Downsizing remains very populair. It's easy to understand why. Whenever a company gets into serious financial trouble you have to rapidly increase revenues or to bring down costs. An easy choice: everyone knows that future costs are far more controllable and predictable that future revenues. So costs are cut. And what better cost to cut than labor costs? In many companies these costs represent a large proportion of the total fixed costs. So what to do according to this logic? Fire employees!
BUT DO DOWNSIZINGS HELP? OFTEN THEY DON'T
In many cases downsizing does not lead to fast and lasting improvement of the financial situation of companies, nor to improvment of their share price. Research has demonstrated that extremely successful companies often offer a high level of employment security (see Pfeffer, 1998; Collins, 2001). But to my knowledge this book by Wayne Cascio is one of the first to present systematic longitudinal research on the effects of downsizing. The most important conclusion: companies that downsize are not more profitable than companies that don't and often end up hurting themselves. This book gives several reasons for this:
1. DOWNSIZING WITHOUT IMPROVING. Many downsizing companies have no vision on structurally improving the organization. The only thing they do is make the organization smaller. Many problems that previously existed remain. Several new problems are added. How could profit improve?
2. UNFORSEEN COSTS OF DOWNSIZINGS CAN BE SKYHIGH. Cascio sums up a large number of direct and indirect costs of downsizings.
3. DOWNSIZING TOO OFTEN AND TOO SOON. Cascio's research shows that many managers see personnel as a cost that should be minimalized. They ask: what is the minimum number of people we need to run this company? This mindset made these managers downsize often and easily. This hurts loyalty, commitment and and a negative morale that hurts productivity.
The opposite is also true: offering employment security lead to loyalty. This loyalty leads to so-called Organizational Citizenship Behaviors (OCB's): doing more than is asked, behaving honestly, working together, helping eachother.
WHAT TO DO?
The following combination of practices proves to be far more fruitful:
1. PREVENTIVE PLANNING: do everything you can to identify early warning signals and respond quickly to prevent problems from growing.
2. FIRST, APPLY CREATIVE ALTERNATIVES TO DOWNSIZING: in times of trouble, do everything you can to avoid the need to downsize (alternative ways of bringing down costs and improving revenues).
3. IF NOTHING ELSE WORKS: DOWNSIZE: make it clear to everything that downsizing is a last resort.
4. IF YOU DO IT, DO IT GOOD
Cascio descirbes a number of companies that were confronted with very hard circumstances and that successfully applied alternative stragies to downsizing.
Charles Schwab & Company used downsizing as a last resort after first having done the following: 1) stopping projects en saving al kinds of costs, accompanied with intensive communication efforts, 2) managers decided to cut their own salaries significantly, 3) personnel was encouraged to take unpaid leave, 4) specific days were chosen to be voluntary days off for personnel that did not have client contacts on these days. Only after these steps did not lead to sufficient success, a limited downsizing was done. Cisco Systems does everything it can to create goodwill or even loyalty with fired people. Cisco lents some of them to non-profit organizations and pays part of their salaries. As soon as the market allows for it, they want to rehire them. Reflexite Corporation's intention to avoid downsizing is reflected in their so-called Business Downturn Grid, a plan in four stages that is used when the company faces hard times. Its starting point is to provide full openness in every stage about problems and actions to be taken. Employees are laid off only in the fourth and last stage (which the comany until now did not have to do by the way). Some other companies that are mentioned are: Compaq Computer that invested heavily in communicating with and training personnel when aftern downsizing, Intel, Chevrontexaco, en 3M that invested much in retraining and redeploying personnel to avoid downsizing, Acxiom, Inc. where personnel was (successfully) asked to volunteer to cut their salaries in return for company shares, Sage Software, Inc. that paid much attention to personnel planning, Louisiana-pacific Corporation where personnel took the initiative to cut cost drastically. Two other extremely successful companies that are extensively described by Cascio are software company The Sas Institute and Southwest Airlines. These companies operate in turbulent markets but are examples of (employment) stability and financial success.
Sometimes laying off personnel can't be avoided. But this book shows that companies that invest in personnel and that do everything to void downsizing profit form a no-layoff payoff. This book provides many examples of steps that can be taken before laying off personnel. It is a must for top managers, HR managers, and students of management and organization and of human resources management. It's easy to read and very practical.
Coert Visser, ...