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Laura Rubach. Corporate cutbacks threaten the security and selfesteem of survivors and victims alike. in 1994 . Industry Analyst. They cause turmoil and shatter morale inside organizations and they confirm the view that profits always come before people.“ Next to the death of a relative or friend. there's nothing more traumatic than losing a job.“ .

designed to improve organizational efficiency. . retirements or spin-offs within a very short span of time. and/or competitiveness.Downsizing • From the management's point of view. downsizing can be defined as a set of organizational activities undertaken by the management. • It refers to the process of reducing the number of employees on the operating payroll by way of terminations. productivity.

Due to these factors. these companies found it unviable to maintain a huge workforce and hence downsized a large number of employees. • Till the late-1980s.In the 1980’s • Downsizing was mostly resorted to by weak companies facing high demand erosion for their products or facing severe competition from other companies. . the number of firms that adopted downsizing was limited.

During the early 1990’s • Organizations resorted to downsizing on account of various reasons: 1. • Companies such as General Electric(GE) and General Motors (GM) downsized to increase productivity and efficiency. 3. To eliminate duplication of work after mergers and acquisitions . To optimize resources and cut costs. To increase productivity and efficiency by eliminating unnecessary Intermediary channels. 2. optimize resources and survive competition and eliminate duplication of work after mergers and acquisitions .

By the mid-1990’s • Factors such as increased investor awareness. • This change was attributed to factors such as worldwide economic recession. increasing national incomes. . fall in inflation. reduced the need for downsizing across the globe. the slump in the IT industry. • Downsizing trend picked up momentum again in the late-1990s. and high profits. dynamic changes in technologies. stronger economies. and increase in the availability of a temporary employee base. this time spreading to developing countries as well. increase in global competition. decrease in level of unemployment.

000 2.500 2. OF EMPLOYEES DOWNSIZED 20.000 7.00 1.000 3.000 6.400 18.250 28.000 9.000 10.000 2.000 4.200 2.400 .000 2.DOWNSIZING BY MAJOR COMPANIES (1998-2001) YEAR 1998 1998 1998 1998 1998 1998 1998 1998 1998 1998 1999 1999 1999 2000 2000 2001 2001 2001 COMPANY Boeing CitiCorp Chase Manhattan Bank Kellogs BF Goodrich Deere & Company AT&T Compaq Intel Seagate Chase Manhattan Bank Boeing Exxon-Mobil Lucent Technologies Charles Schwab Xerox Hewlett Packard AOL Time Warner INDUSTRY Aerospace Banking Banking FMCG Tyres Farm Equipment Telecommunications IT IT IT Banking Aerospace Petroleum IT IT Copiers IT Entertainment NO.000 68.500 3.250 1.

• Many companies began offering flexible work arrangements to their employees in an attempt to avoid the negative impact of downsizing.During the late 1990’s and early 21st century • Rationalization of the labor force and wage reduction took place at an alarming rate. . • Increased strategic alliances and growing popularity of concepts such as lean manufacturing and outsourcing. Such an arrangement was reported to be beneficial for both employees as well as the organization.

DOWNSIZING Need to reduce costs Alternatives to Layoffs Voluntary Quits Voluntary Workforce Reductions Involuntary Separations Early Retirements Layoffs Outplacement Pictorial Representation .

but with the guarantee of job when they return at the end of their leave period . death or resignation. • Leave without pay: Leave without pay is granted to employees with reduced benefits. • Buyout benefits: Buyout is a technique that includes offering lumpsum payment to encourage employees (eligible/not eligible for voluntary retirement or regular retirement) to voluntarily leave the organization.MAJOR TECHNIQUES AND STRATEGIES OF DOWNSIZING • Attrition: Natural reduction of workforce that occurs when employees leave the organization due to retirement. • Voluntary retirement: Encourage employees to retire early with full or reduced pension benefits before the stipulated retirement age. • Involuntary Separation/Layoff : A layoff may be defined as the separation of an employee from service for involuntary reasons other than resignation. not reflecting any discredit on the employee.

Downsizing and other HR Systems Loss of training investment from turnover Training Reputation effects on recruitment Employee Relations Morale of survivors Employment Downsizing Performance Management Severance pay & benefits Reward Systems Performance evaluation as layoff criteria .

Downsizing Effects: Overall    Mixed effects on firm performance: some short-term costs savings. Example: Delta Airlines. . Downsizing forces re-thinking of Employment Strategy. Firm’s reputation as a good employer suffers. but long-term profitability & valuation not strongly affected. Lifelong employment policies not credible after a downsizing. Example: GE abandoned policy of lifetime employment and introduced the concept of contingent employment.000 employees during the early 1990’s. which had laid off over 18.

. lowered work commitment. fear .which is likely to negatively impact quality of customer service. anger. Violation of psychological contract. and increased uncertainty regarding future downsizings. leads to cynicism. “Survivors” experience more stress due to longer work hours with re-designed jobs.Downsizing Effects: Employee Morale    Employee motivation disrupted: increase in political behaviors. fewer random acts of “good will”.

excess workload on the survivors. reduced productivity and fall in quality levels also cropped up. • Productivity suffered considerably during the period when contingent employees were being trained.Downsizing Effects: Workforce Quality • Uneven distribution of employees (too many employees in a certain division and inadequate employees in another). • Due to the loss of experienced workers. companies incurred expenditure on overtime pay and employment of temporary and contract workers. resistance to change from the survivors. .

• Taking advantages of cost synergies after a merger. • Signal that the company is taking proactive steps to adjust to changing business needs. .Reasons for the increase use of downsizing during the late 20th century and the early 21st century • Reducing cost of operations. • Right size resources in relation to demand.

• Free up workers for other industries. • Speed up the corporate decision making process . • Increase productivity. • Raise stock prices. • Lower unemployment percentages.Positive effects of downsizing • Reduce company expenses that comes after layoffs are made.

.Negative effects of downsizing • Low morale of retained employees. anger and bitterness in the downsized employees. envy and guilt. anxiety. • Survivors experienced low morale and high stress and had to cope with an increase in workload. frustration. • Depression. anger. • Loss of employee loyalty and loss of expertise . In addition. • Uncertain job environment created by downsizing negatively effected the quality of the work produced. depression. they felt downsizing syndrome marked with frustration.