Downsizing Lessons Learned
by Freda Turner

Since the 1980s, about 10 million jobs have been eliminated and the downsizing trend continues as organizations hope to cut costs and improve performance. Yet, research has shown that most of the anticipated economic and organizational benefits of downsizing are not achieved. Downsizing is a chaotic and uncertain experience at best. Unfortunately, there are few guidelines on the best way to achieve the desired results. Below are a few things that we have learned about downsizing:

Downsizing Does Not Always Produce Desired Profits

Some studies have shown fewer than 30 percent of downsized firms received expected profit increases. Typically, this is because of a failure to break away from the traditional organizational design and managers continue to use old command, control, and compartmentalization principles.

Resist Across-the-board Layoffs

This jettisoning approach calls for cuts across all levels in the firm. One major airline learned this lesson well when they did an across-the-board downsizing only to learn they could not provide service with so few baggage handlers. An across-the-board cut is a signal that the management team has not completed due diligence to workforce planning and processes. GE uses Top Grading Performance System to rank employees into A, B, or C performance categories each year. When it comes time for downsizing, the employees most likely to be cut are the ones with the lowest performance scores, allowing GE to keep their top talent and cross train them if necessary.

Only Pay for Outplacement Services That Are Utilized

Many executives as well as workers have been through one, two, or even three downsizings. A June 1999 HR Magazine article recounted that AT&T has provided outplacement services since 1985. However, they have found that fewer than one-fifth of downsized workers take advantage of outplacement services or retraining opportunities. If contracting for external outplacement services, ensure the contract is worded so that your organization is not paying for services that employees do not utilize or want. Paying full workshop price that only has one person attending is not a good use of the stockholder's money. Repetitive downsizings, low unemployment coupled with free resume/interview information on the internet allows individuals to adjust, rebound and reposition themselves in the job market quickly.

Redesign Jobs/Eliminate Unnecessary Tasks

 Lee Hecht Harrison recently completed a survey of 500 HR executives. One-third of those polled felt that their company had let too many employees go. The survey also found that one-third of the companies that downsized since 1994 restored at least some of the jobs that had been cut. Best practices include redesigning job expectations to prevent having too few people doing inefficient operations or simply eliminating unnecessary tasks.

Plan The Downsizing Waves

Repetitive waves of downsizings adversely affect employee morale, organizational commitment and motivation. One well-planned downsizing after talking with an employment attorney allows an organization to recover quicker. If survivors are managed well with communications of future vision, productivity loss can be minimized.

Don't Lose Your Intellectual Capital/Top Talent

Intellectual capital is an organization's seed corn. Typically, during downsizing, top talent will by recruited by other firms or jump ship leaving an organization with only marginal workers. Cap the number of early retirement offers so that only a certain percentage can retire from each unit. AT&T was crippled in some offices during an earlier downsizing when every eligible employee elected to take the early retirement.

Improve Processes/Better Way of Doing Business

In the budget-driven approach of downsizing, resource allocations define the number of employees the firm can afford instead of seeking more effective methods of doing business. Before downsizing, ask employees how costs might be contained. During the fuel price jump this summer Herb Kelleher of Southwest Airlines sent a letter to each employee seeking ways to save $5.00. Employees responded with recommendations that resulted in the savings of millions of dollars. If downsizing is the necessary strategy, use lots of communications to explain to employees, customers and vendors why personnel cuts are necessary.

Tie Compensation to Success

Align a percentage of compensation "at risk" in exchange for attaining pre-established business goals, or offer bonuses that are based upon the economic performance. Implement career development plans to help the employees become more involved with new vision, teamwork, problem solving and continuous learning. Ongoing training and evaluation of employees at all levels should be a priority.

Downsizing Reflects Progress

Despite a decade of downsizings, the American economy has quietly grown richer. Unemployment is at an all time low and the number of jobs has continued to grow. The driver of downsizing is competition. IBM was squeezed by the introduction of personal computers (Compaq, Intel, Microsoft). Sears suffered from new retailers (Wal-Mart, Home Depot). Bell Telephone downsizing reflected loss of market share to MCI, Sprint and other carriers. These new companies generated far more and better jobs than the old ones lost and we as consumers have more value at less cost. The alternative to these downsizings would have been to maintain the inefficiencies that the old companies represented.


Freda Turner is affiliated with the Graduate and Doctoral Programs at University of Phoenix. She can be reached at fturner@email.uophx.edu.

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Copyright 2000 by Freda Turner. All rights reserved.

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