Corporate Downsizing
Essay title: Corporate Downsizing
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
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).
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.
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.
Rightsizing. Rightsizing can involve reducing the workforce as well as eliminating functions, reducing expenses, and redesigning systems and policies.
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:
Harder working employees. Remaining employees may see this as a wake-up call, thus improving their performance.
Having fewer employees forces managers to carefully control work flow. In some cases, these layoffs may result in making a company more efficient.
Displaced workers often find better or higher paying jobs.
Companies often develop newer or cheaper products.
Entrepreneurs pursue opportunities.
Many displaced workers move to new jobs in areas that need labor in order to expand. However, the positive effects of downsizing are far exceeded by the troubles caused by downsizing
The Dark Side of Downsizing
Downsizing, even if used with the best intentions, still has a dark side. The involuntary job loss experienced by