Downsizing

Downsizing

Fall 2008MGMT 412 | DownsizingPage 2

Downsizing: Why?

• Domestic competition• Foreign competition• Technological change• Change in firm strategy

• Too often…Bad Management

Sources: Cascio, 2002; Fox & Bernasek, 2003


Downsizing Trends

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1.00

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2.50

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1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

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Source: DoL, Bureau of Labor Statistics


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


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


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


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


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


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


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

Documents

Downsizing