Downsizing has been used as a change management strategy by many organizations and government agencies beginning in the 1970s. It began as a way to deal with organizational and economic issues that that threatened the success of a company. It eventually became a popular strategy to restructure organizations during the 1980s. As downsizing changes corporate design, it affects millions of employees all over country (Gandolfi, 2008).
Although manufacturing, retail, and service industries have the largest numbers of downsizing, it occurs in all industries, both private and public. According to Cascio (2003), statistics from the U.S. Department of Labor showed that in 2002 ...view middle of the document...
The workforce reduction strategy focuses on reducing the number of employees through layoffs, attrition, early retirement, hiring freezes, and buyout packages. The organization redesign strategy focuses on getting rid of certain activities by eliminating certain work functions and hierarchical levels, restructuring tasks, and combining sections or divisions. The systematic strategy deals with changing their intrinsic culture and the attitudes and values of its personnel. Of the three strategies, workforce reduction is the most popular (Gandolfi, 2008).
There are some positive reasons that cause organizations to downsize. Improvements in fundamental business processes and practices can lead to downsizing. An example is when DuPont cut 1,500 jobs in their nylon and polyester units, which was about 8% of their unit workforce, because improved technology led to a higher rate of production (Kirschner, 1996).
Mistakes Made During Downsizing
Although downsizing is common strategy for organizations to lower costs and increase profitability, companies do not always reach their desired results. Researchers have studied downsizing and their results are usually negative. Some reports link downsizing to the decline of employee motivation, loyalty, and morale; labor and machine productivity, profitability, and product innovation and quality (Budros, 1999).
According to Cascio (“SHRM foundation,” n.d.), there are some common mistakes that companies make when downsizing: failure to be transparent with employees and communicate openly and honestly; failure to involve employees; and failure to recognize that when the recession ends, it may not have the necessary amount of employees with the right skill sets that it needs to grow.
Companies find it easy to look at employee downsizing a means to cut costs because it is an expense that can be predicted due to the fact that it is a fixed cost. By eliminating this cost the company can foresee fixed savings or reduced costs (Cascio, 2003). While writing a publication for the Department of Labor, Cascio (2003), found that executives divided themselves in to two categories, the downsizers and the responsible restructurers. The downsizers saw their employees as costs that needed to be cut and the restructures saw employees as assets to be developed. The author goes on to say that downsizers see employees as commodities that can laid off or replaced by others. On the other hand restructurers see them as sources of innovation and renewal. Furthermore, Cascio’s research found that downsized organizations never outperformed those that didn’t downsize. Research ultimately determined that layoffs alone do not fix an organization’s strategy. An example is Palm, Inc. The company cut 250 jobs in order to cut costs after product demand decreased. As a result of the downsizing, the share price dropped to less than have of its value in one day. The company never recovered from that and the CFO...