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Negative Effects of Downsizing


Once people used to be viewed as assets to develop; now they・re viewed as costs to cut[i].  Attempting to become leaner and more competitive, business organizations have been adopting downsizing as the prevalent strategy since late 1980s[ii].  Downsizing is a set of activities designed to make an organization more efficient, productive, and/or competitive through the planned elimination of positions or jobs[iii].

However, a study of over 1,000 companies showed that most did not reach the goals of downsizing originally expected[iv].  Frequently their performance suffers after the implementation of downsizing.  The long-term affects on organization・s structure, culture and work process that need to be addressed.

Some organizations believe that voluntary downsizing such as early retirement and buyout program often advantage in minimizing the unpleasant task of eliminating employees involuntarily through forced measures.  But this may risk of losing some of the organizations・ expertise.  Recognition of seniority makes the organizations risk losing its best younger workers while retaining some less able workers with seniority.  Recognition of merit seems the best approach but may contain bias judgement of employees・ performance and risk losing good employees. 

During the implementation of downsizing, measures are usually taken to provide counseling and guidance to those laid-off to accept their situation.  Unfortunately most organizations neglect those survivors, who still need to work in the downsized environments.  A downsizing begins with a sense of violation and ends with angry, sad, and depressed employees.  The loss of co-workers and friends is a painful experience to survivors, who may feel guilty and deep-sensed unfairness that can affect the morale of the survivors.  Studies showed that the symptoms of lay-off survivor sickness could be a barrier to gain in productivity[v].

People need a vision of the future, a sense of what they are trying to achieve, and they also need to know that they are part of a goal-oriented team pulling in the same direction[vi].  However, downsizing has disrupted survivors・ sense of futility with respect to long-term planning of the organizations.  They may have strong feeling of insecurity and fear of job loss as a lack of vision about the future.  They may feel distrust and betrayal by the management that their commitment to the company may suffer and seek for other jobs for sense of security.

Reduction of organizational or hierarchical layers redefines traditional career paths and reduces opportunities for promotion.  Survivors may feel angry or uncomfortable moving to a new supervisor.  The new reporting channels require adaptation, information evaporate all affect survivors in their well being.  They may feel confusion about their mandate and dissatisfy with communications from leaders.  They may think performance by merit no longer exists tends decreasing motivation.  Sharing the work from the laid-off may frustrate and overburden survivors, which cause them to display unusual stress behaviors. 

Elimination of specific jobs may lose good people simply because they have held the less essential jobs.  The emphasis on generalist rather than specialist skills hurt the psychological contract between the organizations and employees.  Survivors may build the employment relationship temporary and their prime loyalty being to themselves not the organizations[vii].

All of above translates into a number of problems to the organizations.  The organizations move towards less risk-taking and innovation; destructive conflict tend to increase; internal competition for resources increase; individual survivors devote less effort to working together and more attention to doing things that will protect themselves; general listlessness and lethargy; and decrease service levels and increased public hostility[viii].  Recently the Hong Kong Telecom・s proposal to downsizing even with significant financial performance has created public hostility and hurt the reputation of the organization.

To conclude, downsizing becomes part of an organization・s continuous improvement scheme and assumes a long-term perspective instead of short-term cost cutting.  It requires a strategic proactive approach to human resources management[ix].  :Do it once and get it over with.  Our recommendation is save up your downsizing for big actions.  The longer the agony drags on, the longer the morale problems,; said by Laura Russell, program director of IBM[x].  Therefore, downsizing needs to be conducted in a humane way with honesty, compassion and good communication with all concerned[xi]


Endnotes

[i] .Treating Survivor Sickness・ 1998, Central issue 11, Hong Kong, 27 March, p 57.

[ii] John D Keiser and Thomas F Urban, Approaches and Alternatives to Downsizing: A Discussion and Case Study, in Gerald R Ferris & M Ronald Buckley 1996, Human Resources Management V Perspectives, Context, Functions, and Outcomes, 3rd edition, Prentice-Hall Inc, New York, p 99.

[iii] Cameron K S, Mishra A & Freeman S, Organizational downsizing, 1992, and, Cascio, W F, Downsizing: What do we know? What have we learned?, 1993, John D Keiser & Thomas F Urban, Approaches and Alternatives to Downsizing: A Discussion and Case Study, in Gerald R Ferris & M Ronald Buckley 1996, Human Resources Management V Perspectives, Context, Functions, and Outcomes, 3rd edition,   Prentice-Hall Inc, New Jersey, p 100.

[iv] .Treating Survivor Sickness・ 1998, Central issue 11, Hong Kong, 27 March, p 56.

[v] .Treating Survivor Sickness・ 1998, Central issue 11, Hong Kong, 27 March, p 55.

[vi] .Leading Those That Remain・ 1998, Robert Bacal, Bacal & Associates, [Online, accessed 15 December 1998].  URL:http://www.escape.ca/~rbacal/dsizlt.htm.

[vii] Raymond J Stone 1998, Human Resource Management, 3rd edition, Jacaranda Wiley Ltd, p 586.

[viii] .DownsizingVThe Long Term Effects・ 1998, Robert Bacal, Bacal & Associates, [Online, accessed 15 December 1998]. URL: http://www.escape.ca/~rbacal/dsizlt.htm.

[ix] Raymond J Stone 1998, Human Resource Management, 3rd edition, Jacaranda Wiley Ltd, p 585.

[x] Robert J Grossman 1996, .Damage, downsized soul V how to revitalize the workplace・, HR Magazine, [Online, accessed 15 December 1998]. URL:http://www.shrm.org/hrmagazine/articles/0596cov.htm.

[xi] David M Noer 1993, Healing the wounds, Soundview Executive Book Summaries.


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