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Project on



Submitted to :-

Submitted by :-

Mrs.Shanu Khatri

Jyotsna Aggarwal

Date :- 2 Feb.,2012

BBA. LLB. 2nd yr

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I would like to express my sincere gratitude to Mrs. Shanu Khatri for
providing this opportunity to work on this topic. She has always been
Supportive and encouraging.
I have really enjoyed to working on this project.

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Page No.

Study of downsizing

Why Do Organizations Downsize?

The Economic Perspective
The Arational Perspective
The Ideological Perspective
The Institutional Perspective
The Strategic Perspective

Consequences of Downsizing
The Structural Consequences of Downsizing
Macroeconomic consequences of Downsizing

Strategies for responsible restructuring

Executive Overview
The Economic Logic That Drives Downsizing
What Does Research on the Economic Consequences of Employment Downsizing Tell Us?

Issues In Initiating And Implementing Downsizing

Pre-downsizing Stage
Pre-implementation Stage
Implementation Stage
Post-implementation Stage

Solution of Downsizing
Boeing Company
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Successful Downsizing: The Case of the Boeing Reemployment Program

Why Boeing Company Downsize?

The evidence noted by Pritchard and MacPherson

Doing Well Before

An effective Cure
Advantages & Disadvantages of Downsizing

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Companies should take care that downsizing helps in shedding fat and not the
organizational muscle. Further, downsizing should not be mistaken to be strategy; it is a
tactic, it is like giving oxygen to accompany in an intensive care unit. The new size gives a
second chance to companies to survive and an opportunity to start afresh. However done
improperly it can be a death sentence for the company. Research data on the impact of
downsizing on company revival is not encouraging. This is because the manner in which
downsizing typically happens, does not enable growth. A ten year study of companies in US
and Canada showed that companies that downsized were relatively worse off than
companies that did not. This was partly because companies do not seem to have got it right
on how to down size when in trouble so that they can GROW in future. Indian companies
can benefit by rethinking the process of planning and implementing downsizing in a systemic
manner. Based on our global and Indian experience in providing consulting support to
companies that are downsizing, we have identified eight steps that greatly impact the value
realization from downsizing.
Downsizing is currently one of the most popular strategies being used by organizations in an
effort to survive and compete in the current business scenario. It has been considered from
economic, institutional, strategic, ideological, and a rational perspectives, suggestions for
successful downsizing strategies have repeatedly reinforced the importance of adopting a
planned, long-term, and people-oriented approach to implementation. The bulk of empirical
research, however, appears to have focused on the consequences of downsizing both at the
individual and organizational level. Given that downsizing today has achieved the status of
an institutionalized norm, the relevant question is not so much whether or why organizations
should downsize, but rather, how best to implement the process in a way which will enable
organizations to accrue benefits and effectively manage the negative consequences of such
an exercise.
A review of literature reveals that a planned approach to the implementation process would
lead to sustained and long-term benefits to the organization. Drawing from change
management theories as well as related theories in organizational learning, theory of
business, and business model innovations, this paper has attempted to identify issues that
need to be addressed at each stage of downsizing in order to ensure effective
implementation. At one level, this would imply a need to question the very rationale for
downsizing in terms of whether it really is the best alternative under the existing situation. At
another level, assuming that downsizing has been accepted to be the most viable option,
and given that any successful planned change would need to be handled as a multi-stage
activity, this would include :
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reframing of the existing mental models and assumptions about the business
extensive communication with employees at each stage
managing the needs and expectations of survivors, victims, and implementers
planning for employability initiatives for employees
helping employees to renegotiate their existing psychological contract with the
This would necessitate bringing about a change in the mindsets and attitudes of the people
involved in the exercise. Moreover, a downsizing exercise would also need to be
implemented as a part of an overall corporate renewal package rather than as an isolated
strategy on its own. Suggestions for future research in this area, especially in the Indian
context, have been identified with a view to adding to the existing body of knowledge and
also facilitating greater understanding on the part of practitioners in handling a downsizing

In tandem with the rise in its popularity, a substantial body of literature has also developed
exploring various aspects of downsizing. While some studies have attempted to understand
the theoretical imperatives which motivate organizations to downsize, others have studied
the possible consequences that downsizing might have on the individual employee as well
as on the organization as a whole. A few studies have also tried to examine the various ways
in which downsizing can best be implemented in order to yield the maximum benefits to the
organization. Broadly, therefore, the study of downsizing till date appears to have
encompassed three major issues:
Why do organizations downsize?
What are the consequences of downsizing on the individual and the organization as
a whole?
What are the strategies that can be adopted for successful downsizing?

Reasons for Organizations Downsize

Researchers have approached this question from a variety of perspectives ranging from
economic imperatives and market constraints, approaches based on organizational theories,
and ideological motivations to social compulsions. Kets de Vries and Balazs (1997) feel that
downsizing is often a price paid by organizations for previous mismanagement and strategic
errors in reading the market by the top management. According to Nelson and Burke (1998),
globalization of the marketplace, technological advances, and growing importance of the
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service sector coupled with global benchmarking with competitors in terms of overhead costs
are some of the market forces that have motivated organizations to resort to downsizing.
Some organizational benefits expected from downsizing may include increase in productivity,
improved quality, enhanced competitive advantage, potential regeneration of success
(Nelson and Burke, 1998), lower overheads, less bureaucracy, more effective decisionmaking, improved communication, and greater innovativeness. Broadly, the various
perspectives and approaches to understanding why organizations downsize may be
classified as follows:

The Economic Perspective

The economic perspective rests on the assumption that managers actions are inherently
rational and that downsizing is undertaken with a view to increasing an organizations future
productivity and economic performance. But, even though downsizing helps to reduce costs,
it may be offset by increases in other expenses arising from negative consequences of
downsizing. Moreover, researchers are yet to prove conclusively that downsizing results in
improved financial performance of a firm (Krishnan and Park, 1998). While, in the early
eighties, companies began downsizing with a view to cutting costs and improving the bottom
line, today, even companies posting record profits are resorting to downsizing to become
lean and mean. Therefore, while economic imperatives might have been the overriding
motivation for companies to downsize in the initial stages, today, other non-economic factors
may also be providing the impetus to downsize.

The Arational Perspective

Budros (1999) has attempted to address the issue of why economically viable and financially
sound organizations also go in for downsizing. In characterizing downsizing as an
organizational innovation, his framework proposes a marriage between (1) the social context
which can be either organizational or extra organizational, and (2) the basis of organizational
action which may be both rational and a rational. In his framework, Budros has identified four
quadrants representing four conditions/ factors which cause organizations to downsize and
also determine their rate of downsizing. Some of these factors are organizational size,
employee compensation levels, extent of deregulation of the industry and extent of economic
troughs and peaks, employee-centeredness of the firm, financial vs. non-financial
background of the CEOs, linkage with the organizations that have downsized earlier, and
percentage of downsized organizations considered as the frontrunners in the industry.
Budros approach is unique in that his framework breaks away from the restrictive
assumptions of rationality and incorporates a wider spectrum of perspectives for viewing
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downsizing. However, his propositions might have been better strengthened by more
empirical bases rather then relying substantially on data from the popular press.

The Ideological Perspective

Adding ideological variables to the list of possible determinants of downsizing, McKinley,
Mone and Barker (1998) have identified two ideologies, viz., the ideology of self-reliance of
the employee and the ideology of debureaucratization which provide a cognitive framework
in which the concept of downsizing gains legitimacy. The ideology of self-reliance of the
employee stresses that, ultimately, it is the employee himself who should be responsible for
his own career welfare and job security instead of relying on the organization to take care of
his career. The ideology of debureaucratization recommends the reduction or elimination of
hierarchies. In reducing hierarchies, middle managers are most often displaced from their
jobs leading to workforce reduction. Hence, organizations whose top management espouses
these ideologies are more likely to downsize.

The Institutional Perspective

The institutional perspective emphasizes that the search for legitimacy and uncertainty
reduction are more potent motivators for downsizing than economic efficiency and profits
(McKinley, Zhao and Rust, 2000). This perspective states that downsizing has taken on the
status of an institutionalized norm and hence imparts legitimacy to those adopting this
strategy. In fact, McKinley,Sanchez and Schick (1995) have drawn on this institutional
perspective to identify three social forces, viz.,constraining, cloning, and learning which
motivate downsizing in organizations. Since the current thinking among organizations is to
get leaner and smaller, managers are constrained to do what is considered right, in this
case, getting smaller by reducing the workforce. Cloning forces result from imitating
competitors and following their actions irrespective of whether their strategies have proved
beneficial or not. Since downsizing has become the order of the day, imitating competitors in
this respect imparts some legitimacy to the manager. Finally, learning forces occur through
educational institutions and professional associations where the effectiveness of the
downsizing approach is further reinforced. The concepts of constraining, cloning, and
learning forces are equivalent to the institutional theoretic concepts of coercive isomorphism,
mimetic isomorphism, and normative isomorphism respectively, which explain how
organizations strive for legitimacy.

The Strategic Perspective

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Dewitt (1998) has attempted to broaden the definition of downsizing to include not only
reductions in manpower but also reductions in non-human resources of the organizations.
Hence, the choice of downsizing approach in terms of reduction strategies, viz.,
retrenchment, downscaling, and down scoping is likely to be based on firm, industry, and
strategy influences. Distinguishing between broad and focused firm strategies, it was found
that while firm-level influences (recent capacity expansions, recent product introductions,
and recent investments) were the only significant predictors of broad firm choice of
downsizing approach, industry-level influences (competitors recent capacity expansions,
product introductions, and investments) were the main predictors of focused firm choices.
The strength of this approach lies in highlighting a relatively unexplored aspect of viewing
downsizing as a strategic choice made by the organization in response to firm level and
industry level influences, different from the ideological and theoretical perspectives taken by
other researchers.
Overall, the strength of the above discussed approaches lies in the fact that they provide
alternative windows to view downsizing and partially answer the question of why
organizations, despite inconclusive proof of the economic efficacy of downsizing, continue to
resort to such practices.
In summary, what appears to emerge from the above is that while the various perspectives
examined by researchers suggest that economic imperatives, institutional compulsions,
ideological beliefs or a rational perspectives might be some of the diverse causes for
downsizing, it is not necessary that these causes are mutually exclusive. In fact, a typical
downsizing decision 34may be dictated by a mixture of more than one of the above
compulsions depending on the context in which the decision is being taken.

The majority of research on downsizing has been conducted to examine and understand the
consequences of downsizing on the individual employee as well as on the organization as a
whole. Effects on the individual employee have been studied predominantly from a
psychological and behavioral viewpoint with a focus on the survivors (employees who
remain in the organization after downsizing), victims (employees who are actually asked to
leave), and executioners or implementers (managers who are involved in directly
implementing the downsizing including asking people to leave).

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The Structural Consequences of Downsizing

This paper examines the impact of downsizing strategy on dimensions and types of
organizational structure. Four downsizing strategies are developed to address organization
and environment decline. Understanding where and how these strategies modify an
organization's activities helps clarity how downsizing impacts organization structure.
Propositions are offered that show how downsizing can result in both mechanistic and
organic shifts in organization structure.
Mechanistic shifts are caused by downsizing strategies that increase the domain of an
organization and the structural processes used to support that domain. Organic shifts are
caused by downsizing strategies that decrease the domain of an organization and the
structural processes used to support that domain. The rationale provided for these shifts
offers a strategic explanation for decreases in administrative intensity that lag decreases in
organization size. Propositions about the impact of downsizing on organizational structure
are offered as a stimulus to further thought and research.

Macroeconomic consequences of Downsizing

The recession in the 1980s followed by the worldwide decrease in transportation and
communication costs has triggered a process of downsizing. The macroeconomic
consequences of this process are only weakly understood. The model developed in this
paper associates downsizing with trade between countries with similar tastes, which
predominantly exchange very similar, substitutable products. Our two-region model is
characterized by the endogenous determination of product variety, firm size, R&D intensity,
economic growth, relative productivity, relative wages and welfare. Downsizing enlarges
profits, causing an increase in product varieties and a reduction in firm size. Smaller firms
allocate less labour to research activities, so that growth is depressed and relative
productivity of the region engaging in downsizing declines. The welfare effects of downsizing
are shown to be ambiguous and crucially dependent on consumer's taste for variety and
their intertemporal elasticity of substitution.

Strategies for responsible restructuring

Executive Overview
As organizations struggle to enhance their competitive positions, employment
downsizing continues as a preferred part of a restructuring strategy. Its objective is to
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reduce operating costs as a way of increasing earnings and stock prices. A study of
S&P 500 firms from 19822000, however, casts serious doubt on the long-term
payoff of this approach. The purpose of this article is to suggest several alternative
approaches to restructuring. In contrast to employment downsizing, a strategy that
regards people as costs to be cut, a responsible restructuring strategy focuses on
people as assets to be
developed. This focus recognizes that people are the source of innovation and
renewal, especially in knowledge-based organizations, and that the development of
new markets, customers, and revenue streams depends on the wise use of a firms
human assets. The article presents company examples and research-based findings
that illustrate mistakes to avoid and affirmative steps to take when restructuring

The Economic Logic That Drives Downsizing

What makes downsizing such a compelling strategy to firms worldwide? The economic
rationale is straightforward. It begins with the premise that there really are only two ways to
make money in business: either you cut costs or you increase revenues. Which are more
predictable, future costs or future revenues? Anyone who makes monthly mortgage
payments knows that future costs are far more predictable than future revenues. Payroll
expenses represent fixed costs, so by cutting payroll, other things remaining equal, one
should reduce overall expenses. Reduced expenses translate into increased earnings, and
earnings drive stock prices. Higher stock prices make investors and analysts happy. The key
phrase is other things remaining equal. As we shall see, other things often do not remain
equal, and therefore the anticipated benefits of employment downsizing do not always

What Does Research on the Economic

Consequences of Employment Downsizing Tell Us?
In a series of studies that included data from 19821994, 19952000, and 1982-2000, my
colleagues and examined financial and employment data from companies in the Standard &
Poors 500. The S&P 500 is one of the most widely used benchmarks of the performance of
U.S. equities. It represents leading companies in leading industries and consists of 500
stocks chosen for their market size, liquidity, and industry-group representation. Our purpose
was to examine the relationships between changes in employment and financial
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performance .We assigned companies to one of seven mutually exclusive categories based
upon their level of change in employment and their level of change in plant and equipment
(assets). We then observed the firms financial performance (profitability and total return on
common stock) from one year before to two years after the employment change events. We
examined results for firms in each category on an independent as well as on an industryadjusted basis.7 In our most recent study, we observed a total of 6,418 occurrences of
changes in employment for S&P 500 companies over the 18-year period from 1982 through
2000. As in our earlier studies, we found no significant, consistent evidence that employment
downsizing led to improved financial performance, as measured by return on assets or
industry-adjusted return on assets. Downsizing strategies, either employment downsizing or
asset downsizing, did not yield long-term payoffs that were significantly larger than those
generated by Stable Employersthose companies in which the complement of employees
did not fluctuate by more than 5 percent.


A common theme that appears to emerge is the necessity for organizations to realign their
mental models and assumptions regarding their business models and put in place strategies
which would fit in the demands of the existing context so as to facilitate organizational
transformation for long-term sustainability. Keeping in mind the above principles and given
the fact that planned change, in order to be successful, needs to be handled as a multi-stage
activity, some important issues need to be kept in mind while initiating and implementing a
downsizing strategy. Drawing from the theories and concepts discussed above, some
suggestions in this context are enumerated below:

Pre-downsizing Stage
Questioning the organizations existing theory of business in the context of current
realities, both within and outside the organization.
Creating a culture of enquiry and open communication in the organization to facilitate
innovation and awareness regarding the changed realities.
Collectively arriving at an appropriate set of strategies that will take the organization

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Pre-implementation Stage
If downsizing is chosen as a strategy for change, then the necessary steps would include:
Adopting a planned approach to the process of implementation. This would involve
:-understanding the implications of downsizing in terms of changes in organizational
structures, policies, roles, and relationships
identifying the changes in individual and organizational assumptions, mindsets,
and attitudes which would be needed in the changed scenario
ascertaining the new competencies which would be required in the changed
Choosing appropriate implementers or change agents and training them to handle the
process effectively.
Sharing the rationale for downsizing through continuous communication with employees
in various forums.
Maintaining a continuous dialogue to incorporate innovative suggestions and understand
individual issues and assumptions.
Communicating detailed procedures to the concerned stakeholders in a transparent and
timely manner.

Implementation Stage
Introducing new processes and structures that would facilitate stabilization of the
Helping individual employees to question old assumptions, develop new competencies,
and manage changed roles and relationships through communication, mentoring, and
training initiatives.
Being sensitive to the needs of survivors, victims, and implementers. This would include:
managing the negative emotions associated with the process,
helping employees to deal with the trauma through one-on-one counseling and
extensive communication,
being open to feedback and dialogue.
Ensuring procedural justice in implementation (e.g., using objective, performance-based
criteria for manpower reduction rather than across-the-board reductions based on age
and tenure; matching claims to actions, etc.).
Providing organizational support to victims through training for new skills, identification of
new career opportunities, etc.

Post-implementation Stage
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Renegotiating psychological contract with the survivors.

Providing support and opportunity to employees for trying out new competencies,
Facilitating a change in the mindset of employees such that they assume greater
responsibility in planning for their career and employability rather than depending on the
organization for ensuring their welfare,
Monitoring and managing the consequences of downsizing at the individual and
organizational level,
Developing a culture of continuous monitoring and questioning of the theory of business
whereby change becomes a systemic, on-going process rather than a one-off
Initiating a collective learning culture wherein
mistakes are seen as learning opportunities, and
the experiences and insights gained are used to manage current and future

Indian companies can benefit by rethinking the process of planning and
implementing downsizing in a systemic manner. Based on our global and
Indian experience in providing consulting support to companies that are
downsizing, we have identified eight steps that greatly impact the value
realization from downsizing.

Step 1: Envision your organization at the end of the downturn: Lets

say that the economy will rebound in two years time. At the end of the 6-12-18- 24 month
period what would be your organization like in terms of size, customers, capabilities and
culture. Its important to envision each of the six months as a prolonged down turn would
mean that the organization may have to progressively downsize(unless it comes up with an
out of box idea that breaks the mould). Identify the people whom you need at each stage
considering the size, customers, capabilities and culture. The people whom you definitely
need at the end of the 24 months are your core team.

Step 2: Get your Core Team Onboard: Companies make the mistake of not
securing the core team before going ahead with downsizing. Hence in many companies the
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employee who is supposed to be part of the core team does not know that he/she is critical
to the scheme of things and starts looking out for a job. Capable people find jobs even in a
down turn. When they leave, the organization loses the muscle the vital organizational
memory, core capabilities and importantly technical and inspirational leadership. Speak to
your core team. Share the business case for downsizing and your vision and plan for
bouncing back; enroll them to drive the downsizing process in a humane manner. Make
them part of your planning and implementation team for revival and growth.

Step 3: Define Criteria for Downsizing: Across the board formulae based
downsizing is a recipe for disaster. Processes/ departments vary with respect to their
criticality to the business. Generally companies use nature of employment, experience, value
add to business, performance as criteria for deciding on who has to go. Generally the
reporting managers get it wrong in choosing who to retain and who to let go. Its generally
the classic case of separating the wheat from the chaff and letting go the wheat. To prevent
such wheat chaffing, we recommend a panel consisting of two eminent external members,
two assessment experts and two internal senior managers to decide on the downsizing
numbers. They should use multiple criteria including feedback of internal and external

Step 4: Clearly Communicate: Its important to be honest in times of a downturn. It

is critical to share that we are in difficult times, reducing people is one of the options, and the
entire process would be handled with respect and dignity. The support that would be
provided to people has to be emphasized. Leaders need to be sensitive and develop a clear
transition support plan.

Step 5: Design a separation scheme with career transition support:

Be generous based on the contribution of the individual. It will take at least 3-5 months for a
person to find a reasonable job. Also provide the person with transition support. This
involves workshop based coaching or one to one coaching on the changes brought upon
individuals due to downsizing. Through this process the person is helped to identify their
strengths and career direction and get skilled in self marketing. Attitudes and behaviors that
might be hindering personal effectiveness are also identified and addressed though such
processes. Onsite counselors/ telephonic support are variants. Do not sign up with a
placement company and think that you are meaning good to your employees. Placement
companies have a clear incentive in placing people. They tend to be aggressive in

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persuading a person to take up the first job offer irrespective of whether it is the wrong job or
the wrong company.

Step 6: Prepare for the D Day:

It is erroneous to assume that all Line Managers

can handle separation communication to downsized employees. Some of them may be

feeling guilty of asking people to go. Many of them may not anticipate the fallouts and hence
may not be prepared to handle employee reactions on being told to go. Train Line and HR
Managers. Wherever the Line Manager and HR need support, have the Head of the
department also in such a meeting. Give scripts to the Line Managers on the business case
and the rationale behind the decision. Such separation meetings should not be for more than
10 minutes. No employee will be happy with such a decision. The more the meeting
prolongs, the greater will be the dissatisfaction. Get a coach or a counselor to anchor with
the employee immediately. When you provide job search support, employees feel better
about handling such a situation.

Step 7: Communicate with Staying Employees: Be honest and business

like in your communication with staying employees. Share with them the business case for
downsizing and the support that is being provided to downsized employees. Let them mourn.
Do not discourage employees from connecting with
the down sized employees. Periodically inform the employees on how the coaching/
counseling support is helping the downsized employees.

Step 8: Rebuilding the Organization: Down turn brings all companies in an

Industry into a level playing field. If you are not the number 1-2 in your business, this is a
great opportunity to innovate and change the rules of the game. The best way to do this is to
ask challenge our assumptions about
a) What is our business (for example a company may classify itself as a auto component
company, the moment it defines itself as a engineering company, the possibilities of what it
can do expand)
b) Who are our customers (A toy maker may think that children are its customers, what if it
looks at people above 60 years as its customers, what if it starts exploring how toys can
address the loneliness of elderly people. How about toys that test your spiritual knowledge
and make it all so much fun)
c) What are our differentiators (Sit next to customers and observe their needs, how they
use our products/ services, understand what they do when they do not find our product/
service up to the mark or useful. Instead of using a market research agency, engage your
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employees to listen deeply to your internal and external customers, suppliers, customers
who use competitor products and services etc.)

Step 9: Engage and align your Staying Employees: Provide leadership

roles to the core team and get them to engage the entire employee force. A compelling
vision and clear direction for future and sharp individual and team goals are critical for
getting the best out of the employees. This is the best time to shape a new culture and align
the same to the new vision.

Step 10: Finally, create your company Alumni : Just imagine that two years
down the line you rebound. If you have maintained excellent relations with your downsized
employees, they will all join back with rich experiences of other organizations. Its like
sending some one for a sabbatical for two years. Some of them will become your loyal

Boeing Company
Boeing is a huge multinational corporation that designs and builds military and commercial
aircraft. In 2001, due to already lagging commercial jet sales and then the airliner-driven
carnage on September 11th, Boeing cut over 20,000 jobs across the spectrum of the
company, from office staff to factory workers.
Faced with a downturn in the commercial aircraft business and reduced military spending,
The Boeing Company was forced to downsize approximately 55,000 people over a five-year
period. The company's management, organized labor, the local community, multiple levels of
government, and community colleges collectively worked together to develop Reemployment
Centers to assist in the transition of their specialized workforce into alternative forms of

Successful Downsizing: The Case of the Boeing

Reemployment Program
The following is a description of how The Boeing Company successfully completed this effort
at downsizing:-

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Downsizing is thought to be an effective human resources strategy to increase global

competitiveness. Labor costs, generally one of the largest costs for most organizations can
be reduced through downsizing. In many cases the downsizing process includes outsourcing
or subcontracting jobs previously performed within the organization. Although organizations
often consider downsizing necessary in order to remain competitive, this strategy does not
always result in increased organizational profitability and performance. One recent survey
conducted by the Society for Human Resource Management reported that only 26% of firms
reported productivity improvements while 58% said that productivity was flat or had declined
after downsizing (The Washington Post, 1996). In addition, the study found that
approximately 54% of companies surveyed cut jobs in 1994 but only 25% expected any
further downsizing. Whatever the future course of downsizing, many companies have utilized
this business strategy to meet the demands and challenges of U.S. and global competition.

Reasons for Downsizing of Boeing Company

One of the primary reason that downsizing occurs is that jobs are subcontracted out, both
domestically and internationally, to reduce corporate overhead. The Boeing Company is no
different than many other multinational enterprises. There are three reasons that most
companies subcontract jobs:The first is to lower the total costs of production. This is accomplished by relocating jobs to
lower cost wage regions, either domestically or internationally. The subcontracting of jobs
internationally not only lowers production costs, but also assists in gaining market share
which is the second reason that many companies subcontract out component development.
Sometimes firms are required by local content requirements to produce components locally.
Other countries require production facilities in order to gain access to their market.
For example, China and The Boeing Company celebrated 25 years of working together in
June, 1996 (The Boeing News, 1996). Over the past few years, The Boeing Company has
invested heavily in developing all areas of the aviation industry in China to the tune of $100
million U.S. dollars. This has been more than recouped by the gain in market share through
purchases from the Chinese-owned and operated airlines. The most recent order alone from
Air China was for $510 million for three B747-400 planes. A total of 47 jet aircraft have been
purchased by China, making this a strong market for The Boeing Company.

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For the same reason, General Motors is increasing its overseas presence in Asia. It recently
announced that its Opel unit could take over Peugot's position as the non-Chinese partner in
southern China's automotive industry (Cox, 1996). GM is also awaiting approval from the
Chinese government to build a plant in Guangzhou to supply engines for a plant that GM is
building in Thailand. This second Chinese plant is in addition to the Shanghai plant which will
begin producing Buick sedans in 1998.
The third major reason for subcontracting of jobs is also driven by the desire to lower total
production costs. Many countries will contribute to a company's development costs in order
to gain production plants and develop industries. In the case of The Boeing Company and
Japan, the development costs for the 777 jet airliner were $5 billion. Japan contributed over
$1 billion, or approximately 21% of the total costs of development, in order to have
production plants located in their country. Given their skills of imitation and improvement, the
government of Japan considers this relationship with Boeing the basis of future industrial
development that will place Japan in the forefront of this Asian market. In addition to lower
development costs, Boeing received increased orders from Japan Airlines and All Nippon Air.
The lowering of development costs and the gain of global market share are sound reasons
for subcontracting jobs internationally. However, there is always the danger that The Boeing
Company, and other multinationals following the same strategy, are creating future
competitors. Boeing is aware of the potential downside of this strategy but their drive to
compete in...
Boeing is said to be the world's largest aerospace and defense company which operates in
over 90 countries and claims the title of America's largest exporter. It has three divisions:
commercial airplanes (50.3% of revenue), integrated defense systems (48.3%), and a small
aircraft leasing subsidiary (1.2%). The most prominent is the commercial airplane section
which faces intense competition from its Airbus line of planes.
Since Boeing is known to be the only remaining U.S manufacturer of large commercial
aircraft, they will be making military and special aircraft ten years from now. But according to
Alan MacPherson, professor and chair of the Department of Geography in the College of
Arts and Science its days of manufacturing large passengers jets will probably have to come
to an end.
After the incident of The World Trade Center and Pentagon on September 11. The senior
Boeing officials sensed that airplane manufacturer would suffer drastically on this happening.
Because of this event, the Boeing Commercial President and CEO Alan Mulally consulted
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Chairman Philip M. Condit and made the decision on September 18 to cut 20%( 20,000) to
30%( 30,000) of 96,000 people in Seattle area employed by Boeings commercial airplane
unit. This decision was hard to make by the Boeings Company because such dealings and
actions will affect the lives of the people who work in their company.

The following are the evidence noted by Pritchard

and MacPherson:
1) Boeing's sale or closure of approximately 10 million square feet of space devoted to
commercial and military aircraft production in the past decade.
2) A 60 percent decline in Boeing's commercial aircraft production, with less than 50 aircraft
in backlogs of four of its six commercial aircraft models, when most viable, mature
aircraft programs have backlogs in excess of 100
3) The lack of new aircraft programsBoeing's most recent aircraft is the 777, designed in
the early 1990s
4) Boeing's announcement on Dec. 20 that it would shelve its futuristic, high-speed, soniccruiser design in favor of a cheaper alternative, its second cancellation of a proposed
commercial jetliner program
This strategy will probably be positive because aviation services and high-tech military
aircraft manufacturing have had higher profit margins than the commercial side.
The effect of this strategy is losing the members or the employees of this company who
mainly do riveting and aircraft assembly. And now, they will be needing people who have
new sets of skills that will fit on a specific position.
I conclude that downsizing could be a hard decision for the company to be made
because the lives of the employees will be affected. On the other hand, it will be helpful
for the company to maintain their standing in the industry to be able to compete to other
As soon as hijacked passenger jets slammed into the World Trade Center towers and the
Pentagon on Sept. 11, senior Boeing officials sensed that airplane manufacturing would
suffer drastically. Calls from airline executives soon began flooding into sales execs running
Boeing's Commercial Airplane division here in Seattle. "We started talking immediately after
the attack,'' says one senior Boeing official involved in the discussions to dramatically cut
production. "We knew -- as soon as the events were reported -- it was going to have a
dramatic effect on our business and our customers.''
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That's why Boeing Commercial President and CEO Alan Mulally, in consultation with
Chairman Philip M. Condit in Chicago, made the decision on Sept. 18 to cut 20% to 30% of
96,600 people employed by Boeing's commercial airplane unit -- this translates into 20,000
to 30,000 workers in the Seattle area. "We profoundly regret that these actions will impact
the lives of so many of our highly valued employees,'' Mulally said, in a statement issued late
Tuesday. "However, it's critical that we take these necessary steps now to size the business
to support the difficult and uncertain environment faced by our airline customers.''


Boeing's Commercial Airplane unit, which still generates 60% of the company's total $51
billion in revenues, was already planning to pare the workforce in anticipation of an airline
slump, after restructuring factories, embracing lean manufacturing principles, and cutting
costs (for S&P's latest rating statement on Boeing, see the Sept. 19 "Stock Picks & Pans).
The hard work paid off in the first two quarters. For the first time in nearly a decade, the
division was producing 10% profit margins. Execs were confident they could squeeze even
more fat out of a what had been a costly and inefficient airplane production system.
Even some Wall Street analysts were impressed that the airplane maker was finally
becoming a new kind of company -- one more focused on making profit and generating gobs
of cash. Senior execs had hoped to continue double-digit profit margins even during the
downturn that was expected in the commercial airplane business.
But along with the rest of America, Boeing leaders never figured that a band of terrorists
would hijack four of their jets and slam them into the World Trade Center towers, the
Pentagon, and a field in Pennsylvania, killing more than 5,000 people. The aftershocks have
hit the airline industry and the financial markets hard. And the world's largest airplane maker
is now feeling the effects.
"It's certainly going to test us, test the airlines, and test our competitors as well,'' says one
Boeing executive. "It's the ultimate test of the industry's strength. It's horrible, horrific,
shocking, stunning, traumatic, and it breaks your heart. At the end of the day, it's an
incredible challenge in front of us. I don't know if there's one word that can capture it.''
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Boeing has sharply cut its forecasts for aircraft deliveries and says the downturn could run
into 2003 as U.S. airlines reduce capacity. The company predicts that it might deliver just
500 jets this year, down from an earlier forecast of 538. And Boeing officials say they've
slashed their projections for 2002 deliveries to the "low 400s, compared to the 510 to 520
previously forecast.'' The company says the sharp reduction in its forecast sales was in line
with the 20% capacity reduction by U.S. carriers and its assessment of global air
traffic."We've gotten inquiries from a number of airlines that do not want to take the balance
of their airplanes this year,'' the senior Boeing executive notes.
The job cutbacks will occur across the entire spectrum of the company, touching engineers,
office staff, and factory workers, executives say. But even the leader of the International
Machinists Union, which represents about 24,000 factory workers and has often had tense
relations with Boeing, says he could hardly blame the company for its decision. Adds Mark
Blondin, president of International Association of Machinists Local 751: "The tragedy that
has rocked the nation is now personally touching our members here in Puget Sound. We
understand this is the kind of devastating event no one could foresee.''

Advantages & Disadvantages of Downsizing

The emotions of downsizing to a smaller home vary based on the individual and his reasons
for downsizing. A retired couple might downsize to have a more manageable space after
children have moved out, and they might look forward to a new home. An individual who lost
a job, on the other hand, might become depressed and angry at the need to downsize.
Regardless of the reasons, there are both advantages and disadvantages to downsizing a
home, which apply to any situation.

Less Space

One of the main disadvantages of downsizing is the lessened amount of space.

Having less space can mean getting rid of some furniture, or buying new furniture to fit the

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house if older furniture is too large. It can also result in family crowding, if a family downsizes
while children are still in the house.
Leaving Behind Friends

Depending on the location of the move, downsizing can mean going to a new town or
a new state. Even if you're staying in the same city, you're still uprooting the family and
moving to a new neighborhood. Leaving behind friends and neighbors who you've known for
years is often emotionally challenging.

Moving is stressful, even when the move is good and necessary. You must pack up
all of your belongings, sell the old house if it was purchased or give appropriate notice for a
renter, and perhaps even buy a new house before the old house is no longer available. This
stress is a downfall of moving, but is unavoidable.
Extra Money

For a home that has gone up in value since it was purchased or that is either paid off
or mostly paid off, one potential advantage of downsizing is the extra money. The sale of a
larger home will often net more money than the new home requires, meaning extra money in
your pocket.
Lower Costs

A smaller home naturally has lower costs for regular household needs. For example,
heating and cooling are usually less expensive with a smaller house than a larger house.
Taxes may also be lower for smaller homes, though the amount of lowered costs in taxes will
vary depending on the state and the size of the lot, as well as the size of the home.

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The broad questions relating to downsizing (why, what, and how) have been studied in fairly
rigorous detail till date. Despite a theoretical understanding of the principles underlying the
process, the negative consequences associated with this exercise on both organizations and
individual employees continue unabated (Labib and Applebaum, 1993). It is hypothesized
that this could be the result of viewing downsizing as a panacea for organizational problems
rather than seeing it as a part of an overall strategy for organizational renewal. These
negative consequences could be minimized by viewing it as a process of transformation not
just through incremental changes but also by reframing existing mental models,
assumptions, policies, and relationships to enhance the adaptive potential of the
Downsizing is not just an activity. It demands leadership, a vision about handling the present
as well as a vision about handling the future. When you behave like a responsible family
head, care for each member, let go of people without malice and engage everyone to
navigate the difficult times, you have built true character. It is one thing to design big posters
on the company vision and values, an entirely different game to demonstrate the same and
come out triumphs during testing times.
This symposium considers the organizational downsizing phenomenon. Using theoretical
and case studies, we also benefit from a cross-national and cross-sector focus..

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