Downsizing And Organizational Performance And Commitment

Advantages of Downsizing

Discuss about the Downsizing and Organizational Performance and Commitment.

The spread of globalisation has made the business world very complex. Business organisations are now competing with each other at a global scale and are constantly looking out for strategies and processes that can help them in reducing their expenses and maximise their gains in order to remain competitive in the market. In simple words, downsizing can be defined as a process that is carried out by business organisations in order to reduce the number of employees that are on the operating payroll. According to Rouse (2005), downsizing can sometimes be confused with layoff but the difference between the two terms is that downsizing is a permanent action while laying off of employees is a temporary downscaling.

Downsizing the workforce of a company is a task which is never accepted easily by the management as well as the workforce. It is an unpleasant task and almost everybody in the organisation is affected by it. Cascio (1993) proposes that downsizing is generally done by companies when they either have to make changes to increase company value or to eliminate unwanted costs One of the major reasons for employee downsizing is the intention of the higher authority to cut down costs of the company. The salaries offered to the employees is counted as liability in the balance sheets, which results in a decrease in the owner equity. The salary that a company pays to its employees has a direct impact on the retained earnings. As a result, cost reduction becomes one of the prime reasons for downsizing (Sahdev, 2003). Another reasons for downsizing is when a company thinks that it can increase its overall productivity by replacing some of the workers with efficient machines or technology. Third reason for downsizing the employees of a company can be to add value. When downsizing is carried out, it indicates that major restructuring in the company’s organisational structure in underway. If the shareholders believe that downsizing can increase profitability, the price of the company’s stock will increase and more investors will be attracted. Hence, it will ultimately result in an increased company value (Cascio, 1993). Further, one of the main reasons for downsizing is outsourcing. When companies feel that they can outsource a certain process from a different company at lesser cost, they can downsize their workforce in order to achieve cost advantages (MAERTZ et al., 2010).

Disadvantages of Downsizing

Like most of the things in this world, downsizing too has its own advantages and disadvantages. One of the greatest advantages of downsizing is that it allows a company to reduce its redundant workforce. Secondly, downsizing can help organisations in saving their businesses by bringing them back on the track. It can also help in increasing the transparency as a downsizing company will have to share more information with its employees. Thirdly, It helps in making the work operations more lean. Fourthly, downsizing can help in retaining talented employees and laying off the ones that are not performing well (Connor, 1993). With lesser number of employees, a greater focus is required to be given on promoting team work. Hence, it can also help in promoting team work in the organisation. Fifthly, reducing the overall size of an organisation can make it easier for the companies to manage their workforces. Sixthly, it provides an opportunity to business organisations to revaluate their business strategies and correct the mistakes which they have made in the past. Lastly, it can help a company in surviving market competition by reducing the number of workers (Ezati Jivan, 2012)

On the other hand, downsizing can force companies to lose their talented employees in order to ensure market survival. A company looking for downsizing of employees can also lose its credibility amongst the vendors, suppliers and other business links. Secondly, downsizing can sometime have a direct impact on the bottom-line of the company. For example, losing workforce can result in decrease in productivity (IVERSON and ZATZICK, 2007). Thirdly, downsizing can also result in negative publicity as fresh employees tend to work less with organisations that adopt such strategies. Fourthly, letting people go off from the workplace can also have a negative impact in the decision making power of the organisation (Van Dierendonck & Jacobs, 2010). Fifthly, downsizing of employees can also lead to loss in knowledge as the company might have to lay off a number of its important employees (Connor, 1993). Lastly, one of the most negative impacts of downsizing is that it can overburden the leftover employees with responsibilities and work because a situation might arise when they will also have to do the work which was earlier being done by the employees who have been laid off (WiseStep, 2017)

There are a number of factors that can have a huge impact on the success or failure of a downsizing strategy. The time period or the extent till which a company downsizes its workforce can have an impact on the success rate of the strategy. Secondly, the expenses that the company will have to bear in order to compensate the employees for laying them off can also have an impact on the success rate. Thirdly, the values that an organisation works according to can also govern the chances of success or failure of a downsizing strategy. Lastly, the effectiveness of the corporate leaders in planning and carrying out the downsizing strategy can also have a huge impact on the success or failure of a downsizing strategy (Sahdev, 2003).

Factors Affecting the Success or Failure of Downsizing Strategies

Downsizing can sometimes be a necessary evil for the survival of business organisations. It is important that organisations should stick to downsizing as the last resort when nothing else works. Some alternative strategies to downsizing that business organisations can use to avoid such strategies can be to put a temporary stoppage to all future recruitment and hiring processes. Further, the company can also make it mandatory for employees to take a certain number of unpaid leaves. Secondly, the company can reduce the total number of working hours or reducing the pay which is given to some employees who work for extra hours. Gandolfi (2008) suggests that companies can also introduce a temporary cut in the salaries and benefits of all the employees while extending the reduction in the salaries of the employees can also be done if adverse situations continue to prevail. Thirdly, closing the workplace for a short period of time, though all the administration processes continue to work. Fourthly, asking the salaried employees to take voluntary leaves for a particular period of time can also help in avoiding downsizing. Further, one of the best ways to decrease employee expenses and avoid downsizing can be to lend the unwanted employees to a closely related company and hire them back once the conditions are back to normal. Lastly, the company can offer incentives to those employees who chose to quit the organisation voluntarily (Gandolfi, 2008).

The companies that have already carried out downsizing can also undertake certain measures which can help them to improve the after effects. This can be done by providing bonuses to the employees who had been laid off during the downsizing strategies. Companies should also maintain good relations with laid off employees so that they can rehire them once the situation gets back to normal. Lastly, companies can also improve the situation by carrying out internal job affairs. Internal job affairs refer to retaining talented employees. Such firms can also host events and can take measures to redeploy the laid off employees (Gandolfi, 2008).

With so many long term and short term alternatives available to the companies, it is obvious that downsizing can be avoided to a great extent. Thus, downsizing should be kept as the last option when nothing else works.

References

Advantages and Disadvantages of Downsizing Employees – WiseStep. (2017). WiseStep. Retrieved 26 January 2017, from https://content.wisestep.com/advantages-disadvantages-downsizing-employees/

Cascio, W. (1993). Downsizing: What do we know? What have we learned?. Academy Of Management Perspectives, 7(1), 95-104. https://dx.doi.org/10.5465/ame.1993.9409142062

Connor, W. (1993). ORGANIZATIONAL EFFECTS OF DOWNSIZING. Information Systems Management, 10(3), 30-34. https://dx.doi.org/10.1080/10580539308906941

Ezati Jivan, M. (2012). An empirical study on effects of downsizing on private firms. Management Science Letters, 2(5), 1695-1700. https://dx.doi.org/10.5267/j.msl.2012.04.019

Gandolfi, F. (2008). HR STRATEGIES THAT CAN TAKE THE STING OUT OF DOWNSIZING-RELATED LAYOFFS •. Iveybusinessjournal.com. Retrieved 26 January 2017, from https://iveybusinessjournal.com/publication/hr-strategies-that-can-take-the-sting-out-of-downsizing-related-layoffs/

IVERSON, R. & ZATZICK, C. (2007). High-Commitment Work Practices and Downsizing Harshness in Australian Workplaces. Industrial Relations, 46(3), 456-480. https://dx.doi.org/10.1111/j.1468-232x.2007.00477.x

MAERTZ, C., WILEY, J., LeROUGE, C., & CAMPION, M. (2010). Downsizing Effects on Survivors: Layoffs, Offshoring, and Outsourcing. Industrial Relations: A Journal Of Economy And Society, 49(2), 275-285. https://dx.doi.org/10.1111/j.1468-232x.2009.00599.x

Rai, S., & Lakshman, C. (2014). Organizational Culture and Commitment Among Lay-Off Survivors: A Tale of Two MNCs in India. South Asian Journal of Management, 21(4), pp 7 – 26

Rouse, M. (2005). What is downsizing? – Definition from WhatIs.com. WhatIs.com. Retrieved 26 January 2017, from https://whatis.techtarget.com/definition/downsizing

Sahdev, K. (2003). Survivors’ reactions to downsizing: the importance of contextual factors. Human Resource Management Journal, 13(4), 56-74. https://dx.doi.org/10.1111/j.1748-8583.2003.tb00105.x

Sitlington, H. & Marshall, V. (2017). Do downsizing decisions affect organisational knowledge and performance?. Retrieved 26 January 2017,