Big Companies fall. How do rich get richer? By discarding you (“Downsizing Haikus”). While this comical haiku on downsizing represents the pessimism among many workers who have fallen victim to this practice, it indeed has some truth to it. Downsizing is the planned elimination of positions or jobs (Gowing, 55). You might even say downsizing, which is often called rightsizing in an attempt to euphemize the word, is the opposite of a company expanding. Many types of corporations and businesses have used or will use downsizing to achieve different goals. In the United States forty three million jobs were erased between 1979 and 1995, according to a New York Times analysis of Labor department statistics. Clearly this is a significant part of the work force.
What had changed in the workforce to resort to downsizing? Many factors have affected the work and organizational structure called for in business. Globalization, consolidations, computerization, and divestment have resulted in dramatic changes in employment (Kirschner). All of these have created a new workforce, a new attitude about employment, as well as reducing job security and morale. The increase in global business has increased competition in most industries. Also, the increasing rate of technology has allowed for a higher production and global business to run more smoothly. It is often difficult for industry to keep up with the large abundance of technology that is introduced to our society every month and year. The shift of businesses from making a product to providing a service has led to downsizing and reengineering of many companies. Companies downsize in an attempt to help the company financially and in hopes of producing larger revenues. In many cases less people working leads to a more efficient and productive workplace. The workers left become more efficient in speed, quality, as well as the reduced use of company resources. Although this is not always the case, many managers and CEO’s believe in fact this will be the result of downsizing their firm.
Downsizing is also a reaction to an organizational decline in the workforce or a threat of an organizational competition. If one firm downsized competitors must also downsize in order to remain competitive. It is vital for companies to keep up to par with similar entities. A good example of this current trend of downsizing can be seen in the bank industry. Many banks are downsizing because of intense global competition threatened by further deregulation of their industry. Also, new competition from other providers of financial services such as insurance companies and brokerage firms are pushing banks to raise the bar (Cameron, 15). Downsizing may be done in an attempt to rise to price of stocks or after a company merger. Lately, large companies merging to come together and form one large entity, that can annually grosses more than an entire country! Currently there are five major corporations that are thought to control the media and many political decisions and all of these are the product of mergers. Sometimes a plant is closed and employees are offered a new position in another location. As we know, with a family this is often quite difficult to do. There are positive results of a corporation that lead to downsizing. Improvements in fundamental business processes and practices lead to downsizing. This was seen in the company DuPont when they cut 1,500 jobs in their nylon and polyester units (about 8% of the unit workforce) because improved technology led to a higher rate of production (Kirschner).
One would think that workers that are the least efficient and skilled would be laid off first. In reality, this is not the case. Many people have the attitude that if they work hard, kept their noses clean, and keep up-to-date skills relevant and indirectly related to their job position they would be spared being downsized. You can do all the right things and still be downsized in a corporation. Being downsized is no reflection on what you do or how you do your job. People who thought they were doing well were canned. Things have changed since the days when downsizing was first utilized in America. Most of the time when people are downsized it has much more to do with the position they held rather than them personally. In cases where thousands are laid off, clearly there are too many people to take it personally. Ironically, sometimes the skills that an employee has get him or her transferred or promoted to a less secure job that gets cut. This is because companies are cutting costs at the higher end, eliminating the most costly positions and they are concentrating on numbers, not particular employees. Again the theme of money is in play. While many people are able to jump right back in the saddle of a new position after being downsized many take the situation very differently. People become shocked and angry, in many cases depression results. These changes are changing the minds and hearts of those in the workplace. In the workforce today people need to learn to be flexible and work with these often abrupt changes in jobs. It is possible to find employment and success in life after being downsized.
While the person who is laid off after these changes are affected financially, personally and socially many others take the hit also. Spouses, children, dependent parents, friends, and coworkers are all affected. Often co-workers whom were not downsized feel guilty that someone they respected professionally was eliminated while they remain. Many households today survive on two salaries and without the additional income they suffer financially. However, out of all the professionals that have been downsized those in blue-collar hourly wage positions have sustained approximately 50% job loss (Casico, 928). At the current moment you are in just as much of a risk to be downsized if you are a white-collar worker, but the blue-collar workers felt the effects of downsizing when the practice first emerged. Chase Manhattan cut 12, 000 employees and Digital Equipment cut 20,000 (Gowling, 57). Many CEO’s of larges businesses such as these are criticized because while employees are cut in large numbers the CEO’s salary is still extremely high. It is not uncommon for a CEO to make a few hundred thousand a year! Certainly the meager financial relief a downsized employee provides cannot compare to a CEO’s salary. In addition, many CEO’s also profit from the increase in stock prices after downsizing many employees.
Most CEO’s try to defend themselves by saying they had to downsize as a last option. However, a Right Associates survey showed that 90% of organizations that had downsized, only 6% tried to cut pay first and 9% had shortened work weeks and vacation without pay, while 14% had developed job sharing plans (Gowling, 31). These statistics clearly show that companies are not using downsizing as a last resort, but often as a first option. CEO’s should take their “menu” of cost cutting options and not just cut straight to downsizing, but also test out other samples.
In the book, The New York Times article “On the battlefields of business, millions of casualties”, 5 major statistics are given to show the trends in downsizing and the revolution that is taking place (Uchitelle, 14).
1. Nearly three quarters of all U.S. households have had a close encounter with layoffs since 1980. In 1/3 of all households, a family member has lost a job due to downsizing.
2. One in ten adults (19 million) said a layoff in their household was a major crisis in their personal lives.
3. Layoffs are normal during a recession, but now they are being used even when the economy and the company are doing well, and in many cases even when both are doing phenomenal.
4. In the 1990’s better paid workers ($50,000+) account for twice the share of lost jobs (12%) that they did in the 19080’s (6%).
5. 50% more people are affected by layoffs each year than are victims of violent crimes.
Does downsizing work? Based on a study of 311 companies that downsized by more than 3% (significantly) in any year between 1980 and 1990, the answer is no. This study, which was performed at the University of Colorado by three economists, followed these companies for several years. What was found was that the level of downsizing in any given company did not affect post downsizing company financial performance. This included industry capital intensity, sales, variability, and competitiveness. In addition, the level of downsizing did not affect company’s post downsizing stock returns. Based on the entire study it was concluded that downsizing does not improve or hurt a company’s financial performance (Gowing, 55-62). The question that remains than is, if this study was conducted 10 years ago, why are we still downsizing jobs? CEO’s salaries have steadily increased to sky-high numbers, and yet we still see a need to reduce the number of the average person’s profession. The amount of downsizing in the workforce today has led to an increased distrust in one’s job.
When downsizing begins in your place of employment or after you are released from your job due to downsizing many issues will arise. When it comes down to who is selected in the downsizing process it is often thought that age discrimination is involved in this process. This is unfortunate because older workers have the most trouble being rehired after losing their job. This can be due to previous senior positions, greater financial needs, being set in ones way (not flexible), and very often they are overqualified. While typically one thinks of an “old worker” as a person close to retirement or older than 65, this is no longer the case. The experience and qualifications people in their 40’s and 50’s now posses can even land them in this position. After being downsized many people take part time or temporary employment to be able to pay the bills until something better comes along. Many others take similar positions in the same company in another location, but as mentioned above when you have a family this can be more difficult. Due to emotions that arise towards the company after a large group is downsized, many companies receive threats such as bomb threats. Generally, it is said that if you have a good skills set and network, you will be able to find a good new job rather quickly. Paul J. Forti of PJF Associates, counsels people who were laid off on seeking new employment. His firm estimates that 15%-20% of the people they counsel do not receive the salary or position they lost once they find a new position. However, 30%-40% get an equally satisfying or better job. Generally those with advanced degrees (law degree, PhD, Masters) have little to no trouble finding employment in the future. Mr. Forti suggests that you rely on yourself rather than your company and keep building skills and keeping them current (Kirschner, 6). It is unfortunate that we can no longer trust our employers, but if you want to survive in the workforce you have to realize security is no longer a luxury workers can enjoy.
There are several positive aspects of downsizing that are argues by those who do it. There must in fact be some positive aspects if this practice continues despite the results. It is thought that it re-energizes tired employees and forces them to work hard in order to keep their job. Oddly enough, many people who have lost their jobs are given time to reflect on their careers and their dreams, and many decide to take an entirely different path in their career. While this is not an advisable way to discover hidden talents or hobbies, it can in fact be the result of an unfortunate situation. It may even heighten aspirations for employees and shift the organization’s focus to future possibilities. As more and more employees are eliminated the remaining employees must pick up the slack of those who are gone. This leads to employees being taught new skills and providing them with training and development. This alone makes the single employee more beneficial in the firm. With less people around communication efforts from management and lower levels can improve and a clear mission can be established. People might feel closer and more important in an organization when they understand its different types of functions. This alone is said to encourage innovation in employees.
After the much-publicized documentary, Roger and me by Oscar award winning moviemaker Michael Moore the car industry has been observed more closely. While this film chronicles the closing of a GM plant in Flint, Michigan and the subsequent deterioration of the town afterwards, it leaves many points out critics say. During the 1980’s Flint, Michigan had the highest unemployment rate of any town in the country, but it also had the second or third highest average personal income in the country for years before. Dissidents argue that corporations should not pay employees more than their skills are worth, keep employees when they are not needed, or keep uneconomic plants open to save face. If corporations don’t close down uneconomic plants, they will have fewer resources to upgrade their viable plants, and put the workers in those plants in jeopardy also. The corporations actions must be looked at in their entirety not just the details. It is not fair that employees want these corporations to share their wealth with them with their generous salaries, but will not take the burden of their losses. Changes that have been suggested to improve downsizing and outsourcing mimic those of European countries. However, between 1980 and 1999 the United States added 24 million new jobs, while the European Union only added 9 million. In addition, in 1999 unemployment in America was under 6% but in Germany it was 10% and in France 11% (Maitland). While politicians like Ralph Nader, Ted Kennedy, and Pat Buchanan are against this so-called “corporate greed” it seems that pain free economics only exists in the speeches of politicians.
If downsizing is socially immoral and unprofitable than there must be a substitution for this practice. Financial experts recommend responsible restructuring of companies. By downsizing employees it shows that managers and CEO’s are asking the question to themselves, what is the minimum number of people we need to run our operations? However, restructuring of the firm shows that these same people are asking how can we use the people we currently have more effectively? This simple adjustment in how a manager approaches job position adjustments gives the appearance that employees are viewed as assets rather than costs to be eliminated. Companies need to develop plans to grow and increase their revenue rather than just cut fixed costs. Downsizing levels of management can leave employees in a dead end position with no chance of advancement. As each progressive stage is cut or reduced the opportunity to learn as you go is no longer available. Companies now are using more temps. workers in their organizations. 90% of 1,110 respondents in a Business and Legal Reports survey reported that they used temp. workers. This is a 50% increase from 5 years ago (Mondy, 503). Many companies now offer a 32-hour/ 4-day workweek to cut coats. This schedule works best for new employees, as an alternative to lay offs, and for entry-level jobs. While this may not save a large amount of money, it improves it a bit.
What does it mean to be laid off? While those who are downsized will tell you they were laid off, downsizing and laid off are different things. They basically differ in the magnitude of the number of workers that are no longer employed. While downsizing in theory is only suppose to happen during bad times, lay offs occur during recessions and economic highs. Generally, lay offs are based on seniority. This is different than downsizing, because an entire level of upper management can be eliminated during downsizing while this is not the case in lay offs. However, at the end of the day both those people who were laid off and downsized are left without a job.
At the same time that downsizing is being scrutinized in the media and within companies, so is another practice called outsourcing. This is the practice of sending different job functions or departments to other locations. In many cases these jobs are in large numbers and these locations are third world countries, where wages are low and work laws are non-existent. Recently the amount of IT jobs that have been outsourced has become increasingly alarming to those in the industry. In the past those in the tech industry have received very generous salaries for their rare and valued skills. At the same time, there is a worked in India who is just as skilled and educated but will work for 4% of the salary of the American worker. Many view this as a threat to the American workforce, particularly to the future workforce. With so many positions and industries being outsourced it is uncertain how far corporations will go to save themselves money.
Over the past 15 years or so, downsizing has wiped out hundreds of thousands of jobs, disrupted lives of employees, and changed the face of employment. It has come to the point where it has to be such a large downsizing (like when AT&T; cut out 40,000 jobs) for the public to be shocked. Many consultants believe the worst cuts are over, but this is just a prediction. Whether the trend will continue in such large proportions or at all is uncertain. We must acclimate ourselves to this environmental change in the workforce and be prepared to possibly be a victim of downsizing and/or outsourcing. Fair or not, American corporations are founded on capitalist thought and in this environment it’s about the survival of the fittest rather than corporate responsibility.
Works Cited
Cameron, K.S., R.I. Sutton, and D.A. Whetten. “Issues in organizational decline.” Readings in Organizational Decline. Cambridge, MA: Ballinger, 1988. pg. 3-19.
Downsizing Haikus. 1999. October 1, 2004.
Gowing, Marilyn K., John D. Kraft, and James Campbell Quick. The New Organizational Reality: Downsizing, Restructuring, and Revitalization. Washington, D.C.: American Psychological Association, 1998.
Kirschner, Elisabeth. “Employment Outlook: Downsizing.” ACS Publications. October 28, 1996. American Chemical Society.
Maitland, Ian. “The upside of downsizing.” The Star Tribune.May 6, 1996: 23-26
Mondy, R. Wayne, Robert M. Noe, and Shane R. Premeaux. Human Resource Management. 3rd edition. Upper Saddle River, NJ: Prentice-Hall, 2003.
Uchitelle, L. and Kleinfield, N.R. ” On the battlefields of business, millions of casualties.” The New York Times. March 3, 1996: 14-15.
