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Corporate Downsizing

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Organizations in every segment of business, industry, government, and education are downsizing. Downsizing is and has been a controversial phenomenon in the last few years. The controversy that surrounds downsizing may be better described as a debate in organizational theory about whether change is adaptive or disruptive. The issues which

establish the outcome of the controversy include why the downsizing is taking affect, how it is implemented, and what steps are taken to enhance its effects on organizational performance.

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The reasons for corporate downsizing are presented in many forms.

Some companies downsize due to technological changes such as automation, which brings about the need for a reduction in the production workforce. Others may feel that competitiveness with other companies warrants the need for a reduction in the workforce. Financial setbacks due to customer demand, market shares, and loss of revenue could also initiate the need for downsizing.

When will it end? Experts say it won’t. For instance, the North American Free Trade Agreement (NAFTA) was established as a universal trade agreement between the US, Cannada, and Mexico to allow free imports and exports.

It was also established with the intent to help poor countries, like Mexico, export their products for economic reasons. In my opinion, it has strongly contributed to America’s massive downsizing phenomenon. Companies that have experienced financial setbacks and losses seem to relish the idea that they can downsize the workforce here in the states, move operations into places like Mexico, hire cheap labor, and export their product back to the states, while making bigger profits. The sad part about this is that it is true, and NAFTA is largely responsible for this type of downsizing. Is this ethical? That remains to be seen.

The truth is that unless an organization

was designed expressly for the purpose,

it is not in business to provide

employment. Jobs are the by-product of

successful organizational endeavors, not

If the decision to downsize is a response to competitive pressures, it will appear impatient or premature to those who must leave. If it is perceived as anything less than a well developed strategic response to demands on the organization, then it fails to show employees need for the criteria. Downsizing can sometimes seem to be about creating victims and displacing blame rather than accepting responsibility and choosing moral and ethical ways to implement the outcome. Management wants a quick cut that protects he company’s assets, yet it wants to be gentle and compassionate to those who are let go. These two objectives are self-canceling, and to accomplish the first requires considerable compromise on the second.

Many companies wait until the day of the lay-off to inform its employees. They are concerned about sabotage and productivity. They seem to think that if they retain the bad news until the last moment that the employees will leave and the rest will get back to business. However, this method of a lay-off is the least favorable for the employees. If the company gives the employees notice of the cutback in the workforce, they will have time to plan for the financial problems, look for other work, and make other necessary arrangements to prepare them for the loss. It would be in the best interest of the company to give this notice to its workers.

Being a survivor of downsizing can have its own ethical issues. Those who are left after the downsizing has occurred, may share perceptions about the ethics of the decisions leading up to the dismissal of those who left. They may experience feelings such as anger, guilt, fear, and even depression. These feelings could be brought on by having to take up the slack and doing more work. They could also be asked to learn new tasks and for the same or maybe even less money than before the downsizing. Asking people to do more for less money can seem unfair. In my opinion, companies and organizations sometimes put too much pressure on surviving employees. This can cause the decision-makers to seem insensitive to the reality that employees are people with full lives and responsibility outside the workplace.

Call it outsourcing with a heart.

DuPont on December 11, tentatively

agreed to outsource its computer and

telecommunications operations, but it

will do so without cutting jobs.

Instead, some 3,100 DuPont staffers

will be given the chance to switch

employers with 2,600 spots slated for

Computer Sciences Corp. and 500 for

Andersen Consulting. An additional

1,100 information technology staffers

are expected to stay with DuPont.

The outsourcing pact is one of the

biggest ever. It will be worth more

than $4 billion over 10 years, with

CSC taking the lion’s share. CSC will

handle DuPont’s global mainframe,

mid-range, and PC hardware needs,

and worldwide telecom network,

while Andersen takes care of software

applications. The parties have signed

a letter of intent and are now

hammering out the final terms.

The flip-side to downsizing could be a more positive result or experience. When companies have their employees economic survival at heart when planning their downsizing tactics, an adaptive approach as well as a positive outcome can be expected. Most managers seem to understand the hard side of downsizing such as the cost of inventory, shipping, severance packages, and plant capacities. I’m sure DuPont considered all of these issues. However, they took the issues one step further and considered the softer issues such as morale, loyalty, and the role of the corporate environment on employee motivation and productivity. These issues should be addressed to keep a downsized company alive and well.

As history would have it, more companies suffer from downsizing rather than prosper. Why is this the case? Most companies or organizations fail to focus on the entire picture. For instance, they see the need for cutbacks in money and finance, yet they often pay more attention to the people they let go than the ones they keep. They may provide the laid-off workers with outplacement counseling, resume writing assistance, and other sources for potential job leads. Some companies even extend their health benefits, offer early retirement incentives, and often give severance packages. But, where’s the generosity for those who remain to do the work? The blow of staying with a company that has downsized needs to be softened too. Employees often feel threatened that their own jobs may be in jeopardy, they may have a growing mistrust of the company, and they have little understanding of what management is doing or what their role will be in the company’s future. Managers must pay attention to the survivors too.

I suppose that honest and sensitive communication is the most prominent challenge in every downsizing. Executives and managers are trained to think they should have all the answers before they talk to employees. In my own experience with my own company, ITT Automotive, this was the case. For many months we heard rumors about the sale of the new Henderson plant, the sale of the Morganton plant, and the closure of the Asheville plant. Monthly employee meetings were postponed, and employees went fishing for answers, the wrong ones I might add. Rumors flourished and expanded as they passed from employee to employee and from plant to plant. ITT should have given us the information as soon as they received it. (E.g. jobs will be lost but we haven’t finalized which ones yet.) They should have held the regularly monthly meetings and promised to get back to us with answers to questions that they didn’t have answers too. They created a great mistrust among the workforce by withholding information. They made us feel as though we were a bunch of children and that we couldn’t handle the truth. Extensive follow-up meetings could have also been essential in relieving fears and anxieties. It is imperative that companies maintain trust, keep the lines of communication open, and develop a strategic plan for its employees to follow after the initial downsizing. Taking these steps will enable the company and the workforce to prepare for the challenge of working with fewer resources and begin meeting the new challenges they may face in their new structured environment.

At this point the Human Resource department should be highly involved in the decision-making process. After all, they are largely responsible for the high wages and often times over-hiring of the workforce. They are the department to implement, not to create in a lay-off situation. They also direct the employee as far as labor laws, fair compensation, employee information and act as a go-between for management. Their mission is to protect the interests of the employee, while carrying out the needs of management.

It is a proven fact that 80% of companies that downsize suffer from low morale among the workforce, which in turn creates lower productivity and often lower profits. Organizations must make strategic plans to carryout downsizing in order to have its effect be a positive one. It must weigh out all of its options before planning such a desperate move. Will the downsizing be profitable to the company? Will employee morale be lowered by the cutback? Have all other options been exhausted before the lay-off was decided upon? What strategic plan has been developed to ensure that the survivors feel confident in their employment and that they understand what their new focus should be.

Alternative strategies should be exhausted before the final decision to downsize. Ways to reduce the payroll without having to have a lay-off is in the company’s best interest. Long before the need to downsize, an organization should consider a hiring freeze as an option. This option consists not only of the new hire option, but also means that those employees who quit, get terminated, or retire will not be replaced in the workforce. If these positions are needed to support the business before a reduction in workforce, a temporary position may be a good idea at this point. This will eliminate a lay-off in this position later and save the company money since benefits will not be necessary for the temporary employee. This method is not obstructive to organizational morale and commitment. Another technique to defer downsizing is a reduction in hours of operation.

Hewlett Packard participated in what it

Called a “fortnight work schedule.”

That is, every two weeks(a fortnight)

employees do not work for one day. When

it was used during a slow sales period

in August1985, wages were cut 10%. To

help employees ease the crunch, they

were allowed to use vacation so there was

no immediate loss in pay. In Europe, the

giant auto-maker Volkswagon, has been

climbing back to profitability after

having put 100,000 of its workers on a

four-day week. The company estimated

that it has avoided laying off as many

as 30,000 employees by using the reduced

A third way to eliminate downsizing could be to reduce the pay for all employees. However, this method is known to cause low morale and sometimes employees reduce their production output to match the reduction in pay. One way to avoid this productivity reduction is to make the pay-cut temporary. A voluntary severance package can sometimes trigger a reduction in the workforce. This means of downsizing may be all that some employees need to

start their own business, go back to school, or find another job. Oftentimes this method will enhance the workforce and get rid of disgruntled employees. One of the easiest and least harmless methods to the employee is early retirement.

Consider what would have happened to a

50 year old, $50,000-a-year employee

with 25 years of service at DuPont when

it offered early retirement in 1992.

Normally, if this employee retired early

he or she would receive only $7,512 a

year. But since DuPont waived the actual

reduction for those who leave early, the

pension jumped to $18,756 a year.

As you can see, this option would be an excellent incentive to the semi-retirement age employee. No one gets hurt, no disruptive feelings or negative responses are felt, in fact, the early retiree is quite happy and will display positive attitudes.

As we look at the reasons for downsizing, it is easy

to justify the needs from an organizational and business point of view. When considering the needs of employees and the affects of downsizing on them, the picture looks very different. While a company has to do what is necessary to stay alive in the competitive world of business, it also has a moral obligation to its employees and the community. Whether or not it chooses to consider the needs of its employees and the community during a downsizing phase will greatly affect the outcome of the process and alter the benefits of the lay-off. While the company’s profits are its main concern, it must be careful of the way it implements the downsizing in order for the outcome to be adaptive and positive. If the profitability is the only criteria for downsizing and the company has disgruntled and non-focused employees, the outcome of the downsizing will apparently be disruptive, causing low morale in the workforce, which breeds lower productivity. If the employees can see the efforts of the company to exhaust all other possibilities before the lay-off and consider the needs and feelings of the employee and the affects on the community, they may be able to look upon the company with trust and security. A developed plan or focus for their future may allow survivors of the downsizing to adapt to the change in a more positive manner. Involvement by the Human Resource department should ease the pain of those affected by the lay-off. Counseling, job placement programs, and benefit options are all concerns for the laid-off employee. It is the responsibility of the HR department to ease the pain and keep the lines of communication open between the employee and management. Management is responsible for the decisions, but the HR department should insure that the management follows all moral and legal obligations to the employee. In order for this new change in American business to be adaptive, complete and thorough plans should be carried out in the process of downsizing in order for the company and employee alike to accept new ideas and focus on the new direction brought about by the change. Survivors of the downsize process must have confidence in the company’s honesty and its ability to secure their jobs. They must outline a strategic plan to keep morale and productivity on an upward trend.

Big payoffs from layoffs. “Business Week,” G.Koretz
p.30 Feb. 24 1997.

Downs, Alan; Corporate Executions. AMACON, 135 West ST.

New York, N.Y. 1995
Downsizing is Bad for Business. “USA Today,”J.Challenger
Vol. 125, p66-68. Jan.1997
Learn From My Mistakes. “Money,” Apr. 1995, p.15
Meyer, C.J.; Executive Blues, Down and Out In Corporate
America. Franklin Square Press, 666 Broadway, New
York, N.Y. 1995
Negbenebor, Willis; Principles of Economics. CT Publishing
Company, Redding Calif. 1996.

North American Free Trade Agreement. Vol.1, US Government
Printing Office, 192-330-817/70635, 1995.

Online News Flash. “Business Week;” Dec. 11,1996
Seeking A Payoff. J Freedman, “Business Week” p. 100
Jan. 8, 1990.

The Casualties of Downsizing, B.B. Auster. “US News And
World Report.” Vol.118,p.31, Jan. 9,1995.

The Ethics of Downsizing. “Navron Associates Newsletter”
Apr.’95.

Who Says Job Anxiety Is Easing? A. Bernstein, “Busniss
Week” p.38, Apr.7,1997.

Cite this Corporate Downsizing

Corporate Downsizing. (2018, Jun 10). Retrieved from https://graduateway.com/corporate-downsizing-2/

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