Essay/Term paper: Corporate downsizing

Essay, term paper, research paper:  Economics

Corporate Downsizing

- INTRODUCTION -

Downsizing, restructuring, rightsizing, even a term as obscure as census
readjustment has been used to describe the plague that has been affecting
corporate America for years and has left many of its hardest working employees
without work. In the 1980's, twenty-five percent of middle management was
eliminated in the United States (Greenberg/Baron 582). In the 1990's, one
million managers of American corporations with salaries over $40,000 also lost
their jobs (Greenberg/Baron 582). In total, Fortune 500 companies have
eliminated 4.4 million positions since 1979 (Greenberg/Baron 627). Although
this downsizing of companies can have many reasons behind it and cannot be
avoided at times, there are simple measures a company can take to make the
process easier on the laid-off employees and those who survive with the company.

- STAGES OF DOWNSIZING -

The downsizing process can generally be broken down into three distinct
stages. The first stage is called the diagnostic stage. In this stage,
management staff pulls together and determines the amount of costs and expenses
that need to be reduced, and how much can come out of layoffs (Moore 49). This
stage usually takes about two to three months to complete. During this time,
the upper management reviews all financial records in order to determine how
much is needed to be cut from salary expenditures (Moore 50). This stage is
concluded when the senior management has a detailed plan on who will be let go,
and who will remain with the company. During this stage, there is one common
mistake many companies make: lack of communication. The middle management is
usually left out of all downsizing plans. This is wrong and creates a big
mistake. Middle management should be looked upon as a valuable tool for giving
input where cuts should be made (Moore 51).
The next stage of downsizing is the implementation stage. During this
stage the employees are laid off. The time between an announcement and the
actual layoff should be as short as possible. This will almost insure that a
panic will be avoided, and give a clear view of the situation at hand without
causing mass-hysteria.
In a managerial position, it is difficult to explain to an employee that
he or she is being laid off, but Terrence Moore gives a guideline on how it
should be done. Small talk should be avoided. Management should clearly
explain that the employee is being laid off and be prepared to answer questions
directly; avoid beating around the bush. It is extremely important to detail
all employee benefits and severance pay, also the employee should be encouraged
to come back with any questions that he or she may have (Moore 52).
An important note is that the employee should not be given false hope.
It should be made clear, from the start, that the employee is being laid off and
doesn't have a chance of being rehired. Finally, you should not try to lie to
the employee and say you know how they may feel if you don't (Moore 52).
The final stage is the post-implementation stage. This is dealing with
the survivor syndrome and helping displaced employees find jobs throughout
placement sources. Sadly, management usually expects the remaining employees to
return to their jobs as if nothing had happened.
However, this is not usually the case. Survivors suffer with negative
feelings of resentment, frustration, irritability, fatigue and burnout. They
may also undergo feelings of insecurity with their company. A way to help
survivors deal with their problems is to offer personnel workshops (or programs)
that offer support to help cope with the anxiety that adjustment brings (Moore
53).

- REASONS FOR AND EFFECTS OF DOWNSIZING -

There are many reasons why a company might need to downsize. In today's
corporate America, it is a plain fact that far fewer employees are necessary to
maintain a successful operation. Many times, it is the case where a
technological advance or breakthrough makes it possible to replace a previously
human job. It is also an all-too-common scenario that outside influences such
as sudden shifts in the market or changed government policies force corporate
executives to make coinciding decisions regarding their staff and these external
changes.
Another one of the major problems in today's business world are the
salaries being paid to the workers. Since employers are not paying their
workers high wages, the workers have little to put back into the economy. This
causes the system to plummet and forces companies to downsize to keep from going
under.
The downsizing of a company can affect employees before, during and
after it occurs. Employees usually know of a possible downsizing (care of the
almighty grapevine) months before it is supposed to happen. Thus, employees may
become paranoid and self-absorbed, and their top priority is their own career
rather than the bottom line of their employer. This causes them to be unfocused
and prevents them from performing their jobs efficiently. Many workers would
also be perfectly willing to stab their peer(s) in the back in hopes of keeping
their job.
Usually when a downsizing is complete, the company is at an all-time low.
This is due to the fact that in almost every merger, acquisition or downsize,
employees are faced with uncertainty about their jobs before and after the
restructure. After a large percentage of downsizes, ten percent of the
remaining workforce will easily adapt to the change, while another ten percent
will never adapt (Hollreiser 27). Workers who survive the downsize often have
feelings of anger, fear or distrust. Further internal problems result from
employees who survive with the company, but cannot adapt to their new settings
and expectations, and eventually quit their job.
Many steps can be taken to ease the transition of the employees after
downsizing occurs. For the employees who were let go from the company,
reasonable severance packages should be offered to help the person until a new
job is found. Downsizing not only affects workers that have been terminated,
but also affects the survivors. This is commonly referred to as the survivor
syndrome. Many people who survive as a result of downsizing often live with the
fear that they too will be terminated. They are often shell shocked and
distrustful. They are mentally scared survivors of an economic restructuring
that they have never seen before. In this constant climate of economic
insecurity, their jobs are constantly being redefined. They are forced to meet
new levels of production criteria requiring them to do more work in less time
and the notion of job security (because of expandability) is obsolete (Caudren
52).

As for the remaining employees, simple means of communication can be very
important. One of the major reasons for employee problems after a downsizing is
the mistrust in the management and lack of knowledge regarding their own job
status. If the employees are informed of what is transpiring within their
company, they might not be fearful of losing their job, or so quick to stab a
fellow employee in the back.

This problem has affected millions of families in America and has forced
good, decent workers to settle for lower wages and little or no benefits in
exchange for supposed higher job security. I also have some personal experience
with this subject. My father currently works for AT&T and survived the recent
downsize and split the company underwent. However, he was not so lucky with his
previous employer, Nabisco, Inc.. In 1988 Nabisco, Inc. and RJ Reynolds, Inc.
Merged and downsized, laying off thousands of employees of which my father was
one.

- POSITIVE EFFECTS OF DOWNSIZING -

Although downsizing can have devastating effects on those people on the negative
side, the remaining employees can have tremendous opportunities for growth and
skill development. After a restructure, there are many ways an employee can
grow vertically and horizontally within their company. Since so many positions
are eliminated in such a process, the remaining employees sometimes need to
learn new skills and adapt to handling greater amounts of work than ever before.
While this may be an inconvenience at first, these skills and abilities can
assist these people in future job searches.

- CONCLUSION -

The downsizing process is a fact of life. It affects all people from
managers to laid off employees and their families as well as those who remain
with the company. It is something that will continue to occur with no end in
sight. As long as our world market continues to grow, so too will the concept
of downsizing grow. This process can lead to psychological problems, and
creates anxiety and frustration for those of both ends of it. This is a problem
that most likely will not have an easy solution, or at least not any time soon.
It is something that we all must deal with in one way or another, and as for the
victims of downsizing, the only thing they can do is try to piece their lives
back together and hope for the best.