Downsizing

1.
Explain the concept of

downsizing and describe the
various downsizing techniques.
Critically evaluate the reasons for
the increasing use of downsizing
during the late 20th century and
the early 21st century. Also
discuss the positive and negative
effects of downsizing on
organizations as well as
employees(downsized and
remaining)?
Concept of downsizing
DOWNSIZING as a management tool was first
introduced in the US during the mid-20th century.
From management 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”
It refers to the process of reducing the number of
employees on the operating payroll by the way of
terminations, retirements or spin-offs.
The process essentially involves the dismissal of a large

portion of a company’s workforce within a short span
of time.
Downsizing VS Traditional layoffs
Downsizing is not the same as traditional layoffs.
In traditional layoffs employees are asked to leave
temporarily and return when the market situation
improves.
On the contrary in downsizing employees are asked to
leave permanently.
In both the cases employees are dismissed not for
their incompetence but because management decides
to reduce the overall workforce.
Major techniques and strategies of
downsizing
1. ATTRITION:
Occurs when employees leave due to retirement, death or
resignation.
2. VOLUNTARY RETIREMENT AND BUYOUT BENEFITS:

Voluntary retirement benefits encourage employees to
retire early with full or reduced pension benefits before the
stipulated age.
Buyout is a similar technique that includes offering lump

sum payment to encourage employees to voluntarily leave
the organization.
3. LEAVE WITHOUT PAY:
It is granted to employees with reduced benefits, but

with the guarantee of job when they return at the end
of their leave period.
This strategy was useful for firms which downsized to

cut costs rather than to reduce their leave period.
Reasons for increasing downsizing in 20 and
early 21st century:
1980’s:
Here downsizing was considered as a tool adapted by
weak companies.
Mostly resorted by weak companies facing high demand
erosion, facing severe competition.
1990’s:
Here even financially sound companies began downsizing.
Investors began considering the practice as a means of:
1. reduced costs
2. improve productivity and increase profitability
The first phase:
Till late 1990s, firms that adapted downsizing were limited
but the situation changed in early-1990s.
Companies like GE,GM downsized to:
1. increase productivity and efficiency
2. optimize resources
3. survive competition
4. eliminate duplication of work
During the early and mid 1990s, companies across the world
began focusing on enhancing the value of the organization
as a whole. So they started downsizing their workforce to :
1. improve the image of the firm among the stake
holders or investors
2. Become more competitive
The second phase:
By the mid 1990s, following factors reduced the need for
downsizing across the globe:
1. increased investor awareness
2. stronger economies
3. fall in inflation
4. increase in national incomes
5. decrease in level of unemployment
6. high profits
It picked up momentum in late 1990s due to the factors
like:
1. worldwide economic recession
2. increase in global competition
3. the slump in the IT industry
4. dynamic changes in technologies
5. increase in availability of temporary employee
base.
Rationalization of labor force and wage reduction took

place at an alarming rate during late 1990s and early 21st
century.
POSITIVE AND
NEGATIVE EFFECTS OF
DOWNSIZING
ON ORGANIZATIONS:
positive
1.As the perceived value of
negative
1.It realized that it was
the downsized company was running short of people for
more than its actual value, various departments, uneven
managers adopted distribution of employees.
downsizing even though it
was not warranted by the
situation.
2.Downsizing increase the 2.It succeeded in making
equity value of the company. some money in short run but
it ended up in losing
experienced and skill
workers.
3. Increase in equity value 3. It had to invest heavily in
resulted in increase in rehiring many workers.
wealth.
0n employees:
positive negative
1.Power shift from middle management 1.depression, anxiety, frustration, anger
to top management/ owners and bitterness
2. Survivors experienced low morale,
high stress and had to cope up with an
increase in workload.
3.Uncertain regarding career
advancement.
4.Reduced productivity and fall in
quality levels
Why did contingent employment and
flexible work arrangements become
very popular during early 2000s?
Discuss. Evaluate these concepts as
alternatives to downsizing in the
context of organizational and
employee welfare?
Tackling the evils of downsizing:
During early 21st century, many companies began
offering flexible work arrangements to their employees
in an attempt to avoid the negative impact of
downsizing.
Such an arrangement proved beneficial for both

employees and organization.
A flexible working arrangement resulted in:
1. increased morale and productivity
2. decreased absenteeism and employee turnover.
3.reduced stress on employees
4. increased ability to recruit , retain superior quality employees

improved service to clients in various time zones.
5. better use of office equipment and space.
6. giving more time to pursue their education, hobbies,

professional development and handling personal responsibilities.
The concept of CONTINGENT EMPLOYMENT also
became highly popular and the number of
organizations adopting this concept increased
substantially during early 21st century.
According to the Bureau of labor statistics

(BLS), US, contingent employees were those
who had no explicit or implicit contract and expected
their jobs to last no more than 1yr.
They were hired directly by the company or through

an external agency on a contract basis for a specific
work for a limited period of time.
Companies did not have to pay unemployment taxes ,
retirement or health benefits for contingent employees
.Though these employees appeared on the payroll , they
were not covered by the employee handbook.
In many cases the salaries paid to them were less than these
given to the regular employee performing similar jobs.
These employees offered flexibility without long term
commitments and enabled organization to downsize them,
when not required, without much difficulty or guilt.
Analysts commented that in many cases HR managers
opted for contingent employees as they offered the least
resistance when downsized
As a part of an organization’s HR
team responsible for carrying it
through a downsizing exercise,
discuss the measures you would
adopt to ensure the exercise’s
success. Given the uncertainty in the
job market, what would you think
employees should do to survive the
trauma caused by downsizing and
prepare themselves for it?

Downsizing

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1.

Explain the concept of

From management point of view, downsizing can be

The process essentially involves the dismissal of a large

2. VOLUNTARY RETIREMENT AND BUYOUT BENEFITS:

Buyout is a similar technique that includes offering lump

It is granted to employees with reduced benefits, but

This strategy was useful for firms which downsized to

Rationalization of labor force and wage reduction took

Such an arrangement proved beneficial for both

1. increased morale and productivity

2. decreased absenteeism and employee turnover.

3.reduced stress on employees

4. increased ability to recruit , retain superior quality employees

5. better use of office equipment and space.

6. giving more time to pursue their education, hobbies,

According to the Bureau of labor statistics

They were hired directly by the company or through

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