FREE ESSAY ON CORPORATE DOWNSIZING

CORPORATE DOWNSIZING

Corporate Downsizing
Organizations in every segment of business, industry, government, and education are
downsizing. Downsizing is and has been a controversial phenomenon in the last few years.
The controversy that surrounds downsizing may be better described as a debate in
organizational theory about whether change is adaptive or disruptive. The issues which 
establish the outcome of the controversy include why the downsizing is taking affect, how
it is implemented, and what steps are taken to enhance its effects on organizational
performance. 
The reasons for corporate downsizing are presented in many forms. Some companies downsize
due to technological changes such as automation, which brings about the need for a
reduction in the production workforce. Others may feel that competitiveness with other
companies warrants the need for a reduction in the workforce. Financial setbacks due to
customer demand, market shares, and loss of revenue could also initiate the need for
downsizing. 
When will it end? Experts say it won't. For instance, the North American Free Trade
Agreement (NAFTA) was established as a universal trade agreement between the US, Cannada,
and Mexico to allow free imports and exports. It was also established with the intent to
help poor countries, like Mexico, export their products for economic reasons. In my
opinion, it has strongly contributed to America's massive downsizing phenomenon.
Companies that have experienced financial setbacks and losses seem to relish the idea
that they can downsize the workforce here in the states, move operations into places like
Mexico, hire cheap labor, and export their product back to the states, while making
bigger profits. The sad part about this is that it is true, and NAFTA is largely
responsible for this type of downsizing. Is this ethical? That remains to be seen.
The truth is that unless an organization
was designed expressly for the purpose,
it is not in business to provide 
employment. Jobs are the by-product of 
successful organizational endeavors, not 
their intended output. 
If the decision to downsize is a response to competitive pressures, it will appear
impatient or premature to those who must leave. If it is perceived as anything less than
a well developed strategic response to demands on the organization, then it fails to show
employees need for the criteria. Downsizing can sometimes seem to be about creating
victims and displacing blame rather than accepting responsibility and choosing moral and
ethical ways to implement the outcome. Management wants a quick cut that protects he
company's assets, yet it wants to be gentle and compassionate to those who are let go.
These two objectives are self-canceling, and to accomplish the first requires
considerable compromise on the second. 
Many companies wait until the day of the lay-off to inform its employees. They are
concerned about sabotage and productivity. They seem to think that if they retain the bad
news until the last moment that the employees will leave and the rest will get back to
business. However, this method of a lay-off is the least favorable for the employees. If
the company gives the employees notice of the cutback in the workforce, they will have
time to plan for the financial problems, look for other work, and make other necessary
arrangements to prepare them for the loss. It would be in the best interest of the
company to give this notice to its workers.
Being a survivor of downsizing can have its own ethical issues. Those who are left after
the downsizing has occurred, may share perceptions about the ethics of the decisions
leading up to the dismissal of those who left. They may experience feelings such as
anger, guilt, fear, and even depression. These feelings could be brought on by having to
take up the slack and doing more work. They could also be asked to learn new tasks and
for the same or maybe even less money than before the downsizing. Asking people to do
more for less money can seem unfair. In my opinion, companies and organizations sometimes
put too much pressure on surviving employees. This can cause the decision-makers to seem
insensitive to the reality that employees are people with full lives and responsibility
outside the workplace. 
Call it outsourcing with a heart. 
DuPont on December 11, tentatively
agreed to outsource its computer and 
telecommunications operations, but it 
will do so without cutting jobs.
Instead, some 3,100 DuPont staffers
will be given the chance to switch
employers with 2,600 spots slated for
Computer Sciences Corp. and 500 for
Andersen Consulting. An additional
1,100 information technology staffers
are expected to stay with DuPont.
The outsourcing pact is one of the
biggest ever. It will be worth more
than $4 billion over 10 years, with 
CSC taking the lion's share. CSC will
handle DuPont's global mainframe, 
mid-range, and PC hardware needs,
and worldwide telecom network,
while Andersen takes care of software
applications. The parties have signed
a letter of intent and are now
hammering out the final terms. 
The flip-side to downsizing could be a more positive result or experience. When companies
have their employees economic survival at heart when planning their downsizing tactics,
an adaptive approach as well as a positive outcome can be expected. Most managers seem to
understand the hard side of downsizing such as the cost of inventory, shipping, severance
packages, and plant capacities. I'm sure DuPont considered all of these issues. However,
they took the issues one step further and considered the softer issues such as morale,
loyalty, and the role of the corporate environment on employee motivation and
productivity. These issues should be addressed to keep a downsized company alive and
well. 
As history would have it, more companies suffer from downsizing rather than prosper. Why
is this the case? Most companies or organizations fail to focus on the entire picture.
For instance, they see the need for cutbacks in money and finance, yet they often pay
more attention to the people they let go than the ones they keep. They may provide the
laid-off workers with outplacement counseling, resume writing assistance, and other
sources for potential job leads. Some companies even extend their health benefits, offer
early retirement incentives, and often give severance packages. But, where's the
generosity for those who remain to do the work? The blow of staying with a company that
has downsized needs to be softened too. Employees often feel threatened that their own
jobs may be in jeopardy, they may have a growing mistrust of the company, and they have
little understanding of what management is doing or what their role will be in the
company's future. Managers must pay attention to the survivors too.
I suppose that honest and sensitive communication is the most prominent challenge in
every downsizing. Executives and managers are trained to think they should have all the
answers before they talk to employees. In my own experience with my own company, ITT
Automotive, this was the case. For many months we heard rumors about the sale of the new
Henderson plant, the sale of the Morganton plant, and the closure of the Asheville plant.
Monthly employee meetings were postponed, and employees went fishing for answers, the
wrong ones I might add. Rumors flourished and expanded as they passed from employee to
employee and from plant to plant. ITT should have given us the information as soon as
they received it. (E.g. jobs will be lost but we haven't finalized which ones yet.) They
should have held the regularly monthly meetings and promised to get back to us with
answers to questions that they didn't have answers too. They created a great mistrust
among the workforce by withholding information. They made us feel as though we were a
bunch of children and that we couldn't handle the truth. Extensive follow-up meetings
could have also been essential in relieving fears and anxieties. It is imperative that
companies maintain trust, keep the lines of communication open, and develop a strategic
plan for its employees to follow after the initial downsizing. Taking these steps will
enable the company and the workforce to prepare for the challenge of working with fewer
resources and begin meeting the new challenges they may face in their new structured
environment. 
At this point the Human Resource department should be highly involved in the
decision-making process. After all, they are largely responsible for the high wages and
often times over-hiring of the workforce. They are the department to implement, not to
create in a lay-off situation. They also direct the employee as far as labor laws, fair
compensation, employee information and act as a go-between for management. Their mission
is to protect the interests of the employee, while carrying out the needs of management.
It is a proven fact that 80% of companies that downsize suffer from low morale among the
workforce, which in turn creates lower productivity and often lower profits.
Organizations must make strategic plans to carryout downsizing in order to have its
effect be a positive one. It must weigh out all of its options before planning such a
desperate move. Will the downsizing be profitable to the company? Will employee morale be
lowered by the cutback? Have all other options been exhausted before the lay-off was
decided upon? What strategic plan has been developed to ensure that the survivors feel
confident in their employment and that they understand what their new focus should be.
Alternative strategies should be exhausted before the final decision to downsize. Ways to
reduce the payroll without having to have a lay-off is in the company's best interest.
Long before the need to downsize, an organization should consider a hiring freeze as an
option. This option consists not only of the new hire option, but also means that those
employees who quit, get terminated, or retire will not be replaced in the workforce. If
these positions are needed to support the business before a reduction in workforce, a
temporary position may be a good idea at this point. This will eliminate a lay-off in
this position later and save the company money since benefits will not be necessary for
the temporary employee. This method is not obstructive to organizational morale and
commitment. Another technique to defer downsizing is a reduction in hours of operation. 
Hewlett Packard participated in what it 
Called a fortnight work schedule. 
That is, every two weeks(a fortnight) 
employees do not work for one day. When
it was used during a slow sales period
in August1985, wages were cut 10%. To 
help employees ease the crunch, they
were allowed to use vacation so there was 
no immediate loss in pay. In Europe, the 
giant auto-maker Volkswagon, has been 
climbing back to profitability after 
having put 100,000 of its workers on a
four-day week. The company estimated 
that it has avoided laying off as many 
as 30,000 employees by using the reduced
workweek. 
A third way to eliminate downsizing could be to reduce the pay for all employees.
However, this method is known to cause low morale and sometimes employees reduce their
production output to match the reduction in pay. One way to avoid this productivity
reduction is to make the pay-cut temporary. A voluntary severance package can sometimes
trigger a reduction in the workforce. This means of downsizing may be all that some
employees need to 
start their own business, go back to school, or find another job. Oftentimes this method
will enhance the workforce and get rid of disgruntled employees. One of the easiest and
least harmless methods to the employee is early retirement. 
Consider what would have happened to a
50 year old, $50,000-a-year employee
with 25 years of service at DuPont when 
it offered early retirement in 1992. 
Normally, if this employee retired early
he or she would receive only $7,512 a 
year. But since DuPont waived the actual 
reduction for those who leave early, the 
pension jumped to $18,756 a year. 
As you can see, this option would be an excellent incentive to the semi-retirement age
employee. No one gets hurt, no disruptive feelings or negative responses are felt, in
fact, the early retiree is quite happy and will display positive attitudes.
As we look at the reasons for downsizing, it is easy 
to justify the needs from an organizational and business point of view. When considering
the needs of employees and the affects of downsizing on them, the picture looks very
different. While a company has to do what is necessary to stay alive in the competitive
world of business, it also has a moral obligation to its employees and the community.
Whether or not it chooses to consider the needs of its employees and the community during
a downsizing phase will greatly affect the outcome of the process and alter the benefits
of the lay-off. While the company's profits are its main concern, it must be careful of
the way it implements the downsizing in order for the outcome to be adaptive and
positive. If the profitability is the only criteria for downsizing and the company has
disgruntled and non-focused employees, the outcome of the downsizing will apparently be
disruptive, causing low morale in the workforce, which breeds lower productivity. If the
employees can see the efforts of the company to exhaust all other possibilities before
the lay-off and consider the needs and feelings of the employee and the affects on the
community, they may be able to look upon the company with trust and security. A developed
plan or focus for their future may allow survivors of the downsizing to adapt to the
change in a more positive manner. Involvement by the Human Resource department should
ease the pain of those affected by the lay-off. Counseling, job placement programs, and
benefit options are all concerns for the laid-off employee. It is the responsibility of
the HR department to ease the pain and keep the lines of communication open between the
employee and management. Management is responsible for the decisions, but the HR
department should insure that the management follows all moral and legal obligations to
the employee. In order for this new change in American business to be adaptive, complete
and thorough plans should be carried out in the process of downsizing in order for the
company and employee alike to accept new ideas and focus on the new direction brought
about by the change. Survivors of the downsize process must have confidence in the
company's honesty and its ability to secure their jobs. They must outline a strategic
plan to keep morale and productivity on an upward trend. 
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