Downsizing

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Getting fired is one of the most feared events in corporate America today. No one wants to go home to their wife and kids and tell them that they do not have a job anymore and no longer have a source of income. It is embarrassing, life changing, and overall depressing and draining for the person involved. This does not only affect the person laid off but also the employees who survived and in turn the company’s performance itself. The person laid off is now unemployed and insecure, survivors are confused and don’t know what to think, and the organizations performance is initially greatly affected. Letting someone go has devastating effects and needs to be handled in a professional and serious way. Before laying off occurs, all other possible alternatives must be taken into account. In business, there are three strategies for downsizing: organization redesign, systematic, and workforce reduction; however workforce reduction is the most effective.

Downsizing Defined

Cascio says “Downsizing is defined as the planned elimination of positions or jobs” (Cascio 55). Notice the word planned in that definition. This brings up an important point that needs to be made clear: Downsizing does not have to occur. The company brings it on themselves and it is their own decision. No regulator comes along and forces a downsizing process. Downsizing has and will continue to have major effects on organizations, managers at all levels, employees, labor markets, customers, shareholders, families, and also communities (Cascio 55). Freeman and Cameron explicitly state the four attributes that make up downsizing. “First downsizing is an activity that members of an organization or company undertake in a purposeful manner. Second, downsizing in most cases involves a reduction in the company’s personnel. Third, the focus of the downsizing activity is on improving effectiveness and the efficiency in the organization. And fourth, downsizing affects the work processes (directly or indirectly) within an organization” (Karake-Shalhoub 79). So downsizing is not a forced action, it is a chosen way to reduce the costs of the company in order to make more money and be more efficient.

Downsizing is a fancier and less harsh name for firing. When the word firing is heard the first thought is negative because someone is losing a job. Why can’t the firm just keep all of its employees so no one gets laid off? Now if it were only that simple. All organizations are in business to make profits. Profits are made by bringing in more revenue than expenses. If a company is not doing that then they must cut an expense, such as an employee. Even businesses that treat their employees very well still have to make profits, and the number one goal is what is best for the company, not the employee. It is a very cutthroat and competitive business world and corporations must use whatever means necessary to get ahead. Downsizing allows the company to cut costs and better compete in the market. That is downsizing that is done the right way, which is the workforce reduction strategy.

Strategies for Downsizing

The first strategy that can be used for downsizing is organization redesign (Huber 34). Huber states that “The primary focus of this strategy is to cut out work rather than workers” (Huber 34). Examples are eliminating functions, hierarchical levels, groups or divisions, products, redesigning tasks, consolidating and merging units, and reducing work hours (Huber 34). One plus is that organizational redesign tries to be loyal to their employees and not fire any workers. Instead they get rid of non-necessities, and keep the workers employed. “It requires some advanced analysis of the areas to be consolidated or redesigned, followed by elimination or a repositioning of subunits within the organization to reduce required tasks” (Huber 34). Instead of risking an overload or burnout by piling more and more work on fewer employees, this strategy assures that changes are targeted at work processes and organizational arrangements (Huber 34). This strategy’s target is a modern-term payoff and it also inhibits a very quick payback (Huber 34). Even though organization redesign increases morale and sounds great to employees, the reality is that it hurts the business as a whole. First of all it takes a very long time to implement and get used to. Also the company loses work and even though they are cutting out non vital functions, they still lose attractiveness to the business. It is nice to have parties and not have to redesign everything. This strategy is so complex and time consuming that you are left thinking, there has to be a better and more efficient way.

The next downsizing strategy is labeled as the systematic strategy (Huber 34). This strategy is the least commonly used and is completely different from the others because it focuses on changing the organization’s culture and the attitudes and values of the employees (Huber 34). It is looked at as an ongoing process and way of life, rather than a program or target (Huber 34). The idea is to simplify all aspects of the organization and the main targets are the costs along the customer chain (Huber 34). “Examples of those downsizing targets are reducing wait time, response time, rework, paper, incompatibilities in data and information systems, number of suppliers, and rules and regulations” (Huber 34). The main idea is that instead of the company just going right at the employee and firing them, they put it on the employee to help find ways to cut costs and improve financially. This keeps the employee with a job but lets them know that they are on a short leash and need to change their attitudes and start giving one hundred percent to the company. This strategy focuses more on the culture and eliminates the status quo (Huber 33). On paper this looks like a great strategy, however there is a reason it is the least commonly used. This strategy takes a long time and rarely shows quick improvement. Since every employee is being watched closely, they feel that they need to be perfect and start trying to hard resulting in errors and decreased efficiency. In order to make this strategy work better the company may have to devote more money to things such as employee training. Also for many employees, if they know they are close to being fired, their attitude will not change for the better, but for the worse.

The last strategy for a company to take is the workforce reduction strategy. (Huber 32). “The workforce reduction strategy focuses mainly on eliminating headcount or reducing the number of employees in the workforce” (Huber 32). The idea is to get rid of employees and their salaries and try to get the same amount of work done without them so that costs can be cut.
Pros and Cons of Workforce Reduction

The main drawback of the workforce reduction strategy is survivor sickness. In a major downsizing campaign survivor sickness is inevitable and cannot be stopped, only watered down. The survivors can start to have a depressed feeling and become angry and lose their faith in the company. At this point they feel a lack of security and have no idea if they are next. “The more trust the employee has, the greater the sense of the violation; in turn, the higher the sense of violation, the greater the susceptibility to survivor sickness” (Noer 208).

When the survivors are confused, uninformed, and do not know what is coming next they begin to make assumptions. The employees’ attitudes change, and they see themselves going from being assets to be grown and cultivated to costs to be hired and cut (Noer 209). Their thinking changes from positive terms such as develop, help, grow to negative ones like take out, shoot, and terminate (Noer 209). The employees who were thinking long term and were committed to the company are all of sudden thinking short term and the commitment is lacking. Survivors syndrome does not exclusively effect just the lower employees, it extends into the all the ranks of management (Cappelli 81).

Due to the numerous amount of employees seeing many layoffs the survivors’ assumptions begin to shift into fierce feeling clusters. The first is a feeling of insecurity, fear, and uncertainty (Noer 212). These feelings are not that uncommon and are found in many layoff situations. The next is frustration, resentment, and anger (Noer 212). When the employee is in this bitter mood there work will be affected and they will not care as much about the organization anymore. Another is the feelings of sadness, depression, and guilt (Noer 212). This can also lead to many other problems outside of work, such as between family and friends. The last cluster is unfairness, betrayal, and distrust (Noer 212). When an employee feels that they are being betrayed by the company their work ethic deteriorates and the quality of their work will decline immensely.

Now that the survivors have negative feelings toward the company they will all have their own coping strategies. “Layoff survivors usually cope with their feelings in one of a few certain ways that are neither personally healthy nor organizationally productive” (Noer 212). In the first method the survivors reduce their risk taking (Noer 212). There work begins to become more conservative and they do not take chances in anything they do for fear of making a mistake. It is said that to get big rewards you have to take big risks, and when no risks are taken the corporation is getting average, careful work and nothing that could put them above the competition. Another way is the employees gain an unquenchable thirst for knowledge. They are confused right now and want to know what is going on, and any information they can get their hands on they will absorb and use. This is where the internal grapevine can get to be a big problem because of false information and rumors. Another method is to play the blame game and start accusing other people (Noer 213). The survivors start to blame those above them all the way up the ladder (Noer 213).

With all the possible survivor sickness, how can the workforce reduction strategy be the most effective? Firing is not the only way to get rid of people; the workforce reduction strategy also consists of activities such as “offering early retirements, transfers and outplacement, buyout packages, golden parachutes, attrition, and job banks” (Huber 32). “These activities can be implemented across the board, and are designed to reduce headcount numbers quickly” (Huber 32). The process is not as harsh as just firing people, but the workforce needs to be downsized and will be done in the least harmful way possible. “Besides providing a immediate size reduction, the main purposes of this strategy are to wake up the organization to the serious condition that exists, to motivate cost savings in day-to-day work, and to unfreeze the organization for further change” (Huber 33). Basically if cuts are made across-the-board then it will get attention (Huber 33). When a company is struggling financially the easiest way to cut costs is to take away salaries. Although the company wants to be as close and committed to its employees as it can, in the long run it must do what is best for the company as a whole. If the company keeps all the workers and never lays off it will not make enough profit and soon there will be no company and no jobs for anyone.

It has already been established that downsizing needs to occur, however in order for the workforce reduction strategy to be in its most efficient stage it must minimize the effect on the newly unemployed so they will not have such harsh feelings toward the company. That will also pay off for the survivors and the company in general. In the workforce reduction strategy there are some important factors to make the downsizing as efficient as possible.

Positive Factors of Workforce Reduction Downsizing

The first factor is to make sure that the employees are being fired for the right reason and on the appropriate criteria (Karake-Shalhoub 60). The manager in charge of the laying off needs to carefully choose who he is letting go and be sure to leave no stone unturned, as in he checks on everything. A job analysis and performance appraisal should be taken to ensure that the right employee is going to be laid off. Seniority should also be taken into effect; if there is an employee who has been in the organization for a long time and is still young, he/she would probably we a vital asset to the team and it is more likely they should be kept. Whereas someone could have been working for years and years and their loyalty is to the company but they are aging and aren’t as effective anymore. The best way to handle this would be to buy them off for a few years and go for early retirement, then not only are you getting rid of the employee but are staying loyal to him which is respectable.

The next factor is to choose an appropriate time frame (Karake-Shalhoub 60). When the manager lets the employee know they are being let go, timing is essential. No one wants to be told they are fired on their birthday, or over a holiday, or a special weekend. The best time would be when there is plenty of time to talk it over with the employee and there is nothing on that employees mind at the time so it is not too much to handle.

Another factor is to “conduct the planning for downsizing in sufficient secrecy” (Karake-Shalhoub 60). This is vital because the last thing a manager wants is an employee to hear that they are getting fired through the internal grapevine before the manager actually gets around to the actual letting go. All of the investigating should be kept secret and there should be no way that any other employees know before the act occurs.
There is a certain respect that is owed to the person being fired that they should hear it from the manager, not some co-worker down the hall. Also rumors get mixed with the truth and people start believing or not believing different things and end up in a hurtful or confused situation.

The last factor is that the reasons for downsizing need to be clearly communicated and well defined (Karake- Shalhoub 60). The manager doing the firing must know exactly what he wants to say and also how to say it. It is important to be sincere but is more important to get the point across. In the process of the firing the manager needs to show respect, give consolation, and act professionally.

Conclusion

In order for businesses to stay competitive and cut costs they need continuing downsizing. A company cannot carry on constant growth without proper management through downsizing (Gomez 1). Downsizing needs to be done, but that does not mean that you need to lose people on bad terms and leave your company with disgruntled survivors. If the company follows the workforce reduction strategy: the business will cut costs, the firing will be just and the former employee with know why, and the survivors will see the professional way the company runs. In all actuality, that is all the employee can ask for. Every company is fighting for survival and dealing with competition everyday. If they are not successful, then someone else will be. The workforce reduction strategy removes the costs in the most efficient way possible making it the most successful way for the company, and if the reduction follows the factors and is held the correct way it cannot be faulted.

1.) DeWitt, Rocki-Lee. “The Structural Consequences of Downsizing.” Organization Science 4.1 (1993): 30-40.
2.) Foot, David K. and Rafael Gomez. “Age Structure, Income Distribution and Economic Growth.”
Canadian Public Policy / Analyse de Politiques 29 (2003): S141-S161.
3.) Freeman, Sarah J. and Kim S. Cameron. “Organizational Downsizing: A Convergence and Reorientation Framework.” Organization Science 4.1 (1993): 10-29.

4.) Mishra, Aneil K. and Gretchen M. Spreitzer. “Explaining How Survivors Respond to Downsizing: The Roles of Trust, Empowerment, Justice, and Work Redesign.” The Academy of Management Review 23.3 (1998): 567-588.
5.) Pasachoff, Jay M. “The Cost of Downsizing.” Science, New Series 269.5230 (1995): 1500.
6.) Stevenson, William B. “Organizational Change and Redesign: Ideas and Insights for Improving Performance.” Administrative Science Quarterly 39.4 (1994): 693-695.

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