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Background on Downsizing 1800s-1930s emphasis on individual, self reliance, and laissez faire government 

80% Self-employment

1930s New Deal Legislation & regulation of employer dominated workplace 

Age of Welfare America unemployment compensation Social Security welfare workplace standards (FLSA)    

Healthy post-WWII economy

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Korea, Viet Nam, Middle East Oil Embargo, 1987 Stock crash, S&L debacle, global competition 

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employer-employee long term commitment insurance & health benefits workers compensation & disability retirement plans education & training salary steps & promotion

90% employees

Fiscal Stress & Immediacy of Downsizing Duration Short High

Fiscal Crisis

Long Fiscal Crush

All tactics, including layoffs, termination of  programs, cancellation of equipment replacement, etc.

Great change: redefine mission, shed functions, temporary employees & volunteers

Fiscal Crunch

Fiscal Squeeze



Short-term budget balancing: reduce over time, freeze hiring & expenditures, defer maintenance, stall payments

Anticipate budget cuts & plan appropriate action: change operations management, change size & mission


Change Drivers Mergers & Acquisitions Avoid bankrupcy Prepare for privatization Reduce costs to remain competitive 

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Goals Reduce expenses (46%) Increase profits (32%) Improve cash flow (24%) Increase productivity (22%) Increase ROI (21%) Increase competitive advantage (19%) Reduce bureaucracy (17%) Improve decision making (14%) Increase customer satisfaction (14%) Increase sales (13%) Increase market share (12%) Improve product quality (9%) Advance technology (9%) Increase motivation (7%) Avoid takeover (6%) Wall Street Journal, 6-6-91 

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Checking the Numbers in Downsizing Percent of First Day Stock Change

IBM 60,000 Sears 50,000 Xerox 10,000 US West 9,000 McDonnell 8,700 RJR Nabisco 6,000 DuPont 4,500

US News & World Report, 12-20-93

7.7% 3.6% 7.0% 4.6% 7.9% 4.0% 3.4%

Downsizing Effects Organizational Modifiers method of termination* advance notice channels used outplacement counseling retraining availability extended benefits severance pay

About 68% of all downsizing, restructuring, & reengineering efforts are not successful

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Organizational Changes changed job responsibilities modified reporting relationships new co-workers new policies & procedures fewer personnel for job expanded role responsibilities Additional (re)training     

Personal Modifiers on Downsizing Effects age gender  financial position social support length of employment level of education previous occupational level degree of satisfaction with terminated job career status individual stress-coping ability 

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Survivor Reactions lower job satisfaction\ lower commitment lower job involvement increased intention to turnover  decreased morale mistrust (35% credibility drop) anxiety survivor guilt (depression)        

The Dirty Dozen Attitudes

Associated with Downsizing            

Resistance to change-- threat rigidity Loss of trust-- loss of confidence both ways Decreasing morale-- infighting & mean mood Lack of teamwork-- focus on individual protection Non-priorized cutbacks-- across-the-board cuts Centralization--top down deicsions, less power sharing Politicized special interest groups-- fragmentation Loss of innovation-- less creativity, low tolerance for risk Short-term crisis mentality-- neglect long term strategy Increasing conflict-- competition for scarce resources Restricted communication-- only good news shared Lack of leadership-- scapegoating, unclear priorities, siege mentality Cameron, Whetten, & Kim (1987).

Downsizing Strategies


Workforce Reduction early retirement transfers outplacement buy-out packages golden parachutes attrition lay-offs       


Organizational Redesign eliminate functions cut hierarchical levels drop divisions or products consolidate or merge units reduce work hours lengthen shifts      


Systemic Strategies (TQM): Redefine change as-as a way of life ongoing process continual improvement simplification enroll employees to generate and implement accountability     

Legal Risks in Downsizing 

Age discrimination-- Age Discrimination in Employment Act (over 40)

Race & gender discrimination--

Title VII

of Civil Rights Act prohibits discrimination based on race, color, religion, sex, national origin regarding hiring & retention. 

Handicap & disability discrimination--

Americans with

Disabilities Act 

Breach of contract--

Lack of advance termination notice--

courts & legislatures have exceptions to ³at-will´ doctrine of employment Worker Adjustment

and Retraining Notification Act 

Employee benefits--

Employment Retirement Income Security Act; benefits improperly terminated or withheld

Tort claims-- Intentional infliction of emotional distress, defamation, contract interference, invasion of privacy, fraud

Effective Downsizing: Best Practices 

Top-down & bottom-up: employees analyze jobs & tasks to reduce redundancy and improve efficiency

Across the board and selective:

underline seriousness, status quo not acceptable

Target key internal & external elements: remove blockages; include suppliers, customers, distributors in planning & implementation

Small semi-autonomous & large well-integrated structures Means to end and end in itself -- improve productivity and enhance competitiveness

Huber & Glick, (1993)

Three Questions--

1. For a company in or approaching a crisis, what should they consider in viewing downsizing as an option (what questions to decide go/no go)? 2. If downsizing is decided on, how can it best be implemented (how select, prepare, and transition people out)? 3. Following downsizing, what should be done to regain survivors as an effective work force?

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