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Employee Downsizing

Employee Downsizing

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Published by Vijay Kumar Sodadas
Down sizing in indian Firms
Down sizing in indian Firms

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Published by: Vijay Kumar Sodadas on Jun 23, 2009
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03/28/2013

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Employee Downsizing 
S.Vijay KumarAsst.Professor HR& OBGITAM Institute of Management ,GITAM University
"Next to the death of a relative or friend, there's nothing more traumatic than losing a job.Corporate cutbacks threaten the security and self-esteem of survivors and victims alike. Theycause turmoil and shatter morale inside organizations and they confirm the view that profitsalways come before people."
- Laura Rubach, Industry Analyst, in 1994.
"The market is going to determine where we stop with the layoffs."
- Tom Ryan, a Boeing spokesman, in August 2002.Downsizing Blues All Over the World
The job markets across the world looked very gloomy in the early 21
st
century, withmany companies having downsized a considerable part of their employee base andmany more revealing plans to do so in the near future. Companies on the Forbes 500and Forbes International 800 lists had laid off over 460,000 employees' altogether,during early 2001 itself.This trend created havoc in the lives of millions of employees across the world,Many people lost their jobs at a very short or no advance notice, and many otherslived in a state of uncertainty regarding their jobs. Companies claimed thatworldwide economic slowdown during the late-1990s had had forced them todownsize, cut costs, optimize resources and survive the slump. Though the conceptof downsizing had existed for a long time, its use had increased only recently, sincethe late-1990s. (Refer Table I for information on downsizing by major companies).Analysts commented that downsizing did more damage than good to the companiesas it resulted in low morale of retained employees, loss of employee loyalty and lossof expertise as key personnel/experts left to find more secure jobs. Moreover, theuncertain job environment created by downsizing negatively effected the quality ofthe work produced. Analysts also felt that most companies adopted downsizing justas a 'me-too' strategy even when it was not required. However, despite theseconcerns, the number of companies that chose to downsize their employee baseincreased in the early 21
st
century. Downsizing strategy was adopted by almost all
 
major industries such as banking, automobiles, chemical, information technology,fabrics, FMCG, air transportation and petroleum.In mid-2002, some of the major companies that announced downsizing plansinvolving a large number of employees included Jaguar (UK), Boeing (US), CharlesSchwab (US), Alactel (France), Dresdner (Germany), Lucent Technologies (US),Ciena Corp. (US) and Goldman Sachs Group (US). Even in companies'developingcountries such as India, Indonesia, Thailand, Malaysia and South Koreawere going in for downsizing.
TABLE IDOWNSIZING BY MAJOR COMPANIES (1998-2001)YEARCOMPANYINDUSTRYNO. OFEMPLOYEESDOWNSIZED
1998BoeingAerospace20,0001998CitiCorpBanking7,5001998Chase ManhattanBankBanking2,2501998KellogsFMCG1,001998BF GoodrichTyres1,2001998Deere & CompanyFarm Equipment2,4001998AT&TTelecommunications18,0001998Compaq IT6,5001998Intel IT3,0001998SeagateIT10,0001999Chase ManhattanBankBanking2,2501999BoeingAerospace28,0001999Exxon-MobilPetroleum9,0002000Lucent Technologies IT68,0002000Charles SchwabIT2,0002001XeroxCopiers4,0002001Hewlett PackardIT3,000
 
2001AOL Time WarnerEntertainment2,400Source: ICMRDownsizing as a management tool was first introduced in the US during the mid-20th century. It refers to the process of reducing the number of employees on theoperating payroll by way of terminations, retirements or spin-offs. The processessentially involves the dismissal of a large portion of a company's workforce withina very short span of time. From the management's point of view, downsizing can bedefined as 'a set of organizational activities undertaken by the management,designed to improve organizational efficiency, productivity, and/orcompetitiveness.'This definition places downsizing in the category of management tools such asreengineering and rightsizing. Downsizing is not the same as traditional layoffs. Intraditional layoffs, employees are asked to leave temporarily and return when themarket situation improves. But in downsizing, employees are asked to leavepermanently.Both strategies share one common feature: employees are dismissed not forincompetence but because management decided to reduce the overall work force. Inlate 1990s and early 2000s, different organizations adopted different kinds ofdownsizing techniques and strategies (Refer Table II).
TABLE IIMAJOR TECHNIQUES AND STRATEGIES OF DOWNSIZING- Attrition:
Natural reduction of workforce that occurs when employees leave theorganization due to retirement, death or resignation. It is a normal HumanResources (HR) practice of a downsizing company to freeze hiring totally/partially.
- Voluntary retirement and buyout benefits:
Voluntary retirement benefitsencourage employees to retire early with full or reduced pension benefits before thestipulated retirement age. Buyout is a similar technique that includes offeringlumpsum payment to encourage employees (eligible/not eligible for voluntaryretirement or regular retirement) to voluntarily leave the organization. Both of theseare considered to be very effective downsizing techniques and are used across the

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