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Organization Downsizing

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Introduction

With the issue of ineffective personnel being a critical issue in business environment, many organizations are resolving to a trim of their workforce. The following research focused on downsizing with regard to its advantages and disadvantages to both the employer and employees within an organization. During the study it was assumed that individuals who maintained their jobs after the downsizing had a conviction that their organizations were doing so in the best interest of all stakeholders. Organizational downsizing can be defined as an organization’s strategy of permanently reducing the number of employees so as to improve on its efficiency or effectiveness. While layoffs are concerned with the analysis at individual level, downsizing deals with other levels of analysis other than at the individual level only.

Whereas leadership is vital to any organization, it can be a great disappointment to employees if no good rapport is developed between all the stakeholders. The management may view it necessary to inspire subordinates to do more work with less labor. Downsized employees seldom find new jobs with a comparable pay. A study by Daft and Richard showed that average hourly wages in the United States fell from $11.37 in 1973 to $0.34 in 1991, while the annual working hours increased from 1,683 hours to 1,781 hours in 1973 and 1990 respectively.

Research Materials and Methodology

A five-point Likert survey instrument was used to examine data pertaining to downsizing and its implications to both the organizations and the laid-off individuals. A study by Weber in regard to business ethics showed that there are six major considerations that have to be given appropriate attention while downsizing. These include:

a)Making of the critical decision to downsize.

b)Communicating the criterion to be used for downsizing employees.

c)Opportunities for transition and transfer within the organization.

d)The process by which employees are laid off.

e)Motivation of the remaining employees to ensure that production and performance of the organization are not compromised.

f)General relations of the employees and the management after the downsizing.

Methodology

Question surveys among remaining employees and the downsized employees were used to investigate the degree of fairness during the process and also seek their views in regard to the fate of each stakeholder. The main objective of the survey was to obtain precise information on the impact of the downsizing process.

Reasons for Downsizing

Although organizations justify their cause of action by citing involuntary loss of resources, employees view it as an intentional move to take away their jobs. However, there are varieties of reasons as to why organizations may result to downsizing their employees. These include:

  1. To reduce expenses being incurred by the business organization so as to ensure that it remains competitive and in operation for a longer period of time. The management may consider it an informed decision to trim costs by getting rid of some jobs with an aim of maximizing their profits.
  2. Technology obsolescence leading to elimination of some of the products produced by the employees. This is an often excuse cited by many employers to terminate and reduce the number of employees.
  3. Incompetence of the employee in the evolved technology with the organization’s claim of having eliminated the product being produced by a particular employee and consequently, eliminating their job.
  4. The organization’s claim of running short of funds thus forcing it to lay-off some of its employees to avoid financial crises that would bring it down on its knees.

Causes of Downsizing

A report by Twentieth Century Fund (1995) indicated that the major cause of downsizing within organizations was as a result of short-term investments. Since corporate managers operate under pressure from financial markets, they are forced to focus more on quarterly profits rather than long term investment. An organization is made up of three pertinent stakeholders, namely: board directors, corporate managers and investors, all of whom give little priority to long term investments. Instead, they pay attention on how fast they meet their short term objectives of which are the basis used by others to judge their performance.

Primarily, downsizing is attributed to the problem of an organization’s budget especially in regard to personnel expenditure reduction. Therefore, with a great quest for maximizing profit by making significant budget changes, organizations result to firing personnel to reduce the cost incurred in paying out wages. Various discussions which have taken place indicate existence of three levels of organizational downsizing, namely: global, industrial and at individual level. At the global and industrial levels mergers and acquisitions characterize downsizing within an organization.

Advantages of Downsizing

  1. It reduces expenses and costs incurred in paying out salaries and wages to a large number of employees within an organization thus maximizing on profits. For example, Oracle Corporation laid-off about 5,000 employees on acquisition of PeopleSoft Company. In addition, Jamaica Air also reduced its number of employees by 15 percent in an effort aimed at trimming the cost of operation.
  2. Improves in economic growth in the long term within organizations when overall job availability outweighs the lay-offs as argued by economists. As such, economists are always optimistic and criticize those opposed to the idea of downsizing. In addition, they suggest that employees who lose their jobs do so due to the effect of outsourced jobs.
  3. It gives laid-off employees the advantage to utilize their skills in other technological fields which are growing at a fast rate. Economists often argue that such moves enable organizations to maintain their competitiveness in a fast growing domestic and global economy.

Disadvantages of Downsizing

  1. It disrupts an organization’s ability to incorporate new ideas since it breaks down entrepreneurial networking within the organization. Due to loss of personnel, organizations end up losing the skills that had been gained by the employees during their stay at the company.
  2. Leads to disappearance of skills within the working environment thus compromising on the quality of the production process. Consequently, creativity diminishes as employees who are left out during the process of downsizing shift attention to meeting short term objectives in time to secure their jobs. This renders the products of a business organization to be at the risk of becoming obsolete with the fast growing technology.
  3. It creates lower team performance as employees begin to adapt to the new changes and diverse areas of work allocated to them to cater for the lost personnel. As such, the management finds itself engaged in many formal controls to ensure that quality is not compromised. Little control can have great implications on the future of the organization since the products may lose out to the competitors.
  4. At the individual level, it reduces an employee’s opportunity to implement his or her creative ideas and consumes a lot of time as the project is being developed. Production process would also consume a lot of time as individuals working together struggle to achieve integration and coordination between them.
  5. At the project level, an organization suffers from a shortage of information and ideas since a communication breakdown occurs between the project managers and members from other functional areas. Diversity of information is critical for any organization to realize its goals and objectives. With a downsized labor, information diversity and innovative ideas for improving on the organization’s development process are often lost. Information greatly affects process performance and enhances team tenor thus improving on the efficiency of the production process. In addition, the organization loses many informal contacts which might provide it with the opportunity of learning from other organizations thus improve on the quality of its production process.
  6. Leads to loss of highly-skilled labor and extra expenses being incurred in training new workers as well as the increase of overtime wages for workers since they are forced to perform more duties.
  7. An increase in the number of lawsuits filed in court by employees who feel aggrieved by the move to lay them off. This leads to loss of time by the organization while trying to defend their course of action. In addition, efficiency in production may take quite a long period of time as new employees adapt to new roles and responsibilities.

Results

Considerations while downsizing

No. of respondents  in %

Decision making

         60

Communication of criteria used

         76

Possible transition and transfer

         55

Process used to downsize

         68

Motivating employees

         70

Employer-employee relations

         82 

 

Interpretation of Results

The survey sampled the response of 100 respondents, all of whom were employees drawn from different organizations and who still maintained their jobs and others who lost it after the downsizing process. The survey was based on the analysis of six considerations made in the process of downsizing as proposed by Ambrose and Delorese. From the table above, 60 percent of the interviewees argued that the decision to lay-off the organizations workforce was as a result of economic recess. In regard to communication criteria used, 76 percent of the respondents agreed that the reasons given to them to justify the organization’s course of action were not convincing enough. When asked whether the laid-off employees would consider a possible move to other places of work within the organization, 55 percent of them said that it was almost impossible and not an option in the circumstances. Further still, 70 percent agreed that the organizations would suffer huge losses while motivating the remaining workforce. 82 percent doubted whether the normal employer-employee relationship would remain after the lay-offs.

The above results from the survey indicate that employees are not in support of the downsizing trend growing up in many organizations today.

Conclusion

From the results of the survey it’s evident that many employees are not for the idea of downsizing as opposed to the management who think that the move is in the best interest of the company as well as the employee. Many of the employees appear to be of the fact that such moves cannot be justified and that they are only aimed at oppressing them financially. All in all, organizations continue suffering from loss of skills and innovative ideas and their reasons for lay-offs cannot be justified in the eyes of the employees. The reason behind this can be due to the fact that the management and other stakeholders put more focus on short-term returns other than the long-term investments. As such, they result to laying-off their personnel so as to achieve their goals and objectives.

As organizations compete with each other and struggle with the issue of personnel reduction in an increasingly competitive world, cooperate managers, executives and investors should put more focus on long-term investment rather than shot-term solutions. Strategic planning should also be implemented so as to ensure that downsizing is the last alternative to the organization.

 

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