The Downsizing Affect on the Organization



Abstract

Downsizing is a deliberate reduction in the size of the organization There are two main reasons a firm decides to downsize firstly as a part of a proactive strategy that is focusing on improving operations, enhancing strategic objectives, and improving performance across the entire organizational system and as a part of a reactive strategy that concentrates on improving financial performance with labor costs having progressively become the primary cost component that management perceives it must control. This paper will address downsizing affects on the organization at the individual, group and organization level. It will discuss concept of downsizing and its reasons. Further, it will address the impact of downsizing on employees. Positive and negative effects of downsizing will also be discussed. Later in the paper, impact on organization and actions that should be taken by the organization during downsizing will be addressed.

Table of Contents

Introduction1

Discussion2

Reasons for Downsizing5

Impact on Employees6

Impact on Leavers8

Impact on Survivors9

Positive Effects of Downsizing9

Negative Effects of Downsizing10

Macro Effects10

Micro Effects10

Impact on Organizational12

Effectiveness13

Survival15

Actions to Take During the Downsizing Process15

Conclusion16

References18

Downsizing Affect on the Organization

Introduction

Building a company in today's competitive economies requires making strategic goals that keep the “customer in mind.” It is a way of doing business that requires:

Long-term investment and planning

Continuous improvements

Employee involvement and empowerment

If these are followed, the company can gain a competitive advantage which will help it be successful. However, due to current economic and competitive pressures, businesses often focus on the short term financial goals and gains rather than the long term viable strategic direction and vision, causing them to face the difficult task of having to downsize. In the US, downsizing became common during the late 1970's and early 1980's recession. Costs needed to be controlled, and the easiest cost object for management to adjust were employees; especially the employees that previously had been acceptable to keep on staff even during the slow period of the cyclical nature of the economy. It was during this time that employers realized they could get by with less, and downsizing became a permanent philosophy (Appelbaum et al., 1987).

However, downsizing, or as it was known in the late 1980's: resizing, rightsizing, restructuring, or reengineering, is not an area where there has been a lot of empirical studies done initially. Only within the past decade, with the majority of large companies having been affected by downsizing at some time or other, are we finding that more and more studies are being conducted. It is therefore only fairly recently that managers no longer are required to approach downsizing without having a theoretical background or validated models or guidelines (Cameronn, 1994). As such it is no wonder that for the past 30 years or so, after the downsizing process was complete, the number of executives who said that they have achieved the desired results are few and far between (Robertson, 1987).

This paper will address downsizing affects on the organization at the individual, group and organization level. It will discuss concept of downsizing and ...