Downsizing, ï¿½a systematic reduction of a workforce by an employerï¿½ (pages.infinit.net/Rodrigo/downsizing.html), is a popular practice in large firms these days, and for good reason. Downsizing can reduce the companyï¿½s expenses, increase productivity, free up workers for other industries, speed up the corporate decision making process, raise stock prices, and lower unemployment percentages. For these reasons, companies greatly benefit when they choose to downsize.
Downsizing can take many forms. When companies merge together, oftentimes there are many jobs that overlap. In these cases it would be silly to keep two people performing the same tasks, so companies eliminate one of the positions. This enables the company to work more efficiently to achieve the companyï¿½s desired results. When organizations are considering filing for bankruptcy, downsizing is often an alternative in order to save money immediately. In addition, downsizing is often used by companies in order to compete with the cheaper labor that South America and Asia can provide by keeping costs to a minimum (pages.infinit.net/Rodrigo/downsizing.html).
The benefits of downsizing are numerous. The most obvious benefit is the reduction of expenses that comes after layoffs are made. A survey conducted by the Wall Street Journal found that after downsizing, 46% of the firms interviewed reported reduced expenses (pages.infinit.net/Rodrigo/downsizing.html).
... shown that only a handful of companies actually have improved organizational performance with downsizing. Downsizing may prove to be a good ... the old and obsolete parts. Many successful companies nowadays engage in downsizing as a purposeful and proactive strategy. Interestingly ... solution to some of the companies financial and staff performance problems, but downsizing has wiped out hundreds and ...
It also means lower prices on products for consumers. For instance, General Motors is known for having a very strong loyalty to its employees, therefore layoffs in the organization are rare. The result is that GM has to charge $2000 more for its cars than companies like Ford and Chrysler. If GM would shut down one of its plants, for example its brake parts plant, and buy the brakes from another company, GM could significantly cut its costs (www.startribune.com).
As this case indicates, downsizing reduces the companyï¿½s costs, which is good for the company as well as the consumer. In addition, the day after downsizing plans are announced, most firmsï¿½ stock prices rise. For example, IBMï¿½s stock rose 7.7% as a result of announcing its downsizing plans (pages.infinit.net/Rodrigo/downsizing.html).
This is definitely a benefit for the company.
Downsizing also increases a companyï¿½s productivity. Computers have aided this increase tremendously. For example, in 1970 the telephone industry needed 421,000 switchboard operators to aid Americans in making 9.9 billion long-distance calls. In 1994, new technology made it possible for only 176,000 operators to handle 83.4 billion calls. ï¿½Without the boost in efficiency, todayï¿½s volume of long-distance traffic would require 3.6 million operatorsï¿½ and we would pay six times as much for our long-distance telephone callsï¿½ (www.ncpa.org/bg/bg146/bg146a.html).
Clearly the downsizing of the telephone industry has increased productivity, as well as cut costs to the consumer.
Another benefit of downsizing is that it frees up employees to work in other areas. The agriculture industry is a prime example. In 1900 it took 95 out of every 100 people to feed the country. Today it takes only 3 due to advances in technology (www.ncpa.org/bg/bg146/bg146a.html).
If downsizing in the agriculture industry hadnï¿½t occurred, everyone would still be producing food, rather than working in other areas such as technology and education, which help further a society. This benefit is connected to another benefit, which is that downsizing allows for new jobs to be created. New job creation is essential to advance technology and the economy. The European Community exemplifies this benefit. In Europe there are restrictions on the power of employers to layoff employees, which has resulted in few new job openings. Compared to the 15 million new jobs created in the US, the European Community has added only 3 million. As a result, unemployment in the EC is around 10%, whereas in the US it is around 6% (www.ncpa.org/bg/bg146/bg146a.html).
... they introduced another new redundancy plan, which would result in the company shedding 1, 500 employees and inevitably closing two ... that other small household appliance manufacturers might also have to downsize. In the event that Moulinex should fail, then ... implementation of a reduced working week. Meant to save jobs, the reduced workweek encouraged working time reductions and reorganization. ...
Downsizing is necessary for technological and economic advancement.
Downsizing, especially downsizing management, speeds up communications and decision making in the organization. When there are many different people making a decision, it takes much longer to come to an agreement than with a smaller group. ï¿½The group should be large enough that members possess the collective knowledge to resolve the problem, yet small enough that the team doesnï¿½t consume too much timeï¿½ï¿½ (McShane 349).
Downsizing can help the organization to realize its optimal size.
In conclusion, downsizing has been going on for centuries, and is often necessary for growth. Companies site reduced expenses, increased productivity, rises in stock prices, and speed in decision making following downsizing. Downsizing also allows for new jobs to be created in addition to freeing up employees to work elsewhere that needs them. This new job creation results in lower unemployment. Clearly downsizing is necessary and beneficial for the firm and the employee.
1. Cox, W. Michael. ï¿½The Economyï¿½s Good News: The Upside of Downsizing.ï¿½ Online. National Center for Policy Analysis. Feb 28, 1998. Last Visited April 7, 2002. URL: www.ncpa.org/bg/bg146/bg146a.html
2. Frahme, Carl. ï¿½Downsizing- Good, Bad, or Both?ï¿½ Online. Frahme Consulting Services. Last Visited April 7, 2002. URL: www.frahme.com/downsizing.htm
3. Maitland, Ian. ï¿½The Upside of Downsizing.ï¿½ Online. The Star Tribune. Last Visited April 8, 2002. URL: www.startribune.com/stonline/html/special/leaky/mait07.htm
4. McShane, Steven L, Mary Ann Von Gilnow. Organizational Behavior. Boston: Irwin McGraw-Hill, 2000.
5. Padilla, Rodrigo. ï¿½Literature Review on Corporate Downsizing.ï¿½ Online. Last Visited April 7, 2002. URL: pages.infinit.net/Rodrigo/downsizing.html