Effect of Organizational Downsizing on Employee Moral and Productivity



Effect of Organizational Downsizing on Employee Moral and Productivity

Introduction

Layoffs or downsizing have become a firm's calculated decision to decrease the size of its workforce. The intent of downsizing is to improve performance and efficiency of the organization, which is now considered a part of the business strategy landscape. The goal of downsizing is to enhance the financial viability of the organization, reduce the head count, and streamline the process in an attempt to improve organizational efficiencies. As firms struggle to reduce costs and improve efficiencies, downsizing has become a strategic tool managers utilize to survive and flourish. What was once considered a rare managerial phenomenon has now been incorporated as a “normal” strategic operation. Job losses due to layoffs have remained a pervasive situation in many U.S. organizations, a reality for some, and a possibility for others. The trend of downsizing has shifted from the mid 1960s until the present time. Unskilled blue-collar workers were the primary victims (and survivors) of downsizing in the mid 1960's through the 1970's.

Corporate downsizing has long been used as a strategy for managing change within organizations (Sahdev, 2003). Scholars have defined downsizing as a purposeful reduction of an organization's workforce designed to improve organizational performance (Mishra & Spreitzer, 1998; Nair, 2008). This goal is commonly accomplished through position elimination (Cascio, 2006a). Initially, downsizing was utilized as a method to overcome financial challenges. When employees are eliminated, operating expenses are lowered and profits are enhanced (Nair, 2008). However, today organizations use downsizing to achieve a number of strategic objectives. Global competiveness, enhancement of efficiency and effectiveness, streamlining work practices, improvement of competitive advantage, job redesign strategies, and improvement of quality are all cited as reasons for corporate downsizing activities (Sahdev, 2003; Travaglione & Cross, 2006). Non-economic reasons, such as enhancing communication by reducing hierarchies and creating flatter structures, are also cited as reasons for corporate downsizing (Nair, 2008). Yet, despite these motives, scholars have asserted that the intended outcomes of increased profitability and enhanced productivity often go unmet because of poor survivor morale (Mishra & Spreitzer, 1998).

Problem Statement

Much attention has been given to studies of the employees who lose their jobs as a result of downsizing activities (Davis, 2003; Cascio & Wynn, 2004; Mishra & Spreitzer, 1998). Victims of downsizing often receive separation packages and outplacement services (Gandolfi, 2008). Government intervention in the forms of job training programs and unemployment benefits provide both retraining and financial benefits to support those who have lost their jobs (Bennett, Martin, Bies, & Brockner, 1995). Despite the benefits afforded to the employees who have separated from the organization, there appears to be little attention paid to employees who remain with the organization. Organizations are often not prepared to address the diminished morale and reduced productivity experienced by survivors (Mishra & Spreitzer, 1998; Nair, 2008; Sahdev, 2003; Ugboro, 2006; Cameron, 1994). Surviving employees are those who remain with an organization following a planned downsizing of staff (Mishra & Spreitzer, ...