According to a 1997 survey by the American Management Association (AMA), the most often claimed reasons for downsizing are "organizational restructuring," "business downturn," and "reengineering of business processes." Downsizing has adversely affected 43 million jobs since 1980. Many organizations are realizing that downsizing may not be the best solution for reducing costs. The time and money it takes to train employees often make downsizing a wasteful procedure. By changing their business strategy, companies can find ways to maintain their workforce. Many organizations are now looking for alternatives to downsizing that allow them to save their employees, which are now seen as large assets.
Downsizing of staff is often undertaken when an organization needs to quickly improve its profits. A company under siege (or claiming to be) takes a look at its largest expense typically payroll and benefits and starts slashing. Many accounts exist that depict the sad consequences of worker displacement: the breakup of families, the loss of homes, and the blow to self-esteem from which the downsized never recover. Some researchers go so far as to describe the downsized worker as clinically traumatized, comparing the experience of downsizing as "similar to that of other trauma: death, combat, abuse, violence, natural catastrophe, crime, chemical dependenceaˆ¦disease and terrorism" (Bumbaugh 30). The most well-known of these is a seven-part series published by The New York Times entitled "The Downsizing of America." This series of articles (since enlarged and published as a book with the same title) was the largest set of related articles printed by the paper since it covered the Watergate scandal.
Some proponents of downsizing claim that the media has distorted the statistics on the number of people downsized, their fate and the impact on their former workplaces. The New York Times series has especially been attacked for too freely extrapolating statistics. There is no doubt that downsizing reeks havoc in the lives of those who lose their jobs, but critics claim that downsized workers find employment fairly quickly, and point to the statistics that show that jobs have been created at record numbers throughout the 1990"s'". Record numbers of jobs have been created, but U.
S. Labor Department figures "show that now only about 35% of laid-off full-time workers end up in equally remunerative or better paid jobs" (Uchitelle 3). Downsizing does indeed increase profits for the organization that undertakes it, but these profits are short-lived. A survey by Wyatt Associates of Canadian downsized businesses found "40% reported that downsizing did not result in reduced expenses and more than 60% did not experience higher profits after cutting staff" (Estok 28). These and other studies show that at least half of all eliminated positions are refilled within a year after a major downsizing effort. One of our group members was the victim of downsizing, or what the company called a "re-structuring" effort.
Being a single mother of a pre-school child, this was very difficult to handle. The fate of her child"s life was left unknown. Fortunately, the company announced this downsizing effort six months in advance, giving her the opportunity to search for another position. At the time she lacked higher education and could not find a job that would pay as well as her previous one. Looking for an answer, she made the conscious decision to better her and her daughter"s lives by continuing her education.
Looking back on it now, she is thankful that she was given the opportunity to go back to college. Unfortunately, many people don"t have this opportunity and must take whatever job they can find. The negative effects of the remaining employees can be almost as serious as that of the victims. Many of these employees, still holding a position within a downsized company, have a constant fear of losing their job next. The morale will tend to tail off and an "I don"t care" attitude will often set in.
Remaining employees may have a hard time concentrating on their work because of emotional distress. This can cause a lower performance, which may threaten productivity. Successful planning and innovating for the future require staff that is well-trained, willing to take risks, physically healthy, and committed to an organization. Downsizing, time after time, leads to exactly the opposite result. Organizations that think of and treat their employees as assets rather than liabilities can retain their staff, retrain them if necessary, and keep productivity up. Creativity and true strategic planning that includes close attention to capital costs and increased revenue generation can enable most organizations to avoid the quick fix of downsizing.
Downsizing drains an organization of the talent and loyalty of its workforce aˆ“ its most precious resource for growth and innovation. "Whoever retains organizational memory has a priceless asset. The people who know what make an organization perform maximally are assets not costs to be reduced" (Piturro 37). In many cases, employers lose money when they eliminate employees. Evan Schnade, representative of Patagonia, says employees are an investment. It takes a long time before an employee is fully trained.
At Patagonia, Schnade notes that it usually takes up to a year before an employee becomes productive. After such a long and costly investment Patagonia needs to hold on to its employees. To do anything else would be bad business. Management should adopt an intelligent approach and understand the repercussions that might entail the downsizing.
"Instead of adopting downsizing as a short-term plan for ineffectual performance, it would be better to adopt a long-term solution to improve the bottom line. One could look at the alternatives to gain cost savings within the organization. "Introducing new products, entering new markets, and cutting costs elsewhere within the company, are some of the many alternate ways that are worth considering" (Rayburn 49). These can produce the desired outcome without jeopardizing the employees" jobs. Showing employees that they are assets to the company can ultimately optimize their attitude, performance and productivity. They need to know the work they do is important and beneficial to the whole scheme of things.
Unfortunately, In the modern competitive business scenario, many companies are pressured to make a quick decision to reduce costs and improve the bottom line. Although this is the case, there are some important questions that need to be asked before blindly falling into the downsizing trap. Taking the time to ask these questions can save a lot of trouble in the future. "Some of the questions that need to be considered to avoid any miscalculations that might have a negative backlash are as follows: · What mix of skills do we need today? · What skills are we likely to need in the future? · Do we have the right number of people employed today? · How will these numbers change in the future? · How do our staffing costs compare to others in our type of business? These are difficult but essential questions to consider when making hasty decisions that could have a disturbing foreboding.
Research shows that downsizing is a risky gamble, with less than half of companies seeing improvements in productivity" (Maurer 12). There is usually a need for a business plan change and calculated risk strategies before jumping to what most people think is the obvious way to cut costs. There is an array of alternatives to downsizing that a human resources department can exercise in times of pressure to save money. Many of the alternatives rest on two important pillars, the share pain and long-term linked vision. "Share the pain deals with an extent of adopting painstaking measures on even terms among the high brass as well as the commoner working in the company without granting immunity to anyone" (Maurer 12).
"Long term staffing alternatives include hiring linked to vision, cross training, succession planning, redeployment within the organization, creating value-added and revenue-enhancing opportunities, a comprehensive model, reduced hours, lower wages, attrition, alternative placement, leave of absence, employee buy-outs, and shared ownership" (Maurer 13). A brief synopsis explaining the virtues and liabilities of the mentioned alternatives is listed henceforth: · Redeployment within the organization/Alternative placement: Job opportunities should be ascertained within a company to accommodate people as and when a vacancy emanates. Lincoln Electric Holdings is a manufacturer of arc-welding products based in Cleveland, OH. In 1992 they were faced with losses after expanding in to Latin America, Russia, Europe, and Asia. Despite this, Lincoln Electric avoided firing employees.
They redeployed 54 factory workers into sales people. These sales people earned a total of $10 million in sales their first year, which helped Lincoln Electric pull out of their decline. Roy Morrow, the director of corporate relations, knows that this company"s employees are valuable. According to Morrow, Lincoln Electric loses $100,000 every time they replace an employee. At that kind of cost it's foolish to lose employees unnecessarily. · Outplacing: Organizations find employment opportunities for their workers with other corporations.
Rhino Foods exercised this method to save the employment of their workers. Rhino Foods, a small company of only sixty employees, faced operational inefficiencies, and a drop in orders during 1994. The small size of the company created an intimate feel among the employees. Searching for a way to cut losses without firing people, Rhino Foods "lent" about a dozen workers to their biggest customer, Ben and Jerry"s Ice Cream. The workers retained their Rhino benefits and seniority, learned new skills while gaining a better understanding of the customer, and some employees even earned a higher salary. Two years later Rhino Foods, now recovered from their losses, recalled the employees.
· The Great Game of Business: Empowers employees by giving them a stake in the company and allowing them access to financial and other pertinent information. This system is employed by: creating financials, setting up incentive programs that will reward their performance, learning to forecast financial results, learning what drives financial results, communicating progress with each other and sharing the rewards of good performance. The inventors of this method, Springfield Remanufacturing (SRC) in Springfield, Missouri proved that it works. The employees of SRC have stock ownership. Each year their stock increases in value based on the productivity of the company. As a result the employees put a lot into their work.
When faced with a large order cancellation, layoffs seemed eminent. Management responded by putting the jobs in the hands of the employees. The employees were informed of the cancellation, and given the financial information about what and how productivity needed to happen. In each area of the company there was a computer, accessible by any employee, in which any financial information regarding the company was available. The employees had the numbers and everyday they were challenged to beat them.
By teaching the employees to act, and think like owners, and measure success in the same way the financial world does, SRC allowed workers to save their own jobs as well as increase the value of their company. · Hiring linked to vision: It refers to the idea that a company identifies the potential present and future market needs and tries to recruit skilled personnel to meet demands and goals of the company rather than having surplus manpower · Cross training: This helps employees to expand their working potential and allows them to diversify and venture into other specialized fields related to their work by internal retraining. This has special importance due to the ever-changing technological advances. · Succession planning: It has a special relevance in respect to the needs and positions vacant in the upper hierarchy within the company. Instead of hiring outside the organization or making a compromise by promoting an undeserving candidate to fill the brass, continuous effort should be made to train people in the junior positions to fill their vacancies.
· Creating value added and revenue enhancing opportunities: A company can expand its business and create new jobs by incorporating and implementing new range of products and services created by people within the organization. · A comprehensive Model: A company shares its profit/loss with the employees working within. Better productivity and profits leads to better compensation while losses are shared proportionately. · Reduced hours: Total working hours is reduced throughout the company during tough times, depending on the market requirements. · Lower wages: Wages are reduced proportionately within a company instead of downsizing during a downturn in a market. This is a temporary phase where everyone participates and bears the brunt according to their status within a company.
· Attrition: Schemes like voluntary retirement can be encouraged within a company and the positions vacant can be left that way to increase profits instead of downsizing. · Leave of Absence: Employees can be offered leave of absence with full benefits during the crunch time. They are promised their jobs back as and when conditions become favorable. · Employee Buy-Outs: Employees are offered to buy a closed down operation, which they could set up there own business. · Shared ownership: Instead of just cutting wages, employees will trade salary cut for company stock.
As discussed in chapter 2 of the HRM textbook: Gaining a Competitive Advantage, downsizing as an organizational factor, is a directional strategy. Its intentional use is to gain competitive advantage. The unintentional use of corporate restructuring leads to selection and placement, employee development and training usually within a year of the initial effort. All in all, downsizing achieves its goal in the short-term: it improves an organization"s profit line by reducing its biggest expense. Long-term, though, the organization suffers from mass confusion, psychic depression, and lack of key ingredients for growth and leadership: energy, loyalty, creativity, time and teamwork. As organizations downsize, they are bleeding their biggest asset: their workers.
As put by Alan downs, author of Corporate Executions, "Like an anorexia of the organization,
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