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Employee Downsizing
The Downsizing Phenomenon Worldwide Contd...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.
However, according to Hickok, an industry analyst, downsizing resulted in vast cultural changes (mostly negative) in the organization instead of an increase in cost savings or productivity. Hickok observed the following changes in organizational culture after downsizing: power shift from middle management to top management/owners; shift in focus from the welfare if the individual employee to the welfare of the organization as a whole; change in working relationships (from being familial to competitive); and change in employer-employee relationship (from being long-term and stable to being short-term and contingent).
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