Downsizing

10 Key excerpts on "Downsizing"

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  Strategic Redundancy Implementation

  Re-Focus, Re-Organise and Re-Build

  • Madeleine Stevens(Author)
  • 2022(Publication Date)
  • Routledge

    (Publisher)

  1993 ) complements this definition of Downsizing as an intentional reduction in the number of people in an organisation. It is accomplished via a set of managerial actions, which may include the use of hiring freezes, layoffs, and normal or induced attrition.

  An interesting challenge to the definition of Downsizing suggests that Downsizing refers to a reduction of size and costs of an organisation and that head count reduction is a strategy within the Downsizing process (Kets De Vries and Balazs, 1997 ), whilst Cameron (1994 ) agrees that Downsizing often involves a reduction in personnel. In Germany, definitions of Downsizing exist linked to the percentage of employees being made redundant with a typical threshold of a minimum of 3%. Nonetheless, Downsizing refers to management’s reduction in human capital. Literature also refers to ‘rightsizing’, which is the application of organisational Downsizing to cut costs through reducing human resources to get to the ‘right organisational size’. A key distinction between Downsizing and redundancies is that Downsizing incorporates a strategy to not only reduce the employees, but also the work requirement. This may be realised through outsourcing, divesting unrelated businesses, eliminating functions or the selling of capital assets.

  Definition of retrenchment

  Retrenchment has been defined in Australia as a termination of employment that is not on account of any personal act of the employee dismissed or any consideration peculiar to him, but because the employer no longer wishes the job the employee has been doing to be done by anyone. The word ‘retrenchment’ is used as the expression that stipulates an employee’s status when their employment is terminated because their job has become redundant.

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  Human Resources Management

  All the Information You Need to Manage Your Staff and Meet Your Business Objectives

  • Patricia Buhler(Author)
  • 2002(Publication Date)
  • Everything

    (Publisher)

  Over the past two decades, Downsizing has become one of the most popular strategies. As firms have downsized successfully and have experienced positive reactions from their shareholders and Wall Street, other companies have adopted the strategy. Some estimates suggest that more than 100,000 employees are laid off nationwide each month.

  The popularity of this strategy, however, has caused a major problem. Some organizations have downsized unnecessarily. Since to be effective, corporate strategies must be aligned with the unique strengths and weaknesses of the individual organization, copycat methods rarely work.

  Downsizing has been the organizational response to changes in the economy (especially slower growth rates), the increase in international competition, and changes in work force composition. And not just blue-collar workers are affected. Entire management layers have been eliminated. These flatter organizations are supposedly more responsive to changes in consumer preferences/tastes.

  Downsizing is the organizational effort to create a lean company that can become more efficient and achieve increased levels of productivity. This strategy reduces labor costs by reducing the number of positions within the organization. Theoretically, then, the company should be able to reallocate resources to improve organizational performance.

  TIP The business press has reported that current Downsizing wears pinstripes. That is, today’s Downsizing is impacting more managers than ever before.

  Usually adopted to cut costs, Downsizing is no longer used just during periods of economic downturn. The term rightsizing has been adopted by organizations that believe they are on the “right track.” However, years ago the Wall Street Journal coined the term dumbsizing

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  Strategic Human Resource Development

  • Jim Grieves(Author)
  • 2003(Publication Date)
  • SAGE Publications Ltd

    (Publisher)

  These initiatives are thought to represent ‘an early stage of a continuing, long-term, socio-economic evolution. More than simply shrinking the workforce of an organization, much of the change seems to represent a permanent shift in social, economic, and organizational structures’ (Lewin and Johnston, 1996: 1; McKinley et al., 1995). Certain environmental pressures are said to lead to Downsizing resulting in a paradigm shift from mass production/high volume (from ‘bigger-is-better’) to niche markets (‘lean-and-mean’). But is Downsizing simply another name for getting rid of employees in the desire to be increasingly efficient? If so, then this would contradict the aims of the Excellence Movement. However, if it is seen as a strategic organizational objective and involves employees in the process, then it takes on both an ethical and a pragmatic role. This leads Band and Tustin (1995) to argue that: ‘If the objective of Downsizing should be to raise productivity per head’, then Planned Strategies for Change Strategic Downsizing can achieve this – layoffs cannot. It is possible to plan to reduce a workforce. In the absence of severe financial and environmental factors, which usually dictate an immediate layoff, Downsizing can be carried out with the full commitment of the workforce to the long-term benefit of the company. (1995: 45) Consequently, it is suggested that employee involvement is possible under certain conditions which, following Cameron et al. (1991) requires that everyone sees the urgency of organizational survival. When Downsizing is viewed as a strategic necessity, it becomes known as rightsizing. Organizational rightsizing therefore seeks to reshape the organ-ization by establishing core and peripheral employees. The flexible firm is then, in theory, able to respond to the flexibility of the marketplace.

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  Unemployment in China

  Economy, Human Resources and Labour Markets

  • Grace O.M. Lee, Malcolm Warner(Authors)
  • 2006(Publication Date)
  • Routledge

    (Publisher)

  Economic Downsizing strategies are adopted when enterprises are threatened by survival crises. These crises may result from loss of revenue, decreased profitability attributed either to external market factors or to internal malfunctioning management. Such Downsizing strategies are intended to reduce the production cost so as to reduce the cost pressure. Organizations competing under various market conditions may choose to implement Downsizing with the intent to increase their financial performance. The decision to downsize can be attributed to many factors, yet usually arises from budgetary constraints or short-term business fluctuation. It is carried out mainly in an effort to achieve cost competitiveness. An organization’s ability to enhance its financial performance can depend greatly on how the organization chooses to implement Downsizing in an effort to have a positive effect on its financial performance (Mirabal and Young 2005 : 42). The structural Downsizing strategy is adopted to satisfy the requirements of restructuring of internal management, readjusting the direction of operations, and changes in products and services. These reductions in employees are generally a response to one or more of the following conditions: a response to mergers and acquisitions; revenue loss or new organizational structures (Mirabal and Young 2005 : 39). The optimizing strategy is intended to optimize the quality of human resources of enterprises. This strategy is based on performance appraisals. In accord with such appraisals, enterprises lay off those whose performance falls short of the performance standard, and retain those with excellent performance. In this way, the quality of human resources may be kept at a higher level. A fourth category is strategic and political Downsizing

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  The Psychodynamics of Toxic Organizations

  Applied Poems, Stories and Analysis

  • Howard F. Stein, Seth Allcorn, Howard Stein(Authors)
  • 2020(Publication Date)
  • Routledge

    (Publisher)

  5  Downsizing the Workplace

  For the past three-and-a-half decades, there have been massive dislocations in our public and private organizations that have stripped workers of their jobs and incomes that sustain their sense of worth and their families. Much of this change has been essential to remain competitive. We acknowledge that organizational change is essential to adjust an organization’s structure, methods, and workforce to respond to internal and external opportunities and threats. Changing regulations, actions by competitors, and economic recessions make this essential. At other times, though, some of these changes direct our attention to CEOs desiring to look powerful and in control, as well as “making the numbers” look good at the end of a corporate quarter to improve value for stockholders. The nature of the timing and manner of announcement, we suggest, is often suspect.

  Beyond the necessity and timing of change is the choice of the methods used to make these often sweeping if not desperate and drastic changes. Downsizing as a method of choice introduces highly destructive outcomes into the lives of their employees, families, and communities. Announcing a Downsizing just before the end of a quarter can make the CEO appear to be in charge and taking control of the bottom line. However, there are other ways to adjust the size and nature of the workforce that are at least as effective—more gradual change that includes retraining and redistributing workers, as well as not making a grand announcement of Downsizing that puts a target on everyone’s back.

  We also suggest that having to suddenly downsize is not an indication that management has been on the ball, making timely adjustments to keep the organization competitive, the workforce trained, and the organization operating at a level consistent with demands for products and services. When Downsizing is the first

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  Cost Reduction and Control Best Practices

  The Best Ways for a Financial Manager to Save Money

  • (Author)
  • 2012(Publication Date)
  • Wiley

    (Publisher)

  The Downsizing process is fraught with traps and pitfalls, many of which can undermine the original cost-cutting goals of the Downsizing initiative. Among them are business disruption, low employee morale, depressed creativity and productivity, and high costs associated with replacing and retraining employees when profitability returns. Some Downsizings are more successful than others, at least initially, or organizations would surely abandon the practice. Over time, through the efforts of several government and consulting organizations, an inventory of Downsizing best practices has emerged.

  Cardinal Rule of Downsizing: Do Not Downsize Only to Reduce Costs

  In many cases, successful Downsizing depends on what you avoid as well as what you accomplish. In almost any context and over many years, research has shown that across-the-board job cuts undertaken just to reduce payroll expenses, increase profitability, and subsequently, shareholder value, probably will fail over time. Companies that used layoffs solely to cut costs saw a 2% decline in share price, on average, from 30 days before to 90 days after the layoff announcement, according to a 2001–2002 study by Boston-based Bain & Company. Respondents that downsized as part of an overall strategic reorganization plan —”to consolidate a merger and capture business synergies”—however, watched their stock rise an average of 10% during the same time period.

  That said, grim business reality may leave besieged management with no other choice if they are to keep their companies afloat financially. Conversely, even profitable companies turn to Downsizing to convince investors that they have an ongoing plan for profitability and cost control. Remember that 34% of Lee Hecht Harrison respondents downsized when their organizations were in reasonably sound financial health, but needed to trim the workforce to strengthen their future position. Only 21% downsized because of “difficult financial straits.”

  To test managers’ assumption that Downsizing will produce improvements in financial performance, Wayne F. Cascio, professor at the Graduate School of Business at the University of Colorado-Denver, and two of his colleagues undertook a study of financial and employment data from Standard & Poor’s 500 companies from 1982 to 1994. Specifically, Cascio and his team studied the relationships between changes in employment and long-term financial performance—changes in profitability (return on assets or ROA) and the total return on common stock (dividends plus price appreciation). Cascio created seven mutually exclusive categories to control for employment and market variances.

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  The Necessary Nature of Future Firms

  Attributes of Survivors in a Changing World

  • George P. Huber(Author)
  • 2003(Publication Date)
  • SAGE Publications, Inc

    (Publisher)

  The reasons are three: 1. the actual importance of soft costs will vary across firms; 2. the awareness of soft costs and the perceived importance of soft costs will vary across top managers; and 3. the availability and desirability of alternatives to Downsizing will vary across firms. As is well known, some companies are loath to downsize. When they anticipate that the current market shrinkage will not be long lasting, or when they expect soon to roll out products requiring workforce skills (Continued) Dealing With Conflicting Needs 235 (Continued) similar to those required of the operations being curtailed, these companies first reduce costs other than their workforce costs and then employ one of two tactics. If they have sufficient cash reserves, they tem-porarily assign their “redundant” employees to other useful tasks, albeit tasks of less importance, such as preemptive maintenance or undertak-ing special projects. If they do not have sufficient cash reserves to employ this first tactic, they instead often reduce their workforce costs by going to shorter workweeks or mandatory sabbaticals. For specific examples of companies using these tactics and for elaborations of arguments for resisting Downsizing, see the articles by M. Conlin (2001), “Where Layoffs Are a Last Resort,” and R. Levering and M. Moskowitz (2002), “The Best in the Worst of Times.” Other alternatives to Downsizing, albeit actions that risk losing the firm’s better employees, include reducing bonuses, freezing salaries, eliminating merit payments, and lending employees to other firms. As we’ve seen, Downsizing is a change generally made to bring workforce costs into line with revenues. The next topic need not be a change—often it is an ongoing staffing strategy. Although sometimes used to minimize workforce costs, more often and more importantly it is used to maintain workforce flexibility.

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  Reversing the Slide

  A Strategic Guide to Turnarounds and Corporate Renewal

  • James B. Shein(Author)
  • 2011(Publication Date)
  • Jossey-Bass

    (Publisher)

  Chapter Five Downsizing Is a Tool, Not a Goal

  Too often, executives today feel they must have a corporate goal to downsize. In fact, Wall Street sometimes rewards a Downsizing announcement with a jump in stock price. The executive him- or herself is almost always given a larger bonus by the board of directors for making such tough and difficult decisions, which may make them not so tough or so difficult. As we’ll see later, they are probably foolish! In talking with various CEOs, I often hear they do it because Wall Street analysts expect that behavior. However, does simply ordering an 8 percent or 15 percent across-the-board cut in headcount show real leadership or decision-making abilities? No. In this chapter, we examine the pros and cons of Downsizing, the issues that should be considered first, and the real effects on corporate performance.

  Managers have too often seen layoffs as a panacea for deeper underlying problems, and therefore make one of the most common mistakes in a turnaround; they fail to reexamine their strategy and core competency and then reengineer the company’s processes before identifying which costs and people to cut. How does a company know how far to cut, who best to cut, or which product lines or services would be most harmed by cuts if they didn’t first examine their strategy, based on what the customers want? Once that is known, Downsizing becomes one of the tools to implement the changes needed.

  The 13-Week Cash Flow Model discussed in Chapter Four will drive much of the decision-making in a late-stage turnaround, for it presents an exhaustive analysis of the company’s sources and uses of cash over the near term. A frequent—but by no means invariable—conclusion that managers make from the 13-Week model’s findings is that the company must reduce its cash burn in order to buy itself time, and given the significant percentage of corporate expenses that payroll represents, a common response is to consider layoffs, Downsizing, right-sizing, reductions in force, headcount reductions, or any other number of euphemisms designed to soften the fact that people will be getting fired.

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  Making Supply Chain Management Work

  Design, Implementation, Partnerships, Technology, and Profits

  • James B. Ayers(Author)
  • 2001(Publication Date)
  • Auerbach Publications

    (Publisher)

  Often, the service vendor hires all or many of the employees let go by the client. But Downsizing can sometimes be effected without outsourcing in four ways: (1) identifying and cutting out “fat,” (2) designing a more efficient system, (3) eliminating an unprofitable or unwanted part of the business, and (4) reducing the number of organizational levels. Cutting Fat. Over time, without tight supervision, workers slow their pace, ineffective people are retained, and jobs that are not essential are perpetuated. The excess staffing is often reduced by arbitrary budget cuts, say 15 or 30 percent. Some work measurement studies can determine the time really necessary to do the work and identify the excess hours or peo-ple to eliminate. Designing a More Efficient System. Creative imagination and analysis can often discover simpler ways to do a job. For example, a manually prepared interdepartmental invoice system was replaced by a simple Lotus spread-sheet design, cutting the time from five to two days to perform. Or, in the programming area, work time can sometimes be reduced by using off-the-shelf software instead of tailor-made systems, or by applying techniques such as CASE (computer-aided software engineering). Eliminating Less Essential Businesses. Many large banks provided payroll services to clients on the theory that they could run their expensive hard-ware on the idle shifts and thereby save by spreading their computer equipment costs. However, these banks discovered that doing payrolls for other companies also diverted their managements’ efforts, and encoun- 689 Whether to Outsource and Downsize tered other problems that drained their sideline profits, which led them to abandon their payroll service outside businesses. Horizontal versus Hierarchical Organization. Some organizations have reduced staff considerably by eliminating several levels in their hierarchi-cal organization structures.

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  Human Resource Management

  • Greg L. Stewart, Kenneth G. Brown(Authors)
  • 2014(Publication Date)
  • Wiley

    (Publisher)

  An important question, then, is whether Downsizing and the associated employee layoffs are actually helpful for organizations. What happens to organizations that lay off workers? Do they really change for the better? Does Downsizing help the orga- nization become more efficient and more profitable? The fact is, the effects of Downsizing on organizations are not altogether clear. An organization’s reputation is usually harmed by Downsizing. 79 Yet, research suggests that the financial performance of organizations that have downsized is similar to the performance of organizations that have not down- sized. This finding both supports and challenges the effectiveness of downsiz- ing. Firms are usually not performing well when they pursue Downsizing, so finding that their performance is similar to that of competitors after downsiz- ing suggests that layoffs may initially improve profitability. Yet, firms that use Downsizing do not have higher performance in subsequent years. This sug- gests that Downsizing may not help an organization become more efficient and increase long-term productivity. 80 Furthermore, the effect of Downsizing is not the same for all organiza- tions. Some organizations appear to benefit more than others. About half the firms that downsize report some benefit, whereas half report no improve- ment in profits or quality. 81 Downsizing is most harmful to organizations with long-term employment relationships: those pursuing Loyal Soldier and Committed Expert HR strategies. 82 Downsizing also seems to present the most problems when an organization reduces its workforce by more than 10 percent and makes numerous announcements of additional layoffs. 83 Moreover, reasons behind Downsizing seem critical. Firms that downsize as part of a larger strategy to change before problems become serious are gen- erally valued more by investors than firms that downsize after problems have already occurred.

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