Professional Documents
Culture Documents
Downsizing
Downsizing
Downsizing
Cummins & Worley 2005 reveal, in practice, downsizing generally involves layoff
when a certain number or class of organisation members is no longer employed by the
organisation.
Important Consequence
An important consequence of downsizing has been the rise of the contingent
workforce. In companies like CISCO or MOTOROLA, less expensive temporary or
permanent part-time workers are often hired by the same organisations that just laid
off thousands of employees. (Cummins & Worley 2005)
Response of Downsizing
Downsizing is generally a response to at least four major conditions.
Result of downsizing
A review conducted by the National Research Council, “downsizing as a strategy for
improvement has proven to be, by and large, a failure.”
One survey of 1005 companies that used downsizing to reduce costs reported that
fewer than half of the firms actually met cost targets.
On the other hand downsizing improves the profitability of companies in the short run
by reducing number of employees which results in cost reduction.
Many criticisms have been made to such practices or strategies, due to the impact that
leave within relationships and motivation of employees within an organization.
Leaving as a result a low performance and efficiency, because of the bad atmosphere
that the cause Downsizing or de-layering on employees who remain with the
company.
Thus, Downsizing is also seen as a threat to employees, due to limited and replaces
their work.
According to Neito (2006) downsizing can have a bad impact on employee relations
and motivation. In the modern work place where fewer people are often required to
cope with larger work load, the lack of long term secure employment also places more
stress on organisational cohesion. This is simply because commitment is a two way
street. When staff see their organisation routinely expelling its unwanted employees,
the survivors are less likely to give their whole unconditional commitment to the
service and well being of that organisation.
Reduce staff level Reduce short term cost Reduce morale Reduce performance
In the face of slowing or declining sales, companies often Downsize their employee base as a means
of cutting costs to boost profitability. Throughout 2002, large and mid-size businesses laid off
2,000,000 workers (an average of 100 workers in approximately 20,000 separate events.) 1 Although
Downsizing is effective for significant cost reduction, it often produces unintended side effects such as
damaged employee morale, poor public relations and future rightsizing costs. Creative efforts to avoid
Downsizing include hiring freezes, salary cuts or freezes, shortened workweeks, restricted overtime
hours, unpaid vacations, and temporary plant closures. When Downsizing proves unavoidable, the
ultimate goal should be to eliminate non-essential company resources while minimizing the negative
impact upon the remaining organization. Downsizing can be an effective tool if used correctly.
However, firms must be careful to avoid sending the wrong messages to employees, clients,
shareholders, and the media.
Methodology
• Evaluate the overall impact of Downsizing. To evaluate the total cost of downsizing, both
financial and non-financial factors must be taken into account. Managers must calculate the
present value of all costs and benefits associated with the cuts—including severance
packages, lower employee productivity due to disorder or talent loss, eventual rehiring
expenses and future rightsizing costs. The value created should exceed the effects of lower
employee morale and the potential damage to the firm’s reputation.
Common Uses
• Reduce costs;
• Rightsize resources in relation to market demand;
• Signal that the company is taking proactive steps to adjust to changing business needs;
• Take advantage of cost synergies after a merger;
• Release least productive resources.
conclusion
Downsizing is an important tool through which organisations tend to cut expenses at a
larger scale. Going through this we need to understand that there is a fine line
difference between downsizing and de-layering and it is not important that
downsizing could be implemented every where. Downsizing could help organisations
reduce costs in the short run but results negatively in the long run because of the fact
that it automatically leads to organisations paying overtime extra benefits to the staff
kept and this very quickly leads to decrease in employee’s performance. As Neito,
2006 very well said that downzing could be applied to reduce costs especially in the
crisis period but it will leads to various employee and organisation problems in the
future and will impact negatively to the society