shattering lives, companies, and communities. New York: AMACOM-American Management Association.
Hoskisson, R., & Hitt, M. (1994). Downscoping: How to tame the diversified firm. Oxford University PR on Demand.
Krepps, M. (1997). Industrial inefficiency and downsizing: A study of layoff and plant closures. New York: Garland Publishing.
Mishra, K. E., Spreitzer, G. M., & Mishra, A. K. (1998, Winter). Preserving employee morale during downsizing. Sloan Management Review.
Unkles, j. (2001). The downside of downsizing: after almost a decade of surging economic growth and booming share markets, many corporate and financial managers are getting their first look at a downturn in the business cycle. Journal of Banking and Financial Services, 115(6), 2. Retrieved April 22, 2004, from Baker College Web Site: http://web2.infotrac.galegroup.com
Zimmerman, E. (2001, November). Why deep layoffs hurt long-term recovery (HR 's tools for recovery). Workforce. Retrieved April 20, 2004, from http://www.findarticles.com
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