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Effects of Companies that Downsize


Due to the recent slump in overall business, many organizations are considering to downsize their operations in order to minimize their losses and save themselves from further losses in future. However, the top management of any company must consider the consequences of shutting down its several operations and lying off employees, on the employee moral and the motivation to work among employees. Companies not only downsize at the time of recession but they usually lay off employees for several others reasons as well. It is usually claimed that downsizing is done in order to quickly improve profits, a company in trouble identifies its largest expenses, which is in most of the cases payroll and starts laying off. The reasons mostly used as a basis for downsizing by companies are organizational restructuring, a slump in business and business process reengineering. However, the decision to downsize a company is sometimes justified when it becomes necessary for an organization to save itself from bankruptcy. Some experts view it as an essential measure for the progression of business in general. They believe that the American economy has gone throw such changes when the industrial age was about to close, and that the trend of downsizing observed today is a pain of growth and change. It is true that the decision of downsizing benefits the organizations and increase profits but this growth in profit is in fact a short-term achievement. Several studies have shown that more than half of the positions vacated during downsizing are refilled within a year. Studies have further revealed that the efforts to decrease operational expenses in order to increase profits are not much successful. Companies that are operating at higher costs and companies that are reducing their costs are equally likely to improve profits.

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Effects of Downsizing:

The employees who survive from a major downsizing are at best encouraged and upraised to improve their productivity and efficiency at the workplace. At worst, they are threatened and exposed to a feeling of fear to lose their jobs or being demoted. These surviving workers are in most of the cases exhausted, de motivated, stressed and unhappy. All these feelings are more likely to severely affect their health. Studies have found that there is a significant association between downsizing and absenteeism. After a major downsizing the rate of downsizing increases to a considerable extent. as most of the staff of an organization, which has recently done a major downsizing, is already stressed and on the other hand the work load increases due to smaller workforce, they more and more complain of several physical disorders and this leads to a significantly high disability cost of an organization. The surviving workforce sometimes makes himself or herself sick by getting overburdened in order to avoid the feeling of stress. The most likely complaints of the workers are to be of high blood pressure, substance abuse, chronic fatigue syndrome and depression. Some researchers go so far as to describe survivors as clinically traumatized, comparing the experience of downsizing as "similar to that of other trauma: combat, abuse, violence, natural catastrophe, crime, chemical dependency…disease and terrorism". (Bumbaugh, p.30)

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The major consideration for companies is the absenteeism of workers from the workplace. When the anxious survivors try to cope up with their new targets and more workload, it is more likely that they may lose temper and may not be able to tolerate, while trying to compensate for lost workers. According to some surveys conducted by some companies, they have observed violent acts from their employees after a major downsizing took place. Employee loyalty is decreased considerably in a recently downsized organization. Those employees who were loyal to the organization formerly and survived in the downsizing are usually unhappy with the management’s decision. Their trust on the company is usually shaken and they feel that they are the most likely targets of the next downsizing phase. This situation is very likely to occur especially in those organizations where staff deductions are done randomly. Once the trust of workers on an organization is shaken it almost impossible to restore. Survivors may be too busy to think creatively to think about growth possibilities for their organizations, or they may not care to make the effort, feeling that "their implicit contract with the company has been severed" (Blanchard, p.10). The over all work environment is filled with a feeling of stress and most of the employees are fearful of making any mistake because they think that any mistake may lead them to the loss of their jobs. This feeling hinders them to take any productive initiative and give any feedback that can be beneficial to the organization. This results in the form of a lack of creative thinking among employees and absence of professional innovation in an organization. This fear of losing their jobs is to such a high level, among some of these employees, that they spend most of their work time in efforts that will let others feel that they are essential for the company.

The most severe loss to organizations is usually in the form of resignations and switching of jobs by a number of the best employees. The reason for these job shifts by the brightest of all employees are too much work load, lack of trust and loyalty for the company and the feeling that they will be the next one in the line. The most competent workforce is more likely to switch because they have better possibility of finding work somewhere else. This situation leads to a massive brain drain in an organization as it losses its best leaders, brightest idea generators, highly skilled technical personnel and most loyal employees. These are one of the key assets for an organization and it usually takes years for a company to attract such employees again. Those who are left are in most of the cases totally de-motivated, anxious, lack the level of trust required to perform the work with efficiency and most damaging factor is that they are afraid to take any initiative. These are the workers on whom the company relies in the future to improve its performance and wonders to be more productive than ever. Business leaders say in speeches that they want workers who are flexible; they're getting workers who are fragile. They want workers who are committed; they're getting people who feel inconsequential. They want workers who are competitive; they're getting people who are constrained. (Brown, p.17) Downsizing benefits a company to some extent but only on short-term basis. In the long run the benefits of downsizing are rarely observed. By downsizing their operations, organizations are harming their biggest assets. "Like an anorexia of the organization, (layoffs) begin depleting the business of its fat, then its muscle, and finally its brainpower." (Downs).

In order to improve the consequences of downsizing, organizations should take necessary measures such as communicating changes openly with the workers, providing training and giving a considerate treatment to the surviving as well as downsized workers. It matters a lot to the survived workers that how the management treats its laid off workers. By passionately treating with the downsized employees, the management can reduce the stress of the survived workforce to a significant extent.

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Though the decision to lay off employees brings considerable reductions in cost and improvements in profits in the short run but this option to improve a company’s efficiency is not very favorable in the long run. The organizations usually suffer in the long run as they observe a massive confusion among employees resulting in depression, lack of loyalty and trust and absence of the qualities necessary for the long-term survival of an organization. The success factors such as energy, enthusiasm, loyalty, creativity and motivation to work are often absent in such cases. When an organization will be working with such tired and totally demotivated work force, its future is never likely to be prosperous. For an organization to become a leader, it is necessary that it may have an energetic, creative, well-trained and loyal work force that is willing to take initiatives and risks for the benefit of the company. The practice of downsizing, especially if it is done randomly, leads to the opposite of what an organization is dreaming to achieve. The principle to success for companies is that they may treat employees as their assets and not as liabilities. This thinking will keep them laying off loyal workers and creating an environment of stress and distrust among employees.  

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Works Cited

Bumbaugh, M. (1998, February). Moving Beyond Survival After Downsizing. Nursing Management.

Blanchard, K. & Randolph, A. (1996, May). Empowerment is Key to Growth. Executive Excellence

Brown, T. (1996, August): Sweatshops of the 1990s. Management Review.

Downs, A. (1995, October): The Truth About Layoffs. Management Review.


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