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An uncertain economic climate and an emerging global marketplace, over the past
decade, have caused organizations to re-evaluate how they Iunction. The report Iirst
explains how downsizing, or reducing layers oI middle managers and the act oI
redundancy in the organisation is deIined, then discusses the diIIerent ways in which
or measures by which the organizations carry out downsizing activities and the
reasons that prompt companies to downsize and their eIIects.
This report also covers the strategic concerns in planning a downsizing operation and
attempts to determine some speciIic reasons why some companies succeed at
downsizing while others do not.
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One change which has occurred regularly in many companies is known as downsizing,
rightsizing or re-engineering. This has occurred alongside the removal oI managerial
levels known as delayering. Organisations have cut staII, some by natural attrition
others by Iorced redundancy but all have done it to improve eIIiciency to compete in
the marketplace (Ader, 1998).
The important reason Ior change in the organisations was the need to improve
productivity oI the employees and Iirm (Parks, 1995). Ader (1998) argued that Ior
organisations wishing to increase productivity, they must make the decision to
transIorm the overall business objectives by assisting workers in achieving them
through process redesign, organisational changes, training and continuous
measurement. Nevertheless, '..iI you plan a 30 productivity increase, and do not
reduce the workIorce by 30...you deIeat your own objective. (Ader, 1998)
Employing organisations oI all sizes, locations and business activities have been
under great pressures to cut back costs generally, and man power costs in particular.
They have had a Iace recession at home and declining domestic orders, a diIIicult
time with export orders because oI downturn in the businesses, in their partners,
Iluctuating currency rates, low rates oI return on industrial investment, high real
interest charges, and changing technology. Under pressure on a number oI Ironts, and
because oI the knock-on eIIect oI reduced consumer, many employers have been
compelled to reduce costs and to reduce manning levels. Downsizing was just one oI
an array oI methods considered and used to reduce manpower, and one that was
usually implemented aIter other methods had been tried and Iailed (Gordon 1984).
Downsizing, re-engineering and re-structuring have been studied in recent
organizational literature on corporate change as a means to improve organizational
eIIiciency through organizational change. The Iollowing brieI discussion and two
questions will attempt to clariIy the relationship oI these terms Ior organizations
attempting to improve organizational eIIiciency and eIIectiveness while reducing
organizational slack:
What is their desired Iuture market Iocus?
N Focus on growing or changing markets; or
N Reduce costs in a stable or declining market.
Which method to improve eIIiciency should be used?
N Reduce staII; or
N Redesign work processes
Strategies forimproving organizational efficiency
Leatt 09 , (1997) adopted the Iollowing Iigure which depicts the relationship
between these three strategies such as downsizing, re-engineering or redesigning with
regard to both market Iocus and employees.
In the Iollowing Iigure, it appears that downsizing is a strategy that attempts to
improve organizational eIIiciency in stable or declining markets, through the
reduction in staII. This will be the Iocus oI this article.
Downsizing Definition of
technique
Advantages Disadvantages
Across the board
cuts
Each department
takes a Iixed
percentage cut in
its staII
Pain Ielt equally
throughout the
organisation
Penalised eIIicient
parts oI the
organization
Early retirement Opportunity Ior
individuals to leave
without Iinancial
penalties, and
Iinancial incentives
paid based on age
and length oI
service
Easy, gentle
implementation,
employees not
Iorced to leave
against their will
Net gains may be
zero.
Outsourcing Contracting with
another
organisation
delivering oI
certain goods or
services
Cost saving early
on
Long-term
problems may arise
iI contractor does
not Iully
understand the
needs oI
organisation
Temporary
employees
Use part-time
employees instead
oI permanent ones.
Cost saving Irom
lower salaries and
beneIits
Usually lower skill
level employees
Delayering Horizontal slice
removed Irom the
organization with
work being
absorbed by higher
and lower
individuals
All operating units
across the
organisation are
eIIected
May overload other
employees who
have had not proper
training.
Source: Leath et. al. (1997)
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For those Iirms that successIully completed downsizing, it would be intriguing to see
whether their organizational context had changed post-downsizing or remained the
same. While downsizing remains a very important topic in organizational change
literature, there exists relatively little empirical research comparing the diIIerent
strategies used by downsizing Iirms.
The issue concerning what type oI training best suits the needs oI surviving
employees is also an issue that would be particularly interesting Ior Iurther research.
For example, a study needs to be conducted which would examine iI surviving
employees accept more the decision to have layoIIs iI more emphasis is placed on
why this is necessary Ior the good oI the organization, or iI instead more stress is
placed on showing the employee that the downsizing will provide him/her with new
opportunities Ior individual growth. As well, valuable insight could be provided by
seeing whether individuals who are more inIluenced by one oI these two approaches
have diIIerent attributes than employees preIerring the other approach. Such
inIormation would also beneIit in determining what additional characteristics belong
to leaders, as opposed to Iollowers, victims and avengers.
Finally, insightIul inIormation could also be provided by Iurther research that would
compare post-downsizing surviving employee job satisIaction, absenteeism, and
turnover Ior Iirms which provide substantial amounts oI training and counselling Ior
their surviving employees as opposed to Iirms which do not provide this type oI
support Ior these employees. II such a study supported the hypothesis that job
satisIaction was higher Ior employees oI Iirms that provided such programs, and also
that absenteeism and turnover was lower Ior these organizations, this type oI
inIormation would be useIul in order to convince the management oI our company
about the merits oI providing training and counselling programs Ior surviving
employees. And the management should evaluate which method oI downsizing is
suitable Ior the success oI the organisation. This is one oI the downsizing challenges
#010703.08
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April/May 1998 Vol.3, No.2:7
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