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. 
Bibliography
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