DOWNSIZING

Prepared by: Dheeraj Mahajan

Roll No: 19

References
https://www.cambridge.org/core/books/downsizing/
http://www.investinganswers.com/financial-dictionary/businessescorporations/downsize http://smallbusiness.chron.com/examples-downsizing-business-world
https://www.questia.com/library/journal/successful-downsizing http://whatis.techtarget.com/definition/downsizing
http://webuser.bus.umich.edu/cameronk/PDFs/Downsizing/StraSuccessfulOrgDowns
izing.pdf
http://www.vikalpa.com/pdf/articles/
Cameron, K. S. (1991). A second generation approach to organizational effectiveness
Porter, M. E. (1980). Competitive strategy
Buch, K. (1992). How does downsizing affect employee involvement

Contents

Downsizing
Key Attributes of Downsizing
Cause of Employee Downsizing
Negative Impact of Poorly Managed Downsizing
Implementation Strategies of Downsizing
Alternatives To Downsizing
Example

Downsizing
Downsizing is a term that has arisen out of popular usage, not
pre-cise theoretical construction.Downsizing can be interpreted
simply as a reduction in organizational size. When this is the
case, downsizing is often confused with the concept of
organizational decline, which also can be superficially
interpreted as mere reduction in organizational size.
Organizational downsizing consists of a set of activities that are
undertaken on the part of management, designed to improve
organizational efficiency, productivity, and/or competitiveness.

 It is important to be clear about the meaning of downsizing. A

variety of terms are commonly used as substitutes for
downsizing in organiza-tions, and this variety sometimes leads
to confusion about what is being implemented or investigated.
(building-down ,compressing ,consolidating ,contracting,
declining,de-hiring ,demassing,dismantling ,downshifting
,etc.)
Downsizing refer to the reduction of a company's labor
force.Instead of firing,however,the employer shrinks the
payroll by permanently eliminating position.

Key Attributes of Downsizing

Intentional
Reduction in Personnel
Efficiency
Work Processes

Intentional
Downsizing is an intentional set of activities. This
differentiates downsizing from loss of
marketshare, loss of revenues, or the unwitting loss
of human resources that are associated with
organiza-tional decline. Downsizing is distinct
from mere encroachment by the environment on
performance or resources because it implies
organiza-tional action.

Reduction in Personnel
Downsizing usually involves reductions in personnel, although
it is not limited solely to personnel reductions. A variety of
personnel-reduction strategies are associated with downsizing
such as transfers, outplacement, retirement incentives, buyout
packages, layoffs, attrition, and so on.
Downsizing does not always involve reductions in personnel,
however, because some instances occur in which new products
are added, new sources of revenue opened up, or additional
work acquired without a commensurate number of em-ployees
being added.

Efficiency
Downsizing is focused on improving the efficiency of
the organization. Downsizing occurs either proactively
or reactively in order to contain costs, to enhance
revenue, or to bolster competitiveness. That is, downsizing may be implemented as a defensive reaction to
decline or as a proactive strategy to enhance
organizational performance. In either case, it represents
a set of activities targeted at organizational improvement.

Work Processes
Downsizing affects work processes, wittingly or
unwittingly. When the workforce contracts, for example,
fewer employees are left to do the same amount of work,
and this has an impact on what work gets done and how
it gets done. Some downsizing activities may include
restructuring and eliminating work (such as
discontinuing functions, merging units, or redesigning
tasks) which lead, of course, to some kind of work
redesign. Regardless of whether the work is the focus of
downsizing activities or not, work processes are always

Cause of Employee Downsizing

Cost Reduction
Productivity
Value
Outsourcing

Cost Reduction
Employee payroll counts as a liability on the
company balance sheet and, therefore, reduces the
owners' equity. The retained earnings of a
company are affected by the amount it pays out in
payroll, and removing this obligation is one way to
cut costs. Aside from payroll, employee benefits
are also costly to companies, as are the operating
costs associated with overproduction.

Productivity
Companies sometimes downsize their employee base to
increase productivity. This may seem counterintuitive on
the surface, but some instances exist where this would
be advantageous. For instance, if a company knows that
it can increase the output of individual workers while
remaining constant with its productivity, this can be
advantageous for cost reduction. However, a company
may also decide to downsize to increase productivity by
replacing workers with sophisticated equipment that can
do the same job.

Value
Downsizing the number of employees a company has
generally signals that some restructuring and changes are
underway. These changes generally take place for
increasing profitability of the company. If shareholders
and other investors perceive that the company will be
making changes that increase its profitability, it will
increase the value of company stock. This can result in
more investors coming on board or current investors
increasing their shareholdings in the organization. In
either case, downsizing can increase the company's
perceived value.

Outsourcing
Companies may overextend themselves in terms of
the number and types of services they offer from
time to time. It may behoove company ownership
to sharpen the focus of the company by
eliminating some of the products or services that it
offers. In doing so, a decrease in the number of
employees may be necessary. Company officials
may decide that outsourcing certain activities will
result in increased productivity and reduced costs

Negative Impact of Poorly Managed

Downsizing
Employee motivation and morale
Operating environment
Organizational capabilities
Company reputation

Employee motivation and morale

Following a downsizing, surviving employ-ees
may become narrow-minded, self-absorbed, and
risk-averse.
Morale sinks, and productivity may drop.
Survivors are often consumed with seeking
information regarding their own security and
searching for reassurance rather than pro-ducing.

Operating environment
The general climate of a company after a
downsizing may be character-ized by a lack of
trust in management and a belief that employee
loyalty and concern for the company are no longer
valued.

Organizational capabilities
Workforce reductions may result in a loss of
expertise and organiza-tional memory, decreased
performance stan-dards and insufficient capacity to
act. This poses a greater risk for learning
organizations, which rely on their human capital
and relationships to innovate and grow.

Company reputation
The way a company treats its employees greatly
affects how it is viewed by the public. Many
companies fail to recognize the importance of
communications regarding down-sizing to external
constituents, including share-holders and
customers.

Implementation Strategies of Downsizing

Workforce Reduction Strategy
Organization Redesign Strategy
Systemic Strategy

Workforce Reduction Strategy

Workforce Reduction Strategy, focuses mainly on eliminating
headcount or reducing the number of employees in the
workforce. It consists of activ-ities such as offering early
retirements, transfers and outplacement, buyout packages,
golden parachutes, attrition, job banks, and, in the extreme,
layoffs and firings. These activities can be implemented
immediately simply by handing down a directive.
This strategy is similar to throwing a grenade into a crowded
room, closing the door, and expecting the explosion to
eliminate a certain percentage of the workforce. It is difficult to
predict exactly who will be eliminated and who will remain.

Organization Redesign Strategy

The primary focus of this strategy is to cut out work rather than
workers. It often consists of activities such as eliminating
functions, hierarchical levels, groups or divisions, and products.
Other examples are redesigning tasks, consolidating and
merging units, and reducing work hours. Because the redesign
strategy is difficult to implement quickly, it is, by and large, a
medium-term strategy.
Instead of piling more work on fewer employees and thereby
risking overload and burnout, this work redesign strategy helps
assure that changes are targeted at work pro-cesses and
organizational arrangements.

Systemic Strategy
This strategy is fundamen-tally different from the other two
strategies in that it focuses on changing the organi-zation's
culture and the attitudes and values of employees.
It involves redefining downsizing as a way of life, as an
ongoing process, rather than as a program or a target.
Downsizing is equated with simplification of all aspects of the
organizationthe entire systemincluding suppliers,
inventories, design processes, production meth-ods, customer
relations, marketing and sales support, and so on. Costs all
along the customer chain, especially invisible and unmeasured
costs, are the main targets.

 Examples of downsizing targets include reducing wait time,

response time, rework, paper, incompatibilities in data and
information systems, number of suppliers, and rules and
regulations.

Three types of Strategies

Downsizing Strategy
Workforce Reduction

Organization
Redesign

Systemic

Focus:
Eliminates:
Implementation time:
Temporal target:

Workers
People
Quick
Short-term payoff

Jobs and units

Work
Moderate
Moderate-term payoff

Culture
Status quo processes
Extended
Long-term payoff

Inhibits:
Examples:

Long-term adaptability
Attrition
Layoffs
Early retirement
Buyout packages
To what extent have
you used layoffs in
reducing the
number of salaried
employees in your
organization?

Quick payback
Eliminate functions
Merge units
Redesign jobs
Eliminate layers
What has been
eliminated or
transferred out
as part of the
downsizing effort
in this
organization:
functions,
management levels,...
[etc.]?

Short-term cost savings

Involve everyone
Simplify everything
Change responsibility
Continuously improve
(Agree-Disagree)
In our downsizing
activities, we have
closely coordinated
with suppliers,
customers, and the
outside community.

Sample question on
the survey:

Alternatives To Downsizing
Compensation/Benefits
Talent Management
Training/Development
Business Process/Operations
Organizational Structure
Supply Chain Management

Compensation/Benefits
The design and redesign of compensation/benefits
is aligned with the economic perspective of
organizational downsizing.
Some of the cost reduction may be achieved with
increasing the efficiency of the administration of
benefits without resorting to a reduction in the
benefits staff headcount of the benefits staff or
outsourcing the benefits function.

Talent Management
The design and delivery of talent management programs are
aligned with all three perspectives: economic, institutional and
socio-cognitive.
From an economic perspective, the outcomes to reduce costs
can be met with these alternatives as well as increasing
profitability, assuming that performance is improved at the
individual and group level.
From an institutional perspective, using a stakeholder approach,
legitimacy is defined differently, depending upon the
stakeholder. Some stakeholders view downsizing as legitimate
and others do not.

 Lastly, from a socio-cognitive perspective, these six alternatives

challenge the shared mental model that the de facto solution of
reducing costs, increasing efficiency, and improving
profitability is to extract cost out of the organization by
reducing headcount.

Training/Development
Similar to talent management, training and development are
aligned with all three perspectives, although for different
reasons.
Economically, a focus on training and development can be
expected to increase the knowledge and skills of individual
employees to find ways to cut costs, improve efficiency, and
enhance profitability.
From a socio-cognitive perspective, these two alternatives are
almost counter-intuitive, as they invest resources at a time of
cost reduction. However, if the outcomes of the downsizing
also include improved efficiency and greater profits, then these

Business Process/Operations
It is almost axiomatic in quality management that
solutions to business problems can often be found in the
system, not the individual. As such, a systems approach
to efficiency and performance improvement assumes
that labor is only one factor leading to planned
outcomes.
These alternatives consider the other factors that can
have positive impact on both cost reduction and
increased profitability. As such, these alternatives are
aligned with the economic perspective.

Organizational Structure
Complex organizational structures are more costly than
streamlined structures. Streamlined does not necessarily
mean reduced headcount.
The structure of an organization focuses upon the ideal
design given the mission and strategic goals of the
organization.
These six alternatives clearly fit with the economic
perspective with respect to generating greater cost
reductions, improving efficiency, and perhaps greater
profitability.

 These alternatives are also aligned with the institutional

perspective due to the relatively common confusion regarding
downsizing and organizational restructuring.
Lastly, the socio-cognitive perspective is aligned with these
alternatives because one of the shared mental models is to
restructure the organization primarily as a way to reduce
headcount and the costs associated with these reductions rather
than restructuring to increase efficiency and improve
profitability.

Supply Chain Management

Supply chain management alternatives to downsizing
differ from the other alternatives in that they look at
reducing costs and improving efficiency by looking
outside the organization.
These alternatives are clearly aligned with the economic
perspective, but are not the same as outsourcing, which
can be domestic or offshored.
The institutional and socio-cognitive perspective to these
alternatives would view them as legitimate to certain
stakeholders and as a distinct mental model from

Corporate Example :Walmart

Walmart, is an American multinational retail corporation that
operates a chain of hypermarkets, discount department stores
and grocery stores.
Headquartered in Bentonville, Arkansas, the company was
founded by Sam Walton in 1962 and incorporated on October
31, 1969. As of July 31, 2016, Walmart has 11,539 stores and
clubs in 28 countries, under a total of 63 banners.
The company operates under the Walmart name in the United
States and Canada. It operates as Walmart de Mxico y
Centroamrica in Mexico, as Asda in the United Kingdom, as
Seiyu in Japan, and as Best Price in India.

 The retailer will shutter 269 locations globally, including

154 in the US including all the Express locations
laying off up to 16,000 workers.
The Bentonville, Ark., discounter, the worlds largest
retailer, said the move would reduce diluted earnings per
share by 20 cents to 22 cents, with nearly all of that to be
booked in the fourth quarter ending this month. In
November, the company forecast a full-year profit of
$4.50 to $4.65 per share.

 Shares of Walmart which said the store closures

represented less than 1 percent of its global square
footage and revenue were off 1.2 percent, to $62.30,
in Friday morning trading, amid a large sell-off.
The move comes three months after Chief Executive
Officer Doug McMillon disclosed plans to review the
retailers global operations and shut underperforming
stores. Fridays announcement marks the first step in that
restructuring effort.

 Walmart said it planned to close 102 of its Express

format stores, which at 12,000 to 15,000 square feet are
less than one-tenth the size of a typical Supercenter. The
format had been in pilot since 2011 but did not deliver
the desired results.
The other 52 US stores to be closed are a mixture of
Supercenters, Walmarts largest-format discount stores, a
grocery format called Neighborhood Market, and outlets
in the companys Sams Club bulk-selling wholesale
chain.

 Closing stores is never an easy decision, but it is necessary to

keep the company strong and positioned for the future,
McMillon said in a statement.
In other markets, Walmart said it was closing 115 stores in
Latin America, including 60 in Brazil. Reuters reported the
Brazil closings on Thursday.
The closings highlight the challenges Walmart faces in finding
growth opportunities in both its home market, which it has
blanketed with some 4,500 stores, and overseas, where it has
grown to more than 6,000 locations but has struggled to
generate consistent returns.

 The retailer said it was still looking to invest and stuck to its
plan to open 142 to 165 stores in the US in the year ending in
January 2017. It also for the first time disclosed plans to open
200 to 240 stores overseas in the coming year.
The closings are set to affect about 10,000 people in the US and
6,000 overseas. The company said it would try to place workers
in nearby locations, estimating that 95 percent of the closed
stores in the US are on average within 10 miles of another that
it owns.
Walmart said it would provide 60 days of pay and severance for
eligible workers not placed.

Conclusion
Organizational downsizing is a reality in organizations
of all types today and will continue to be so in the future.
There are times when downsizing is necessary and
appropriate. There are also times when downsizing is not
the best solution. These differences should be squarely
addressed by the key decision makers within
organizations to lay out a decision-making model that
includes alternatives to organizational downsizing.

References
https://www.cambridge.org/core/books/downsizing/
http://www.investinganswers.com/financial-dictionary/businessescorporations/downsize http://smallbusiness.chron.com/examples-downsizing-business-world
https://www.questia.com/library/journal/successful-downsizing http://whatis.techtarget.com/definition/downsizing
http://webuser.bus.umich.edu/cameronk/PDFs/Downsizing/StraSuccessfulOrgDowns
izing.pdf
http://www.vikalpa.com/pdf/articles/
Cameron, K. S. (1991). A second generation approach to organizational effectiveness
Porter, M. E. (1980). Competitive strategy
Buch, K. (1992). How does downsizing affect employee involvement