Downsizing in Today's Corporate


S.P. Gayathri
MBA (IInd Sem)
Alard Institute of Management

In general terms, downsizing refers to cutting down of employees in an organisation. It is a crucial step taken by the organisation , when it sees that costs of organisation is going overboard due to excess of employees in the organisation.

Downsizing may prove beneficial in an organisational front but it poses as a major threat in case of employees working in a firm. Downsizing may be due to internal or external changes in an organisation.

If a firm opts for downsizing , it must keep in mind some of the rules of downsizing :

  • Set targets, deadlines and objectives for downsizing
  • Institute a variety of cost cutting procedures, not just head count reduction
  • Make clear, direct & emphatic announcements of downsizing strategy
  • Give advance notification of downsizing
  • Provide all financial benefits agreed upon in time & extend outplacement assistance as far as practicable
  • Develop trust between management & surviving employees
  • Implement downsizing in a fair & humane manner

The fundamental reason to resize the organisation is to improve organisation performance & to reduce costs of operation . Downsizing is a inevitable reality, it is important to do so with dignity & with due consideration to its fallouts from the standpoint of the employer as well as the employee. It is a challenge to the organisation to manage employee exit without disrupting the organisation function.

Those employee who lose jobs are the hardest hit. The emotional trauma of losing is very difficult to cope with, for the affected employees.

In case of Downsizing by the companies , in order to take fair and just decisions, they choose the approach " FIRST COME LAST GO" . Those employee who are going to be affected must be informed well in advance. These employee not only have to cope with the emotional trauma, but also with loss of self confidence, self esteem. The pain here is not only suffered by the individuals alone but also his/her family members.

Those employees who remain after Downsizing , suffer from significant problems. They suffer from guilt and are also faced with the fear of job insecurity. They often show decreased productivity & satisfaction. They usually loose motivation to work and worry about the future of their own.

Some of the firms where Downsizing plans are going to be implemented are:

  • Larry Ellison led Oracle Corporation plans to maximise profit after its $5.85 Billion acquisition of Siebel System. The company would announce more than 1000 job cuts as Siebel is integrated with it
  • Volkswagen Germany based & Europe's largest carmaker decided to cut 20,000 jobs. After realising that Volkswagen costs are 40% higher than those of competitors in July-05 so company plans to cut 7 Billion Euros in expenses by –08 and introduce as many as 10 new models so company plans to downsize their employee number by 20,000
  • Nationalised Banks together have cut as many as 10,000 jobs
  • SAIL as trimed its workforce by cutting 19,600 jobs
  • 25% of the jobs at HUNDAYI Electronic to be cut
  • FIAT INDIA has plans to cut workforce by 20%
  • P&g plans to reduce their employee by 9600 jobs
  • Nearly 7000 employees at MOTOROLA will lose their jobs

In many cases , Downsizing becomes inevitable. There was an article "Downsizing with dignity" written by Ann E Feyerherm, which provide guidelines based on the first hand experience of a manager involved in Downsizing effort in a company in South California. Since , the axe had to fall , the best approach adopted was to Downsizing with dignity & to ensure that those who were let to go were equipped with new skills to enhance their career prospects.

S.P. Gayathri
MBA (IInd Sem)
Alard Institute of Management

Source : E-mail February 16, 2006




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