Downsizing

Facing the threat of job loss and seeing others lose their jobs can be a traumatic and bitter experience. This is one reason why many excellent companies do everything possible to avoid layoffs. However, even the most employee-friendly companies may deal with difficult economic conditions by reducing their workforce. Companies therefore have to ensure that they develop appropriate and well thought-out plans before implementing the downsizing and layoff process.

Downsizing

Layoffs, frequently called downsizing, describe the process in which companies remove temporarily or indefinitely a number of employees from their payroll , and have become significant characteristic of working life in developed countries. The general purpose of this practice is to reduce the organization’s burden of excess labor costs when human resources cannot be used effectively.

It's a puzzle companies of all sizes face in the current economy: Lay off a portion of the staff to save the majority of jobs, or keep everyone and lose money.

Why downsize?

The reasons why the company downsizes are related to dramatic changes occurring in the environment and are very varied.

• The threat that the company lose a market share in its industry or respond to fierce competition from its rivals resulting in the need for the company to cut costs through altering its size to fit its market and customer base.

• Reducing layers of management to increase decision making speed and get closer to the customer.

• Sharpening focus on core competencies of the firm, and outsource nonessential activities.

• Generating positive reactions from shareholders in order to improve valuation of stock price. Often share prices will rise after a major downsizing, because the company is perceived as "doing something."

• Increase productivity: Since salaries and benefits are two major operating expenses, a business that lays off people and/or contracts their jobs out to a supplier of cheap labor will have more ready money available.

• If competition is doing it, there will be pressure to compete. Often there are "downsizing stampedes" in an industry.

Globalization and the breakdown of trade barriers among nations and the emergence of technology and automation have also necessitated the company to downsize. Thus, the overriding rationale for downsizing by the company appears to be the need for survival and the ability to compete in the new global economy

Human cost:

Downsized employees usually do not get new jobs at their old salaries; in fact, the older an employee is the longer he may have to wait to get any job at all. Companies who have downsized usually end up replacing people in those positions, but at lower salaries -- in other words, they have replaced older, more experienced employees with younger employees who do are willing to work for less.

Those who have been downsized may never recover emotionally or financially. Studies have also shown that employees who are retained also suffer: they have more health and emotional problems, and many of them lose motivation and loyalty.

Workers who saw the organization as a family feel lost without their familiar networks. There was more fraud among workers who survived downsizing, and increased distrust of management.

Those employees who have been left behind usually end up being asked to work harder and/or longer hours (the old strategy of doing more with less, and asking the remaining employees to pick up the slack).