Academic journal article Frontiers of Health Services Management

Downsizing, Reengineering, and Restructuring: Long-Term Implications for Healthcare Organizations

Academic journal article Frontiers of Health Services Management

Downsizing, Reengineering, and Restructuring: Long-Term Implications for Healthcare Organizations

Article excerpt


This article provides a framework for analyzing how downsizing and reengineering have affected healthcare organizations. These approaches are reviewed, and key tools that have been used, such as across-the-board cuts, reorganizing, and redesigning, are described. Examples are drawn from healthcare as well as other business sectors. The consequences of cost reduction strategies for an organization's performance in terms of costs, quality of services, and satisfaction of consumers and employees are explored. The case is made that an organization's context-that is, its culture, level of trust, and leadership-is an important factor that influences the effect of cost-cutting strategies. Characteristics of organizations where downsizing has a better chance of succeeding also are described.


Given the uncertain economic climate in the United States, Canada, and other developed countries, organizations are striving to find ways to reduce costs while maintaining market share and quality of customer services. In the past decade, companies have attempted to redesign their corporations to gain competitive advantage, to improve quality of products or services, and to strengthen financial performance in a turbulent marketplace. The recession of the early 1990s continues to affect many American organizations as they reposition themselves to adapt to an unpredictable external environment.

It is widely accepted that for companies to be competitive in the current fiscal environment, they must be lean. Large payrolls, once reflecting the power and success of corporations, have now become a liability (Frame 1994; Freeman and Cameron 19931. In most industries and organizations, as economic cycles rise and fall, so does the number of people employed. Historically, reducing the number of employees has been the most common way of reducing organizational costs, and three of the most commonly used strategies for cost cutting through reducing staff are downsizing, reengineering, and restructuring.


Recent organization and management literature on the subject of downsizing is often confusing because it uses a number of different terms with similar or overlapping meanings. We have chosen to focus on downsizing and two other related but distinct sets of activities-reengineering and restructuring.

The competitive environment facing all industries has forced many organizations to choose strategies for increasing organizational effectiveness and efficiency and reducing organizational slack (Perrow 1979). In doing so, organizations face two choices. First, they must decide whether they are focused on growing or changing markets or on reducing costs in a stable or declining market share. Second, organizations must decide how they will improve efficiency. Two options are possible here: Organizations can either manage costs by reducing or transferring staff complement and overhead, or they can manage the processes to reduce these costs. Managing the process requires redesigning the work to eliminate non-value-added activities or reorder the work flow. Managing costs focuses on removing staff and redistributing their responsibilities to others.

Four strategic choices can result from organizational decisions about growth or decline and work process redesign or reduction in complement (see Figure 1 ). Organizations that are reducing their strategic focus to offer services for specific markets and are cutting their staff complement are adopting a downsizing strategy. Rightsizing and restructuring are strategies that involve staff changes to meet the needs of growing or changing markets. Such efforts permit training and transfer of employees to new duties or new locations and sometimes also require a reduction in staff. Reengineering is a strategy that can address situations of both decline and growth. In the former case, the organization is redesigning existing work processes, while in the latter the organization is also designing new work processes or shifting emphasis. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed


An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.