1336
n
Myths in management
Does downsizing ever work?
So, let’s think a bit more about the practice of downsizing. What
is the evidence for its effects? Does it actually work . . . like, ever?
Let me give you a sneak preview in a nutshell: no, it doesn’t.
Workforce downsizing has been a popular pastime lately (i.e.,
over the past decade or two), with more and more companies
announcing mass lay-off programs, even if they’re not in nancial
trouble. The practice started in the early 1980s, when economic
slowdown more or less forced rms into it, but proved not to
be a passing trend when in the ensuing decades many rms
continued to engage in systematic workforce reductions.
Of course, rms engage in downsizing hoping to boost their
protability. But does it work? It has obvious advantages –
waving the hatchet tends to lower headcount
quite effectively, which obviously leaves
you with lower labour expenses – but also
has some potential disadvantages, such as
lower commitment and loyalty among the
survivors. It is not immediately clear whether
the positives will outweigh the negatives, or
vice versa.
Therefore, Professors James Guthrie, from the University of
Kansas, and Deepak Datta, from the University of Texas at
Arlington, decided to research the issue in a systematic way. They
managed to obtain in-depth data on 122 rms that had engaged
in downsizing, and performed various statistical techniques to
examine whether the program had improved their protability.
The answer was “no”.
Beforehand, James and Deepak had thought that downsizing
would likely be harmful for rms that rely heavily on people (such
as rms in industries in which R&D is very important, or rms
with low capital intensity) and rms that are in growth industries
(since it would be more difcult to justify mass lay-offs there).
And they were right; in those type of businesses, downsizing
programs signicantly reduced rms’ subsequent protability.
‘‘
firms engage in
downsizing hoping
to boost their
profitability
’’
..................Content has been hidden....................
You can't read the all page of ebook, please click here login for view all page.