1.1 What is downsizing?
Downsizing is defined as “purposeful reduction in the size of an organization’s workforce” (Spreitzer&Mishra, 2002) and it has affected hundreds of companies and millions of workers since the late 1980s. Downsizing may occur by reducing work (not just employees) as well as by eliminating functions, hierarchical levels or units. Downsizing does not include the discharge of individuals for cause or individual departures via “voluntary” retirement or resignations. The key attributes of downsizing given by Freeman & Cameron (1993) are as follows;
* It is intentional
* It usually involves reductions in personnel
* It is focused on ...view middle of the document...
In terms of organizational benefits, supporters of downsizing tell those expected outcomes below (Cascio, 1993);
* Lower overhead
* Less bureaucracy
* Faster decision making
* Smoother communications
* Greater entrepreneurship
* Increase in productivity
The cost of personnel comprises roughly 30-80 % of general and administrative costs in most companies. In capital-intensive companies such as airline or energy firms, the cost is about 30-40 %. Among saving institutions, that figure is roughly 50 % and in highly labour-intensive companies such as service sector, this ratio may exceed 80 %. Therefore, cutting costs by laying off people appears to be a natural strategy, especially for companies struggling to stay alive in a globally competitive market.
1.3 Methods of Downsizing
* Reducing Staff: Reducing staff number can have immediate effects on financial controls. This method is mostly the first option people look at when a decision should be made to cut back on costs.
* Reducing Hours: This can be done perhaps by going to the work for four days a week or by cutting two hours of a workday. By doing this, management can avoid laying off people and retain many of the workers. With this option, the company can increase hours once business is back in to the proceeding schedule. Thus, they will not need to hire and train new employees again and again. The hours can simply be rearranged. This is a good option for businesses that are affected by seasonal fluctuations.
* Reducing Payment: Suspending increases in payments is another option to cut back the expenses. Especially, if the firm is in an industry that is not widely known this can be a good alternative since the employees are very limited in finding alternative employment.
* Downsizing Through Retirement: Early retirement can be an option for some of the more experienced employees who typically will be the higher earners. As far as impact on morale is concerned, this is an excellent option. However, this takes time and if a business is in crisis it may be too late to try this approach.
Also, demotions and job share programs are another way to reduce labour costs. This kind of restructuring can create a more efficient system. Again, employees will have mixed feelings. They may not like being demoted, but may appreciate not being laid off.
1.4 Impact of Downsizing
A research on companies recently downsized revealed that more than half reported that they begun downsizing with no policies or programs-such as employee retaining or job redeployment- to minimize the negative effects of cutting back. CEO of Singapore-based banking & finance company, Theo H. Davis and Co., noted that “We neglected the downside of downsizing.”
Consider the impact of extensive reductions of headquarter staffs whose jobs focus on financial planning. Once, those specialists are gone, operating managers may be expected to fill their places. However, to do so, they need to...