Downsizing is any management action that reduces employment upon re-structuring/re-engineering operations in response to competitive pressures.
What strategic issues were of greatest concern to their companies, managers indicated the following three areas:
• global competitiveness,
• economic concerns such as a need to cut costs and improve profitability, and
• quality, productivity, and customer service.
• economic concerns such as a need to cut costs and improve profitability, and
• quality, productivity, and customer service.
The most common answer to these strategic issues has been downsizing. Of the survey respondents, 64 percent downsized plants and facilities and slightly over 50 percent sold off some business units. The primary reason mentioned for downsizing was the need to reduce costs and improve profits. Seventy-five percent of the firms surveyed also made substantial investments in advanced technology in conjunction with downsizing.
Downsizing as a response to competitive pressures can result in many risks and dangers. First, firms may find that, through rounds of layoffs, the in-house talent pool has been depleted. The collective workforce knowledge or organizational memory may have been reduced to the point that the ability to solve problems creatively and generate innovative ideas for growth is greatly diminished. Also, after downsizing, many firms have found that positions that once served as feeder pools for future top management talent have been eliminated.
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