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Downsizing

Written By: Harsh Thakkar on April 1, 2012 No Comment

Downsizing refers to a company’s decision to reduce its workforce for reasons other than

- Poor performance

- Criminal conduct

- Unethical behavior

How is Downsizing an Ethical Issue ?

It is understandable that companies want to minimize their liability when they downsize

There are economic matters to consider, which makes downsizing a management issue

At its core, downsizing is an ethical issue, and the good manager is concerned not just with protecting the company’s financial and legal interests but also with honoring the dignity and integrity of the human beings who work on the front lines and who are the lifeblood of the organization

Difference between Lay-Off and Downsizing

In traditional layoffs, employees are asked to leave temporarily and return when the market situation improves.

In downsizing, employees are asked to leave permanently.

Roots

In the 1980s, downsizing was mostly resorted to by weak companies facing high demand erosion for their products or facing severe competition from other companies.

By the 1990s, as even financially sound companies began downsizing, investors began considering the practice as a means to reduce costs, improve productivity and increase profitability.

Desired Positive Outcomes

During the early 1990s, organizations resorted to downsizing on account of various reasons:

- To eliminate duplication of work after mergers (if any)

- To optimize resources and cut costs

- To increase productivity and efficiency by eliminating unnecessary intermediary channels.

Following changes observed in organizational culture after downsizing:

- Power shift from middle management to top management

- Shift in Focus from Individual Welfare to Organizational Welfare

- Change in working relationships (from being familial to competitive)

- Depression, anxiety, frustration, anger and bitterness in the downsized employees

- Possible job loss, relations with new superiors, revised performance expectations and uncertainties regarding career advancement amongst surviving employees

Questions difficult to answer

Who must be laid off ?

How much notice they will be given?

The amount of severance pay

How far the company will go to help the laid-off employee find another job ?

Observations

Downsizing is a toxic solution

Ignoring all the signs pointing to a layoff until it’s too late to plan adequately; then action must be taken immediately to reduce the financial drain of excess staff is clear

LIFO – Its irrational

This approach may succeed from a legal perspective, but not necessarily from the larger and more important concern of organizational health.

3 Magical words in decision making are ‘Impact on Business’