Employee Downsizing
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Case Details:
Case Code : HROB016
Case Length : 09 Pages
Period : 1990 - 2001
Pub Date : 2001
Teaching Note : Available
Organization : Varied
Industry : Varied
Countries : USA, India, etc...
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The Downsizing Phenomenon Worldwide
Downsizing as a management tool was first introduced in the US during the
mid-20th century. It refers to the process of reducing the number of employees
on the operating payroll by way of terminations, retirements or spin-offs.
The process essentially involves the dismissal of a large portion of a company's
workforce within a very short span of time.
From the management's point of view, downsizing can be defined as 'a set of
organizational activities undertaken by the management, designed to improve
organizational efficiency, productivity, and/or competitiveness.
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This definition places downsizing in the category of management tools such
as reengineering and rightsizing. Downsizing is not the same as traditional
layoffs. In traditional layoffs, employees are asked to leave temporarily
and return when the market situation improves.
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But in downsizing, employees are asked to leave
permanently. Both strategies share one common feature: employees are
dismissed not for incompetence but because management decided to
reduce the overall work force. In late 1990s and early 2000s,
different organizations adopted different kinds of downsizing
techniques and strategies (Refer Table II).
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. Due to these factors, these
companies found it unviable to maintain a huge workforce and hence
downsized a large number of employees. |
Soon, downsizing came to be seen as a tool adopted by weak
companies, and investors began selling stocks of such companies in anticipation
of their decreased future profitability. However, 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.
This new development went against conventional microeconomic theory, according
to which a weak firm laid off workers in anticipation of a slump in demand, and
a strong firm hired more workers to increase production anticipating an increase
in demand...
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