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Executive Summary

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.


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 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.

Many deIinitions oI "downsizing" suggest a resulting improvement in organizational

eIIiciency and perIormance by reducing labour costs. Proponents oI downsizing point
to resulting "lower overhead, less bureaucracy, Iaster decision-making, smoother
organizational communications, greater entrepreneurship, and better productivity"
(Bruton 09,, 1996). Yet, not all downsizing operations succeed. The Iollowing Table
represents the advantages and disadvantages oI some common techniques utilized in
downsizing (Leatt 09,., 1997).
Advantages and disadvantages of some common technique utilised in downs izing

Downsizing Definition of
Advantages Disadvantages
Across the board
Each department
takes a Iixed
percentage cut in
its staII
Pain Ielt equally
throughout the
Penalised eIIicient
parts oI the
Early retirement Opportunity Ior
individuals to leave
without Iinancial
penalties, and
Iinancial incentives
paid based on age
and length oI
Easy, gentle
employees not
Iorced to leave
against their will
Net gains may be
Outsourcing Contracting with
delivering oI
certain goods or
Cost saving early
problems may arise
iI contractor does
not Iully
understand the
needs oI
Use part-time
employees instead
oI permanent ones.
Cost saving Irom
lower salaries and
Usually lower skill
level employees
Delayering Horizontal slice
removed Irom the
organization with
work being
absorbed by higher
and lower
All operating units
across the
organisation are
May overload other
employees who
have had not proper
Source: Leath et. al. (1997)

Surveys from different Authors

7:943 et al. (1996) cite a 1991 Wyatt company survey oI 1,005 downsized Iirms.
Only 2l percent had satisIactory shareholder ROI increases and 46 percent Iound that
reducing the number oI employees did not prove to reduce expenses as much as
anticipated. Other analysts also conclude that downsizing is unsuccessIul in achieving
goals sought by organizations (Leatt et al., 1997). Hitt et al. (1994) estimate that
Iewer than halI oI the companies reviewed achieved a reduction in overall
expenditures, and less than one quarter successIully improved productivity. Another
study conducted by Worrell et al. (1991) concluded that downsizing can have a
negative impact on organizational perIormance in both the short and long term.
Bruton et al. (1996) also show that the stock value oI most downsized Iirms tends to
show declines two years aIter they made reductions in staII. Chitwood (1997) cites a
recent study conducted by the Academy oI Management oI Fortune 100 companies
that engaged in downsizing activities between 1983-1995, results indicated that only
18 percent oI companies grew in volume, while 25 percent decreased in proIit, and 44
percent either merged, were acquired or declared bankruptcy. HupIeld (1997)
reinIorces this by stating that in relation to downsizing, "the results are never as good
as planned
Colby (1996) believes that most organizations suIIer Irom excess staIIing and this
renders them uncompetitive. Cutting back on staII will thus reduce costs. With
everything else remaining the same, organizational eIIiciency should improve, and a
case can be made Ior downsizing. So why does downsizing succeed in some
companies and not in others? From the latest research, it seems that "why" a company
decides to undergo change as well as the state oI the company's organizational context
may have an important eIIect on the success oI a downsizing operation.
Downsizing creates important eIIects inside and outside an organizational
environment. In Iact, downsizing results in breaking the organization into several or
many groups. A group oI employees` leaves, sometimes, a group may receive
advance layoII notiIication and a group stays. ConIusion is high because employees
who lose their jobs may not really understand why, since it was not their Iault. The
decision is oIten not related to their perIormance, while the ones who stay have done
nothing more to keep their positions (Appelbaum 09,
Short-term solutions to long-term problems
One oI the rationales as to why downsizing operations can Iail is the use oI
downsizing to achieve short-term goals in the Iace oI long-term organizational
problems. Heller (1996) Iurther notes that being too quick to downsize may increase
proIits in the short term but result in disaIIected workers and middle managers. This
leaves organizations unable to IulIill long-term goals such as the improvement oI
goods and services and added value by innovation and initiative. HupIeld (1997)
agrees that downsizing usually happens too quickly and Iurther comments that while
downsizing may immediately beneIit the bottom line, the costs will eventually creep
back into the organization.
Hodgetts (1996) also believes organizational context has a major impact on
downsizing because not only is the culture altered dramatically, but also the values oI
the leaders change and the trust oI the personnel begins to Iade. Each oI these three
Iactors will be examined in terms oI successIul downsizing implementation by varied

Downsizing is oIten unsuccessIul in achieving the goals sought by organizations.
Recent empirical evidence has shown that downsizing as a means to improve
organizational eIIiciency and solve long-term problems, does not always prove to be
adequate (Leatt 09,1997; Bruton 09,., 1996; Worrell 09,., 1991; Chitwood, 1997;
HupIeld, 1997).
There were some tactics examined as to why some corporations appear to succeed at
downsizing while others do not. Predominantly companies oIten Iail to assess their
Iirm's readiness Ior change. In many instances change is not even necessary
(Chitwood, 1997; Colby, 1996). Companies that Iail at downsizing also oIten Iail to
explore all the possible alternatives to downsizing (Leatt 09,., 1997; HupIeld, 1997).
Another reason why some corporations do not successIully downsize is the desire to
achieve short-term goals while the business Iaces long-term problems.
Suggestion for the company
Our company need to reIocus the core areas oI competency. Once this is completed,
the management can then consider downsizing, iI the management believe they are
able to Iunction at the same level oI eIIiciency but with Iewer employees. Research
has shown that Iirms that synthesized their downsize strategies with their particular
situation did tend to have successIul results (Bruton 09,., 1996).
II our company undergoes downsizing, the management must also pay special
attention to whether they are providing adequate training and counselling programs
Ior the surviving employees. Clark and Koonce (1997) suggest that a Iormerly
popular notion was that the employees who survived a layoII did not require any
special attention. Instead only the employees who lost their jobs required assistance.
These researchers also imply that this notion existed Ior two reasons. First, it was
assumed that iI workers were able to keep their job they would be highly satisIied and
thus would raise their productivity levels. Second, it was thought that aIter a
downsizing, employees would be so traumatized oI losing their jobs when the next
round oI layoIIs occurred, that they would work harder and raise their productivity
levels (Clark and Koonce, 1997). These are not mutually exclusive.
Our company iI downsizes, then should interview workers who had survived
downsizing and Iind that these workers were angry, conIused, and insecure in the
aItermath oI the downsizing. The company should know whether the workers or
middle managers aIter the downsizing they are conIused or not. Case studies oI
Compaq Computer, the state oI Oregon, and Patagonia supported the need Ior the
concerns oI the surviving employees to be listened to. Also, in the case oI these
downsizings, the surviving employees were successIully shown that they should not
Ieel victimized by the downsizing process, but instead should see this process as an
opportunity Ior personal growth. This led to a successIul change eIIort Ior all parties
involved (Clark and Koonce, 1997). These motivating and employee job security
program must be essential Ior increase in the productivity oI our company.
We must remember that, next to the death oI a relative or a Iriend, there is nothing
more traumatic than losing a job, as it disrupts careers and Iamilies. Most
organizations have neglected the downside oI downsizing because they assume that
the survivors will simply be pleased and happy about keeping their jobs.
The unspoken assumption is that those remaining (who were lucky enough) will
produce more than the entire group did beIorehand. This usually does not happen.
Rather than being thankIul to keep their jobs, employees are demoralized and less
loyal, more angry, cynical and distrustIul. Perhaps massive layoIIs could be justiIied
iI they enhanced organizational Iunctioning. Yet layoIIs do not necessarily solve the
problems Ior which they are the proposed solutions. A study oI 479:30 500
organizations engaged in layoIIs showed that the more severe the layoII, the worse the
organization`s long-term proIit margin and return on equity. II the giants are
negatively aIIected, can smaller organizations with Iewer resources escape similar
negative eIIects (Barling, 1995).
By being Iair in layoII procedures, by careIully Iollowing a strategic plan and using
leadership, downsizing may be possible without permanent disability iI senior
management takes a moment to weigh the human resource Iactors versus the Iinancial
bottom line.

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


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