Downsizing Methodology

1. INTRODUCTION

1.1 What is downsizing?

Downsizing is defined as “purposeful reduction in the size of an organization’s workforce” (Spreitzer&Mishra, 2002) and it has affected hundreds of companies and millions of workers since the late 1980s. Downsizing may occur by reducing work (not just employees) as well as by eliminating functions, hierarchical levels or units. Downsizing does not include the discharge of individuals for cause or individual departures via “voluntary” retirement or resignations. The key attributes of downsizing given by Freeman & Cameron (1993) are as follows;

* It is intentional

* It usually involves reductions in personnel

* It is focused on improving the efficiency or effectiveness of the organization

* It affects work processes

During their lifes, many firms anticipate about their expenses, profits, return on investments and stock prices. When they fail on those estimations, most of the time the employers pick up the cost of these wrong managerial decisions. This is a result of a failure about the command and control of the management.

1.2 Which companies are most likely to downsize?

The most likely companies to downsize are those that are struggling to get through hard times and burden with more debt than ever. In those times, firms are forced to take drastic steps to ensure sufficient cash flow to use it. At the same time, firms that didn’t increase their debt ratios can gain significant market share in the industry. Loss of market share along with a loss of profitability stimulates more downsizing.

There are both economical and organizational benefits of downsizing to the company. In terms of economic benefits, firms which are downsizing are expecting to increase the value of the company for their shareholders. Managers do know that future costs are more predictable than future revenues and in this manner, cutting costs by laying off people is safer to increase earnings.

In terms of organizational...