Downsizing Strategies and Its Effects

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Companies that faced a decrease in sales, market share, or profits in the 1980s and early 1990s began to realize that their human resources were expensive and underutilized. To become more competitive, companies made strategic decision to gradually lower their payroll numbers. (Anthony, Kacmar & Perrewe al, 2002:434) Downsizing has become a critical issue around the world. Downsizing and mass lay-offs are happening not only on US companies but also organizations in the entire industrial world. The number of organizations and jobs affected by downsizing has been staggering. In 1993, in an unending quest for lower costs, higher productivity, and fatter profits, American firms announced 615,000 jobs cut, and all-time
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Such corporate measures will be related to profitability, productivity, investment returns, customer satisfaction ratings, etc. While these measures may suggest that a downsizing process has had a negative impact on those who survive as employees in the organization, they can only serve to highlight the presence of psychological and behavioural consequences for survivors. (Thornhill, Saunders, 1998:273-4)

Why do firm downsize?

A diversity of reasons can be lead to the decision of downsize. Organization and employees are being force to adapt to an environment characterized by augmented competition, government deregulation and technological evolution. (Internet Material #7) (Refer to Appendix 1 for most common reasons of restructuring) It can increase productivity, the value of the companies¡¯ shares and the profits by reducing the number of employees per unit. Companies downsize to cut cost, improve efficiency and to maintain a profit level acceptable to their shareholders. Other reasons include reorganization, minimizing bureaucracy, eliminating excess, business downturns, mergers, and acquisitions. (Makawatsukul & Kleiner, 2003:52) Downsizing has become strategic decision by systematically reduce workforce to become
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