Downsizing in Firms: How to Make the Most Out of It

Introduction

Downsizing is the process of cutting down the number of employees in a firm for a number of reasons. The whole process of downsizing is normally carried out by the management. It is possible that some corporations can decide to seek the advice of consultancy firms that specialize in downsizing before carrying out the actual process of downsizing. This is appropriate for firms in which the management is not fully aware of the process of analyzing the needs of the firm in regard to the available talent pool so as to determine who is to be eliminated and who is to be left (Pomerleano & Shaw 2005,p.19).

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The process is carried out because of such reasons as hard economic times such as the current recession or economic downturn, the preparation for wind up of a corporation and to just increase the profitability of the firm (Hammer & Champy 2004,p.17).

There is still uncertainty as to what the exact achievement of downsizing is as far as the wellbeing of the corporation is concerned. The truth of the matter is that the whole act of downsizing has its advantages and disadvantages (Stoner-Weiss 2006, p.20). Out of the disadvantages, there is a way in which some changes can be done so as to ensure that the process of downsizing is carried out in a way that is more beneficial to both the downsized employees. What are the arguments for and against downsizing? How can it be done in such a way that the firms that do it are able to make the best out of the process?

The Case for Downsizing/Arguments for Downsizing/the Rationale for Downsizing

Downsizing has been praised by some as being the best way to get a company that is failing back on track. A number of reasons are given for this position or stance. In the determination of valid arguments for downsizing, there is always the dilemma of striking a balance between the wellbeing of the company or firm and the welfare of the employees who are caught up in the whole exercise of layoffs. The best-case scenario is one in which both the company and the worker who is laid off are not placed in a precarious position.

Put in another way, the best downsizing takes place and leaves both the company and the laid-off workers satisfied. But this is not always easy to achieve. Below are some of the arguments that have been fronted by those who front downsizing as a good measure for corporations

To begin with, downsizing has been associated with increased productivity (Zilka2009,p.43). The question that is however raised is how possible it is that a small number of employees that remain after a company has downsized is able to make the firm produce more than when the number of employees is high. It appears like a business irony given that the expected scenario is that of many workers producing more. The practical happenings in companies have shown that a small number of workers makes the workers more disciplined and therefore more hardworking. This makes them produce more for the company than a large number of employees.

On the other hand, a large number of employees have a tendency to think that they will be able to produce more and each worker expects the other huge number of employees to do the work and therefore produce more. Procrastination is common and laxity is everywhere. This is why small numbers of employees paradoxically produce more. This has been fronted by the proponents of downsizing and since every firm wants to increase its productivity, it is a valid argument.

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The second argument for downsizing that is closely related to productivity is profitability. Profitability is the ability of a firm to meet the cost of production and make something on top for the company. The simple explanation for this is a positive number in the difference between the sales and the expenses in the company processes. Profitability as a function of downsizing comes in various ways. The first way in which profitability is realized is through the fact that the number of employees who will be claiming financial resources from the company in terms of salaries, benefits, and other ways is smaller (Larkin 2008, p.81). Therefore the final position will be that the company has spent less in meeting the needs of the workers.

The second way is through increased productivity which is a function of downsizing. As seen in the first point above, it is commonly believed that productivity increases with a reduction in the number of workers in affirm. Thus if productivity has gone up, it simply means that the firm of corporation will have more to take to the market and make more sales leading to high-profit margins (Marks & DeMeuse2004, P.19-23).

An example to illustrate the above point is a company that designs houses. If the corporation has six highly-paid designers, each designer will not be in a hurry to do the available work given that the other five will be in a position to do it in the event that one is not in the office or is not able to do it on time. If the number is cut down to two, the two designers will know that all the work is on their shoulders and will therefore work hard through showing up for work on time and ensuring that they do their work on time. It will naturally happen that in the process of trying to beat the deadlines for assignments, much of the work will be accomplished before the deadline.

This will create more time for doing more work. The additional design that is done during the extra time is what is called increased productivity that comes from downsizing. The sale of the additional work means more profits for the firm from a highly reduced workforce.

Besides the above, downsizing is often associated with efficiency. The argument is that when a firm reduces the number of its employees, it becomes more efficient. How does this happen? The efficiency that is realized after a firm has reduced its workforce has to do with administrative patterns and communication. It is logically easier to pass information to a small number of employees. It is also to give maximum attention to the small number of employees if particular issues need to be explained in detail as a way of ensuring that the employees have understood the concept in question as it relates to flawless production of goods and services by the company.

Other areas that concern employees’ welfare is also easy to deal with when the number of employees is smaller. For example, it is easier to deal with the salaries and other benefits of a small number of employees. It is not a hard issue to pay them well and motivate them to the maximum as a way of making them comfortable while they perform their duties in the company. How does this lead to efficiency?

Naturally, a well-paid, thoroughly informed, and highly motivated employee is a potent weapon for perfect production. The result of these attributes in a firm’s treatment of its workforce makes the workforce serve the customers at reasonably high speeds and in exceedingly excellent ways. Processing time is always reduced when a highly motivated employee decides to work overtime so as to ensure that what the customer wants is out on time and in the best possible quality. This is what efficiency is all about. It touches on management as well as customer service.

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Leaving the above aside, competitiveness has been touted as one of the arguments for downsizing in firms or companies. Competitiveness is the ability of an entity, a business firm in this case to meet market requirements and meet the challenges posed by other firms that are in the same industry or are offering the same services or goods. A competitive firm can be able to whether a storm over prices or decline in demand.

It will also be able to meet quality requirements as a means of attracting more customers compared to its competitors. How can downsizing make a firm achieve all the above? Downsizing, as shown above, leads to efficiency. This means that the needs of customers will be met in terms of the delivery of goods and services. If this happens, then the firm will be able to outsmart competition from companies dealing in similar goods and services that have huge numbers of employees who are difficult to deal with. In this perspective, downsizing indeed leads to competitiveness. Is there another angle to this process of downsizing?

The case Against Downsizing

As much as downsizing is popular in some circles in the business community as well as other areas such as not for profit organizations, it has a number of disadvantages. There are a number of negatives that emerge as a result of downsizing. Below are some of the undesirable scenarios that emerge as a result of reducing the number of employees in corporations.

The first case against downsizing is low morale among the employees of a corporation. How does this come about? After downsizing, the employees in the firm get awaked to the reality that a day may come when it will be their turn to leave. This gives them a negative picture of their workplace and their value as workers in that particular firm. They lose the urge and the motivation to work since they are not sure what may happen next.

The management may try to encourage them to work hard but this does not alleviate the fear that it is possible for them to be asked to leave if the time comes. Poor morale among workers in a firm affects production quality and quantity leading to the production of not only insufficient goods and services but also unsatisfactory as far as customer specifications are concerned. This leads to customer flight and the collapse of the company.

The second argument against downsizing is the tendency of the firm to meet increased expenses in terms of overtime. It is not always the case that a small number of employees will work fast and finish all the work at the expected time. In most cases, downsizing leads to more work being left undone. The understanding is that the requests of the customers in terms of deadlines have to be met. In the process of trying to remain true to this philosophy, the management always ends up asking the few men and women who have remained after downsizing to take more time beyond the specified working hours as a way of trying to beat deadlines and finishing up the customers’ work. This extended office hours come with more pay and the end result is that the companies end up spending high amounts of money in overtime.

It does not come as a surprise that in some cases the amount of money spent on overtime is more than the amount of money the company would have paid a fulltime time employee to do the job. It therefore does not make sense that a company reduces its workforce only to end up spending too much money to pay the few remaining employees to do the work the laid off employees would have done in time. Note that this work is done at odd hours such as during the night or early mornings, a phenomenon that has the potential to interfere with the normal functioning of the few employees who also need sufficient time to rest and meet family obligations.

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This is part of what they need to be fully productive in their workplace. An employee who woks till midnight will not be able to report to work at eight in the morning the following day and if he or she does, it is not possible that he or she will be functioning well. Fatigue will ne rampant and service will be poor. This beats the whole logic of downsizing.

In addition to the above, downsizing has been associated with poor customer service. The explanation behind this is that the employees are not in a position to fully concentrate on their work. This is because their minds are largely preoccupied with the precarious circumstances in which their employment is. They are never sure whether they will be working in the firm in the coming month or year given the fact that their colleagues have been asked to leave.

To some employees, the whole purpose of working loses meaning and they do their duties not because they are into them but because they have to. Thus motivation goes down. The best explanation for this is the element of job security. They are never sure of their positions as noted above. Does poor customer service have any effect on a company’s operations?

Poor customer service has far reaching negative effects on the company’s life. It is important to clarify that poor customer service encompasses the services and goods as well as the attention given to customers especially at the front desk. If customers are given poor quality goods and services, they definitely get dissatisfied. This dissatisfaction makes them share these bad news with their friends just like they share good news and a whole army of customers decide not to do business with the firm any more. Thus the company loses clients or customers. It is well understood that customers are the lifeline of any business. Once the customers are lost, the business is dead. So why downsize if it is going to kill the business?

Apart from poor customer service, downsizing is responsible for poor attitude on employees. It is also responsible for a host of other health issues on both the remaining employees and the ones who have been asked to leave the corporation (Ciulla 2001, p.87).Marital problems are common among employees who have been asked to leave. In both those who have remained and those who have been asked to leave the firm, health problems that afflict them are many and varied. They include sleepless nights due to too much thought on what will happen next, depression, cases of high blood pressure and even heart attack.

These health issues in a population put a negative weight on the healthcare system of a nation and end up affecting the economy in a negative way (Uchitelle 2006, p.57).It also important to note that employees who remain in the firm and suffer from depression, sleepless nights and high blood pressure will not be as productive as required by the management. This inevitable affects the profitability in a negative way and leads to the collapse of the company. The same question that was raised in the previous argument comes up: Why downsize if it is going to kill the business?

The last but not least argument against downsizing is the number of lawsuits that are brought against a corporation by employees who have been terminated. The lawsuits for benefits and untimely terminations waste the corporations’ time and puts pressure on its budget due to the huge settlements that are usually carried out. At the end of the day; it turns out to be more expensive than keeping the full workforce. Is this all there is to downsizing?

As seen above, downsizing has both advantages and disadvantages. Since it cannot be avoided, what are companies supposed to do? In order for a company to make maximum use of downsizing, it is important that a balance be sought between the negatives and the positives (Gilson 2010, p.53).But since it is business, rationality is necessary. Thus the positives should be increased while the negatives are reduced. The first way to make the best out of downsizing is to talk to the employees and inform them in advance so that they are aware of what to expect (Adler. & Elmhorst 2009, p.98).This will make the remaining employees have confidence in the management that if the time for further downsizing comes, they will be informed before it happens. This will make them work as normally as possible.

Also, the remaining workers must be given all the available motivation as a way of ensuring that they are not overcome by depression and anxiety. The management should try to make them as comfortable as possible and give them all the support they need in doing their work. The support may include retraining so as to enable them achieve more efficiency as a way of making them do the additional work at maximum speeds.

Another way to make the best out of downsizing is to ensure that the employees who are asked to leave are treated in a dignified manner so as to foster confidence in the remaining workers. Their benefits should be processed with speed and any support to them and their families should be extended. Sufficient time and guidelines on how to secure jobs in other firms should be given with an assurance that they will be given first priority in case the firm wants to hire more employees in the future. This kind of treatment will make the remaining employees feel safe given the knowledge that they will be accorded decent treatment in case they are asked to leave.

In conclusion, downsizing is a complex undertaking. Its advantages include corporate profitability that comes with increased productivity. It also increases efficiency and competitiveness. The arguments against downsizing include poor customer service, high overtime pay, legal hurdles, low morale among employees and health problems for both the remaining and the employees who have been asked to leave. Retraining the remaining employees, informing employees before hand and decent treatment of employees before termination are some of the ways to make the most out of downsizing.

References

Adler, R. & Elmhorst, M. (2009).Communicating at Work: Principles and Practices for Business and the Professions (10th ed.) New York: McGraw Hill.

Ciulla, J.B. (2001).The Working Life: The Promise and Betrayal of Modern Work. New York: Three Rivers Press.

Gilson, G.C. (2010).Creating Value through Corporate Restructuring: Case Studies in Bankruptcies, Buyouts, and Breakups. (2nd ed).New York: Wiley Publishers.

Hammer, M & James Champy.J. (2004). Reengineering the Corporation: A Manifesto for Business Revolution. New York: Harper Business Publications.

Larkin, B. (2008). Restructuring and Workouts: Strategies for Maximizing Value. New York: Globe Law and Business.

Marks, M.L., & DeMeuse.K.P. (2004). “Resizing the Organization: Maximizing the Gain While Minimizing the Pain of Layoffs, Divestitures, and Closings.” Organizational Dynamics (34) 1, 19–35.

Pomerleano, M & Shaw, W. (eds). (2005). Corporate Restructuring: Lessons from Experience. New York: World Bank Publishers.

Stoner-Weiss, K. (2006). Resisting the State: Reform and Retrenchment in Post-Soviet Russia. New York: Cambridge University Press.

Uchitelle, L. (2006). The Disposable American: Layoffs and Their Consequences. Chicago: Knopf Publishers.

Zilka, K. (2009). Business Restructuring: An Action Template for Reducing Cost and Growing Profit. New York: Wiley Publishers.

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