Corporate Downsizing

Corporate downsizing refers to the reducing of the number of employees of a company, thereby reducing the payroll. There is a difference between downsizing and laying employees off. Downsizing is intended to be permanent, whereas a layoff is intended to be a temporary downscaling; employees may be rehired in the future. There are several techniques used by businesses to achieve their goal of downsizing. They may give employees incentives for early retirement or transfer them to subsidiary companies. The most common way is by simply terminating the employment of a number of people.

This reduction of workers can be achieved through either voluntary or involuntary means or a combination of both. Downsizing results in layoffs that are often followed by other restructuring changes, consolidations and other forms of cutting expenses. In many cases, laid-off employees are replaced by part-time or temporary workers.

The global economic recession has forced companies to scrutinize ways in which they can cut costs. In many cases the solution has been downsizing, and outsourcing has been the vehicle to help reach that goal.

Corporate downsizing of privately and publicly owned companies has been a common practice in recent years and restructuring has become a popular method for streamlining organizations. More than half of the Fortune 500 corporations have slashed their staff since 1979, with over 1.5 million managerial staff positions eliminated.

The magnitude of downsizing, in terms of value and actual numbers, indicates that downsizing is an important corporate activity. Strategic orientation usually goes hand in hand with a reduction in the workforce.

Downsizing was perhaps the most significant business change of the 1980s. The Fortune 500 industrial companies alone lost more than 3.2 million industrial jobs in the 1980s. This loss of jobs has not been limited to the industrial sector of the economy, but has also occurred in the service sector, as witnessed by the many bank failures in recent years.

Downsizing has significantly changed the ways in which companies and their employees relate. Traditionally, employee loyalty was rewarded with security. However, with many organizations downsizing, they are no longer able or willing to guarantee lifelong employment. When companies downsize and lay off employees, they expect the remaining employees to pull together for the common good. Instead, companies often discover that employees have become suspicious and less productive. When employees feel less loyal, they focus on protecting their self-interests rather than on working for the good of the firm. To get an employee to be once again loyal to the company and to help channel that self-interest to benefit the firm, managers have begun to create contracts of mutual commitment between themselves and employees. In the contract, the manager commits to helping employees achieve personal goals, and employees commit to helping the manager attain the company's goals.

Due to corporate downsizing many people have been laid off or have voluntarily taken early retirement incentives. Almost all these people feel unappreciated and are disappointed with corporate life. They realize there no such a thing as job security. Every corporate downsizing event comes with certain predictable outcomes. They include feelings of betrayal, loss of trust and cynicism and doubt about the future of the corporation. This can lead to a widespread lack of commitment throughout the company. On the other hand, downsizing can bring significant new opportunities for the company in the form of the creation of renewed energy and enthusiasm. At times, the remaining employees feel a sense of responsibility to keep the company afloat and may work with more enthusiasm and loyalty.

As the downsizing process is completed, management is turning its attention to the survivors who, because of the reduction in the workforce, are considered invaluable. Survivors of downsizing are looked upon as a group of uniquely talented people whose knowledge, experience and skills need to be developed as fully as possible to ensure that the company's new, lean management can reach its objectives. To succeed, executives must be able to conceptualize, execute, delegate, motivate and develop others to take on more responsibility. Companies want their executives to set high standards, and then motivate and develop their subordinates to do more; in other words, to decentralize the decision-making process.

The results from downsizing are noticed in reduced business-related costs, increased quality in employee performance and increased customer satisfaction. It gives the corporation the opportunity to appear decisive in the face of uncertain economic conditions and gives them greater control of their employees.

Selected full-text books and articles on this topic

The New Corporate Cultures: Revitalizing the Workplace after Downsizing, Mergers, and Reengineering
Terrence E. Deal; Allan A. Kennedy.
Perseus Publishing, 2000
Organizational Downsizing, Discrimination and Corporate Social Responsibility
Zeinab A. Karake-Shalhoub.
Quorum Books, 1999
Resizing the Organization: Managing Layoffs, Divestitures, and Closings : Maximizing Gain While Minimizing Pain
Kenneth P. De Meuse; Mitchell Lee Marks.
Jossey-Bass, 2003
Strategic Downsizing: A Human Resources Perspective
Labib, Nadia; Appelbaum, Steven H.
Human Resource Planning, Vol. 16, No. 4, December 1993
Strategic Downsizing: Human Resource Planning Approaches
Mathys, Nicholas J.; Burack, Elmer H.
Human Resource Planning, Vol. 16, No. 1, February 1993
Change at Work
Peter Cappelli; Laurie Bassi; Harry Katz; David Knoke; Paul Osterman; Michael Useem.
Oxford University Press, 1997
Librarian’s tip: Chap. 2 "Downsizing and Employment Insecurity"
Corporate Downsizing: What Managers Can Do to Lessen the Negative Effects of Layoffs
Tang, Thomas Li-Ping; Fuller, Robert M.
SAM Advanced Management Journal, Vol. 60, No. 4, Autumn 1995
Reinventing Human Resources Management: Challenges and New Directions
Ronald J. Burke; Cary L. Cooper.
Routledge, 2005
Librarian’s tip: Chap. 10 "HRM and Downsizing"
Key Issues in Organizational Communication
Dennis Tourish; Owen Hargie.
Routledge, 2004
Librarian’s tip: Chap. 2 "The Communication Consequences of Downsizing: Trust, Loyalty and Commitment"
Successful Downsizing: The Case of the Boeing Reemployment Program
Mueller, Carolyn, B.; Van Deusen, Cheryl; Hornsby, Jeffrey S.
Journal of Leadership Studies, Vol. 5, No. 3, Summer 1998
New Evidence regarding Organizational Downsizing and a Firm's Financial Performance: A Long-Term Analysis *
De Meuse, Kenneth P.; Bergmann, Thomas J.; Vanderheiden, Paul A.; Roraff, Catherine E.
Journal of Managerial Issues, Vol. 16, No. 2, Summer 2004
Does Downsizing Result in Sustained Improvements?
Rayburn, L. Gayle; Rayburn, J. Michael.
Journal of Leadership Studies, Vol. 5, No. 3, Summer 1998
The Human Cost of a Management Failure: Organizational Downsizing at General Hospital
Seth Allcorn; Howell S.Baum; Michael A.Diamond; Howard F.Stein.
Quorum Books, 1996
Euphemism, Spin, and the Crisis in Organizational Life
Howard F. Stein.
Quorum Books, 1998
Librarian’s tip: Chap. 3 "Death Imagery, Euphemism, and the Experience of Organizational Downsizing"
Search for more books and articles on corporate downsizing