By Artur Victoria
Critics of downsizing argue that not only are the effects on the bottom line seldom as rosy as management expects, but that job loss has profound negative consequences for the displaced employees and their families, consequences that add to the social costs of downsizing. They cite research showing that unemployment and job loss are related empirically not only to long-term wage loss and employment insecurity, but also to a wide range of other outcomes, including criminality, drug and alcohol abuse, domestic violence (of spouses and children), separation and divorce, declines in objective and subjective health, depression, suicide, and children’s well-being (e.g., self-esteem, mental health, and school performance). There obviously are also quite massive potential economic effects on communities and the public at large.
Those who defend downsizing argue that the social impacts are primarily positive, at least in the long run. For instance, layoffs promote superior matching of workers to jobs and increased dynamism and risk taking in the economy, thereby fueling economic growth. Moreover, defenders of downsizing argue that new job creation has more than compensated for the jobs lost through layoffs and outsourcing. And they argue that in the competitive global environment, if domestic firms (be they in the United States, Western Europe, Southeast Asia or wherever) don’t “wake up and smell the coffee,” those firms will not remain competitive. The government will then have to choose between protection-an economic and social disaster in the long run-or letting the firms sink, causing even more massive layoffs and dislocations.
How costly (if at all) to society is downsizing? The data given about bottom-line impacts of downsizing ought to give you pause if you are considering such a program for your enterprise. Though the data do not speak with one voice, they indicate that downsizing is likely to work better when it is part of a well conceived general strategy of restructuring the firm and its workforce. This can include spinning off pieces of the organization that have diverted managerial attention from core competencies, or a well – constructed program of outsourcing non-core tasks. Or it could consist of efforts to re-engineer the firm or change its culture, such as redefining jobs and work processes, redefining measurement and reward processes, employing techniques of high-commitment human resources management, and emphasizing new strategic priorities – such as quality or customer focus-to energize employees and to provide an overarching goal.
Why does downsizing tend to work better when it is part of a broader initiative? There are two linked explanations that can be offered for this. The first and more straightforward explanation is that while firms may become bloated in terms of their workforce, the bloat is unlikely to be evenly distributed. Downsizing programs that go beyond layoffs and pursue underlying organizational problems or try to exploit real opportunities are more likely to address the real problems or successfully exploit the real opportunities. And the improvements thereby obtained are likely to be longer-lived than are those resulting merely from reducing headcount. When management thinks it has some idea of what it should be doing besides simply firing folks, it is more likely to know what it is doing.
The second, related explanation concerns the reaction of the survivors to the downsizing campaign. In general, downsizing can and often does have a devastating effect on relations between survivors and the firm. Consistent human resources practices, acting through the firm reputation; help promote efficient and effective labor exchanges. Another theme has been how “generosity” especially generosity that is unstinting when times are toughen pay for itself through the psychological process of gift-exchange. And especially in the context and high-commitment human resources management, employment security in particular plays an important role in getting the best out of employees.
If employment continuity has served firms well in all these respects, it follows that layoffs and downsizing that unravel implicit contracts and otherwise sour the atmosphere have the potential to serve some firms poorly. When downsizing serves a purpose-when there is a rationale for it that can be offered to and accepted by employees – then it stands a much better chance of not being disruptive or, at least, of being less disruptive and poisoning. For instance, if downsizing comes largely from the elimination of layers of middle managers as part of converting to a high commitment human resources system, with ample assistance provided to the displaced middle managers, or if it is part of a program of enhancing the firm’s focus on its core competencies, then the effort is more likely to make more sense to employees. And it is thus more likely to make economic sense by virtue of the fact that employees will accept it and adjust.
If employees see management that responds to increased competition or changed conditions with nothing more intelligent than exhortations to get mean and lean, they are unlikely to respond very well, especially when the management ranks are untouched by the layoffs. If, however, there is some sense to management’s actions – and employees are likely to understand what is sensible, what isn’t, and what is simply reactive downsizing-then the workforce is more likely to accept and adjust. Put differently, laying people off amounts to an admission that a firm’s old way of doing business is no longer well-suited to the current or impending business environment. But layoffs on their own don’t help the employees who are left behind understand or implement a new way of doing business that is better suited to the company’s strategy and context. One is reminded of the admonitions that physicians and nutritionists routinely give to would-be dieters: Rapid weight loss seldom produces satisfying long-term results unless it is accompanied by changes in lifestyle, eating habits, and exercise.
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