Introduction

Downsizing or restructuring refers to interventions aimed at reducing the size of the

organisation. This typically is accomplished by decreasing the number of employees
through layoffs, attrition, redeployment, or early retirement or by reducing the number
of organisational units or managerial levels through divestiture, outsourcing,
reorganisation, or de-layering.

Cummins & Worley 2005 reveal, in practice, downsizing generally involves layoff
when a certain number or class of organisation members is no longer employed by the
organisation.

Distinction between Downsizing and De-layering

Belbin (1996) offers a useful distinction between downsizing and de-layering when he
characterises the first as random reductions in employee numbers, often based on
those who offer volunteer redundancy. De-layering, on the other hand is characterised
as a much more systematic process involving the removal whole tiers of management
in the hierarchy. Both activities remain a popular managerial action and make the
operation more cost efficient and competitive. Downsizing increases work load and
stress level of retained staff and de-layering empowers the staff down the hierarchy.

Important Consequence
An important consequence of downsizing has been the rise of the contingent
workforce. In companies like CISCO or MOTOROLA, less expensive temporary or
permanent part-time workers are often hired by the same organisations that just laid
off thousands of employees. (Cummins & Worley 2005)

Factors effecting organisation’s policies

According to Stone J.R. (1998) a lean and hungry organisation rather than a fat and
comfortable one is the goal. Increased domestic and international competition,
deregulation, mergers and acquisitions and pressures for increased profitability and
performance have all played a part in forcing organisations to cut jobs. Even
successful companies such as IBM, KODAK and XEROX, long renowned for their
no lay off policies, are now use downsizing as a standard business practice.

Response of Downsizing
Downsizing is generally a response to at least four major conditions.

• It is associated increasingly with mergers and acquisitions. One in nine jobs

cuts during 1998 was the result of the integration of two organisations.
• It can result from organisation decline caused by loss of revenue and market
share and by technological and industrial change.
• Downsizing can occur when organisations implement one of the new
organisational structures, for example, outsourcing.
• Downsizing can result from beliefs and social pressures that smaller is better.
Organisation may downsize for their own sake and not think about future
growth. They may lose key employees who are necessary for the future
success. In such situations, it is questionable whether downsizing is
development.
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Successful interventions of downsizing
Successful downsizing interventions tend to proceed by the following steps:

• Clarify the organisation’s strategy

• Assess downsizing options and make relevant choices
• Implement of the change
• Address the need of survivors and those who leave
• Follow through with growth plans

Result of downsizing
A review conducted by the National Research Council, “downsizing as a strategy for
improvement has proven to be, by and large, a failure.”
One survey of 1005 companies that used downsizing to reduce costs reported that
fewer than half of the firms actually met cost targets.

Advantages and Disadvantages

The research points out to a number of problems at the individual level, including
increased stress and illness, loss of self-esteem, reduced trust and loyalty, and
marriage and family disruption, unhappy staff and long term profit reduction.
Cummins and Worley (2005) further reveals that effects of downsizing on financial
performance also shows negative results, the research concluded.

On the other hand downsizing improves the profitability of companies in the short run
by reducing number of employees which results in cost reduction.

Many criticisms have been made to such practices or strategies, due to the impact that
leave within relationships and motivation of employees within an organization.
Leaving as a result a low performance and efficiency, because of the bad atmosphere
that the cause Downsizing or de-layering on employees who remain with the
company.

Thus, Downsizing is also seen as a threat to employees, due to limited and replaces
their work.

According to Neito (2006) downsizing can have a bad impact on employee relations
and motivation. In the modern work place where fewer people are often required to
cope with larger work load, the lack of long term secure employment also places more
stress on organisational cohesion. This is simply because commitment is a two way
street. When staff see their organisation routinely expelling its unwanted employees,
the survivors are less likely to give their whole unconditional commitment to the
service and well being of that organisation.

Neito (2006) further explains with the help of diagram:

Reduce staff level Reduce short term cost Reduce morale Reduce performance

Interrelationships of downsizing and performance

Description

In the face of slowing or declining sales, companies often Downsize their employee base as a means
of cutting costs to boost profitability. Throughout 2002, large and mid-size businesses laid off
2,000,000 workers (an average of 100 workers in approximately 20,000 separate events.) 1 Although
Downsizing is effective for significant cost reduction, it often produces unintended side effects such as
damaged employee morale, poor public relations and future rightsizing costs. Creative efforts to avoid
Downsizing include hiring freezes, salary cuts or freezes, shortened workweeks, restricted overtime
hours, unpaid vacations, and temporary plant closures. When Downsizing proves unavoidable, the
ultimate goal should be to eliminate non-essential company resources while minimizing the negative
impact upon the remaining organization. Downsizing can be an effective tool if used correctly.
However, firms must be careful to avoid sending the wrong messages to employees, clients,
shareholders, and the media.

1 US Department of Labor, Bureau of Labor Statistics, Mass Layoff Statistics.

Methodology

Successful Downsizing requires managers to:

• Evaluate the overall impact of Downsizing. To evaluate the total cost of downsizing, both
financial and non-financial factors must be taken into account. Managers must calculate the
present value of all costs and benefits associated with the cuts—including severance
packages, lower employee productivity due to disorder or talent loss, eventual rehiring
expenses and future rightsizing costs. The value created should exceed the effects of lower
employee morale and the potential damage to the firm’s reputation.

• Develop a smooth Downsizing process. It is crucial that managers aggressively invest in

upfront planning of the job cuts. Firms typically form committees to determine the
appropriate level of Downsizing and to create a process that takes into account the firm’s and
the shareholders’ best interests. Other important activities are training managers how to
conduct layoffs and assisting ex-employees in their job searches.

• Strengthen the remaining firm. Communicate to remaining employees, clients, shareholders,

and the media the extent of, and the reasoning for, the Downsizing. Additionally, take steps
to ensure that remaining employees feel a sense of job security and have the training
necessary to take on any new responsibilities resulting from the Downsizing.

Common Uses

Companies use downsizing to:

• Reduce costs;
• Rightsize resources in relation to market demand;
• Signal that the company is taking proactive steps to adjust to changing business needs;
• Take advantage of cost synergies after a merger;
• Release least productive resources.

conclusion
Downsizing is an important tool through which organisations tend to cut expenses at a
larger scale. Going through this we need to understand that there is a fine line
difference between downsizing and de-layering and it is not important that
downsizing could be implemented every where. Downsizing could help organisations
reduce costs in the short run but results negatively in the long run because of the fact
that it automatically leads to organisations paying overtime extra benefits to the staff
kept and this very quickly leads to decrease in employee’s performance. As Neito,
2006 very well said that downzing could be applied to reduce costs especially in the
crisis period but it will leads to various employee and organisation problems in the
future and will impact negatively to the society