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This analysis covers the multifaceted aspects of downsizing in modern organizations, examining its causes such as domestic and foreign competition, technological change, and shifts in firm strategy. We discuss the benefits and costs associated with downsizing, including potential lawsuits and impacts on employee loyalty. Alternative strategies to pure downsizing, such as attrition, early retirements, and voluntary severance, are also explored. The importance of responsible downsizing practices, including effective communication and employee support, is emphasized to ensure long-term organizational health.
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Downsizing: Why? • Domestic competition • Foreign competition • Technological change • Change in firm strategy • Too often…BadManagement Sources: Cascio, 2002; Fox & Bernasek, 2003 MGMT 412 | Downsizing
Downsizing Trends Source: DoL, Bureau of Labor Statistics MGMT 412 | Downsizing
Downsizing: Cases For and Against • Benefits of downsizing • Reduced costs • Symbolism of cutting jobs • Costs of downsizing • Costs associated with downsizing • Potential lawsuits • Public image of firm • Decreased loyalty of current employees • Danger of losing the wrong people • Difficulties in recruitment MGMT 412 | Downsizing
Alternatives to Pure Downsizing • Prevent the need… • Staff with contingent workers • Treat employees as assets… • Reassign workers to different jobs within firm • Retrain workers in new technologies • Shorten hours / pay cuts • When there’s no alternative….some less painful options • Attrition • Early retirements • Layoffs (temporary) • Voluntary severance MGMT 412 | Downsizing
Attrition • How and where • First, a hiring freeze, then reduce workforce as employees quit or retire on their own • Usually, the first step in most firms • Advantages • Managers not forced to make difficult decisions • Employees leave voluntarily • Disadvantages • May not work quickly enough • No control over which workers leave MGMT 412 | Downsizing
Early Retirement • How and where • Financial incentives to retire • FedEx • Advantages • Less painful • Older and/or more senior workers are often paid more than younger workers, so fewer people affected • Older workers may not have skills needed for new technologies • Disadvantages • Cost • Lack of control • May not attract enough people • May attract too many people MGMT 412 | Downsizing
Temporary Layoffs • How and where • Workers placed on furlough • Seasonal industries (i.e., agricultural workers, IRS) • Heavy industry (automobiles, steel) • Temporary downturns (airlines...) • Advantages • Firm can decide which jobs to eliminate • Laid-off workers can be recalled if needed • Disadvantages • Decreased loyalty and commitment • Workforce may look for permanent work Source: Zimmerman, 2001 MGMT 412 | Downsizing
Voluntary Severance • How and where: • Generous severance packages offered to employees who voluntarily leave the company • More and more, today (in Memphis, at FedEx) • Pro: • Less painful • Con: • Cost • Lack of control • Too many people may accept • Not enough may accept Source: Cascio, 2002 MGMT 412 | Downsizing
Responsible Downsizing • Think through what you’re doing and why • Weigh the long-term advantage of keeping people, versus short-term benefits of layoffs • Seek employee input • It’s not a quick fix • Make the process fair • Communicate • Give survivors hope • Assist employees to cope with change • Examine HR policies Sources: Barnes, 2003, Cascio, 2002 MGMT 412 | Downsizing
