Downsizing, or rightsizing, is an integrated process that configures processes, products and people as a cost cutting measure. It is a phenomenon that is intended to re-engineer an organization for future benefits (Horngren, Foster and Dartar 237). Usually attributed to technological changes, downsizing is meant to enable long-term solutions. The present article stresses that there can be negative consequences to downsizing, in that the radical elimination of staff and customer freebies to cut costs may provide no advantages over a company that retains their assets. As Cascio states, “It is not possible for firms to”save” or “shrink” their way to prosperity” (p. 4).
Summary of Key Points
Lose staff à increase earnings and stock prices, because of reduced operating costs.
Downsizing may not necessarily be viable for the long-term.
Context determines strategy; always retain key management for leadership, and skilled technicians.
Long-term should be goal, because why else re-structure.
Alternative restructuring methods are highlighted by H ………….
Staff = asset
Corporation to engage in continuous improvement and multi-skilling of staff: professional development; company culture leads to customer and staffs satisfaction.
People à “innovation and renewal”; human resource asset.
Knowledge-based organisations (e.g., IT) can especially benefit in retaining and training new and ongoing staffs.
Post-modern commercial industry is focused on service orientation.
Delivers examples as to how to avoid, and how to take advantage of, restructuring in a responsible way.
This article is of interest to corporate management and Board members who are exploring the option of downsizing their workforce. Cascio delivers a lengthy review of real-world risks, benefits and disappointments by organizations choosing to downsize. It is highlighted that a Strengths, Weaknesses, Opportunities and Threats analysis be carried out first. This will assist management to make an informed decision as to whether to downsize, and how to implement their decision in a responsible and transparent way (Horngren et al. 100; Hoggett, Sweeting and Radford 15). The goal of strategy change is to enhance market competitiveness and to align with international discourse of corporate social responsibility (CSR).
The article indicates several areas of concern that are of interest to today’s management:
The Risk of Downsizing
Management may decide to downsize with the goal to improve returns. Evidence shows that this is only a short term solution. There are significant social consequences, such as the loss of human resources, customers and suppliers confidence. Future growth will be more costly because of having to continuously hire new staff to be trained; low wages and poor working conditions do not endear staff loyalty. Further, there can be a lack of corporate structure following downsizing, in turn increasing the workload and interpersonal and intrapersonal pressures on staffs, affecting customer interest and loyalty. With regard to needing a strategic option that is a preventative measure to reduce costs, downsizing is a last resort.
Are Employees Assets or Costs?
Management accounting classifies labour as a variable cost rather than a fixed overhead (Horngren et al. 10). Employees are viewed as “costs,” to be “cut” when downsizing. Human Resource managers however, view people as the greatest asset within a corporation, which is a network of social beings interlinked with external networks. As Cascio notes, contemporary responsible restructuring requires that employees be seen as assets to be developed. Multi-skilling of employees is a key training focus within commercial industry today, with R&D using predominantly government support, to study organizational culture, leadership patterns, continuous improvement and learning across the lifetime.
Business Concept Innovations
People lead to innovation, states Cascio. Managers can draw on their examples to use restructuring with new technologies or processes. The article reminds the reader to consider the rational for restructuring. A SWOT analysis should indicate areas for potential areas of R&D and innovation.
Applying this Article to Industry
The article reviewed in this paper has some applications to the contemporary business world. It provides solidly researched information that managers can use when deciding which strategy to employ if they choose to downsize. Long term and short term facts and experiences of other firms are presented so that others can draw on the learnt knowledge to avoid mistakes and hasty decisions in the future.
However, the article is limited in that it makes no mention of outsourcing. This may be due though, to the publication date of 2000, and outsourcing not being recognized as a cost saving measure until at least 2002. Outsourcing is a form of downsizing where internal departments are dismissed, and hardware, software design and IT services for example, are outsourced, normally to developing nations where labour is cheap and the staff highly trained and eager to work (Mercer 1). It has been found to increase the incomes of corporations.
Cascio, W. F. “Strategies for responsible restructuring.” Academy of Management Executive,
Horngren, C., Foster, G. and Datar, S. Cost Accounting: A Managerial Emphasis,
Prentice Hall International, Saddle River, NJ. 2000.
Leo, K., Hoggett, J. Sweeting, J. and Radford, J. Company Accounting (6th
edition), John Wiley & Sons, Sydney. 2005.
Mercer, Ilana. “Downsizing jobs, outsourcing lives: Part 2.” June 4, 2003. November 1, 2006.