Explain downsizing and discuss the major reasons that organizations engage in it. Explain why downsizing strategies are or are not generally successful.

Question

What will be an ideal response?

Answer 1

Downsizing is the planned elimination of large numbers of personnel designed to enhance organizational effectiveness. Companies engage in downsizing for the following major reasons: First, many organizations are looking to reduce costs, and because labor costs represent a big part of a company's total costs, this is an attractive place to start. Second, companies may close outdated plants or introduce technological changes to old plants, which reduces the need for labor. Third, because of economic reasons, companies change the location of where they do business.

Although downsizing has an immediate effect on costs, much of the evidence suggests that it has negative effects on long-term organizational effectiveness. There seem to be a number of reasons for the failure of most downsizing efforts to live up to expectations in terms of enhancing firm performance. The long-term effects of an improperly managed downsizing effort can be negative. Many downsizing campaigns let go of people who turn out to be irreplaceable assets. Also, employees who survive the staff purges often become narrow-minded, self-absorbed, and risk averse.