Downsizing and the affect it has on the Organizationl Development and Change Processes

Downsizing and the affect it has on the Organizationl Development and Change Processes

In general, I consider that companies should adopt a downsizing strategy to achieve one of three goals—to save, to improve, or to change the company. Downsizing to save the company may be undertaken when a financial crisis requires the company to reduce labor costs as a last resort before bankruptcy. Downsizing to improve the company may be undertaken as a preventive measure to reduce labor costs to fend off a looming financial crisis (Cameron, 2006).

I believe that reducing staff is usually the fastest way to affect the bottom line because of accounting rules that allow all costs associated with downsizing to be expensed in one quarter, a tactic that is usually viewed favorably by financial analysts. Downsizing can also cause considerable stress and heartache for the individuals affected as well as those in management who must develop and/or implement the downsizing plan (Brockner, 2008).

Downsizing to change the company in my views may be undertaken through strategic staffing reductions, perhaps as part of a merger or acquisition, or in response to a decision to outsource a function. Many companies believe downsizing to facilitate organizational change will have a positive impact on their long-term viability; however, researchers have been unable to find consistent evidence that downsizing is positively correlated with future financial performance. Adopting a downsizing strategy is more ethically murky, therefore, when the company is performing well and is in no imminent financial danger (McKinley, 2006).

My opinion regarding the stock market is that it generally reacts favorably to a decision to downsize, with a company's stock price rising in response to the announcement. Over time, however, companies that downsize to improve performance often do not attain the desired results because of the emotional impact on the survivors, increases in uncertainty, and changes in individual work responsibilities for which employees are ill prepared. In addition, when companies elect to downsize to save or improve the business, it may be unclear as to whether this is the best option for the company or just the most expedient (Godkin, 2006).

I also think that the pressures associated with downsizing can only be justified if it does in fact improve the company's performance; however, there is contradictory evidence as to the actual benefits. There are several ethical theories that may be applied to assess the morality of a downsizing strategy. Utilitarian theory contends that a decision is moral if it results in the greater good for the greatest number of people. This is the most commonly used justification for downsizing to save or improve the company, that is, laying off 1,000 employees will save the company from bankruptcy and thus save the jobs of 20,000 employees (Gilbert, 2000).

Many firms in my opinion have downsized and restructured successfully to improve their productivity. They have done so by using employment downsizing as part of a broader business plan. Extensive research has shown that employment downsizing ...