| Downsizing the Organization
Point Summary
Large shareholders take little
interest in a company’s employment totals per se. But they take much interest in what the totals say about the
organization’s management. For
most large shareholders, workers are viewed as only one of many means to
an end, and one they know little about.
Still, the size of a company’s
workforce and that of its major divisions can serve as a convenient
yardstick for the money manager or stock analyst, a visible proxy for
management quality and cost containment.
To some institutional investors, employment numbers sometimes seem
far out of sync with a company’s revenue trends.
For others, lean operations and employment “downsizing” if they
are not lean have become virtually synonymous with good management.
The market reaction to Xerox
Corporation’s announcement of a 10 percent cut in its workforce in 1993
is illustrative. Xerox had
been decentralizing its divisions and streamlining its work for several
years, and investors perceived the 10 percent reduction as constituting
the latest installment of a prolonged remaking of the company, not panic
masquerading as a plan. In
announcing the cutbacks, CEO Paul Allaire reminded shareholders that the
downsizing was part of a long‑standing agenda in which “we are
going to make the company more productive, more customer‑oriented,
and bring products to market more quickly.”
Despite a charge of $700 million to complete the restructuring, on
the day of the announcement stock buyers outnumbered sellers, and
investors drove Xerox stock up by seven percent.
A message from the “Street” has to downsize
the overstaffed company as part of larger schemes to make firms
competitive in an era of domestic deregulation and international
challenge. Analysis of share price reactions to a number of company
layoff announcements in 1979-87 corroborates the point (see the article by
Dan Worrell and others below). In the days immediately following layoffs announced as part
of general restructurings, stock prices rose an average 4 percent.
Downsizing announced simply as a cost-cutting measure, however,
depressed stock prices an average 6 percent.
Wall Street likes restructuring and
job shedding but disdains cutbacks shorn of broader plans for improved
results. Though some large
investors seek quick returns and expect to gain from immediate payroll
reductions, more expect enduring gains from layoffs when part of a general
revamping of the firm’s organization.
A study of eight organizations known for effective focus on both people and
profit (see the article below by Daniel
Feldman
and Carrie Leana), including General Electric Stroh Brewery, Duracell,
and IBM, and the UAW-General Motors Human Resource Center, finds that
their better practices during a downsizing include:
o Early warning systems to identify potential layoff conditions
o Redeployment rather than layoffs when possible
o Honest, direct, empathetic communication with employees
o Proactive assistance to employees potentially affected
Links
Excellence
in Government: Advice for downsizing in U.S. government
agencies.
National
Performance Review: A 1997 federal government study on best
practices in employment downsizing.
New York
Times: Special report in 1996 on downsizing in America.
Yahoo:
Recent articles on downsizing and links to many other sites with
downsizing information and advice.
Books and Articles
American Management
Association. AMA Survey on Downsizing and Assistance to Displaced
Workers. New York: American Management Association.
Annual surveys of
downsizing policies and practices among AMA member firms, with a
comparison of trends back to 1990.
Burton, Garry D.,
J. Kay Keels, and Christopher L. Shook. "Downsizing the Firm:
Answering the Strategic Questions." Academy of Management
Executive, Vol. 10, May, 1996, pp. 38-45.
Argues for
downsizing when undertaken for strategic refocusing on core
competencies.
Kim Cameron,
"Strategies for Successful Organizational Downsizing," Human
Resource Management Journal, Vol. 33, Summer, 1994, pp. 189-211.
Drawing on
studies of a number of organizational downsizings, recommends
implementation strategies and an array of best practices.
Peter Cappelli,
Laurie Bassi, Harry Katz, David Knoke, Paul Osterman, and Michael Useem. Change
at Work. New York: Oxford University Press, 1997.
Synthesizes a
broad range of recent research and analysis of restructuring and change
in the workplace.
Wayne F. Cascio,
"Downsizing: What Do We Know? What Have We Learned?" Academy
of Management Executive, Vol. 7, No. 1, 1993, pp. 94-104.
A synthesis of
studies and accounts of company downsizing and its consequences.
Daniel C. Feldman,
"Managing Careers in Downsizing Firms," Human Resource
Management, 1996, Vol. 35, 145-161.
Advice to firms
and individuals on how to manage careers in an era of diminished
opportunities.
Daniel C. Feldman
and Carrie R. Leana, "Better Practices in Managing Layoffs," Human
Resource Management, Summer, 1994, Vol. 33, 239-260.
Draws on eight
case studies to identify effective steps managing downsizing.
Robert W. Keidel,
"Rethinking Organizational Design," Academy of Management
Executive, Vol. 8, November, 1994, pp. 12-27.
Suggests that
managers should approach restructuring, reengineering, and downsizing
with a focus on not only shareholders and customers but also employees.
David M. Noer. Healing
the Wounds: Overcoming the Trauma of Layoffs and Revitalizing Downsized
Organizations. San Francisco: Jossey-Bass, 1993.
Draws on case
studies and consulting to offer guidelines for revitalizing downsized
firms.
Hugh M. O'Neill, and D. Jeffrey Lenn. "Voices of Survivors: Words that Downsizing CEOs
Should Hear." Academy of Management Executive, Vol. 9,
November, 1995, pp. 23-34.
Voices of anger,
withdrawal, and skepticism from middle managers of one downsizing firm.
Dan
L. Worrell, Wallace N. Davidson III, and Varinder M. Sharma. 1991.
"Layoff Announcements and Stockholder Wealth." Academy
of Management Journal 34: 662-678.
Case Studies
David
Hornestay, "Downsizing Dilemma," Excellence in Government
website, August, 1996.
Barry Stein, "The Case of the Downsizing Decision," in The
Challenge of Organizational Change: How Companies Experience It and
Leaders Guide It, edited by Rosabeth Moss
Kanter, Barry A. Stein, and Todd D. Jick (Free Press, 1992).
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