7 - Employee downsizing and organizational performance

Summary

Employee downsizing – the phenomenon

Globalization and rapidly changing industry conditions over the past couple of decades have dramatically increased the competitive pressures faced by most corporations. To stay ahead in this more competitive environment, firms are being forced to constantly reevaluate their current strategy. Often this entails a reexamination of existing cost structures and the exploration of efficiency enhancing options. In this context, it should come as no surprise that employee downsizing has become an integral part of organizational life in corporate America. While downsizing is not a new phenomenon, it was only during the major economic downturn in the early 1980s that we started to see high levels of employee reductions for reasons other than job performance. Prior to that, such reductions were often temporary, with employees laid off during downturns being recalled when business conditions improved. More recently, firms have often engaged in employee downsizing of a more permanent nature. Radical restructurings undertaken in response to increased, often foreign, competition and the desire on the part of firms to drastically reduce payroll costs have often meant plant closures and permanent layoffs. Indeed, employee downsizing has emerged as an important weapon in the arsenal of many managers seeking enhanced efficiency and improved firm performance. As Datta, Guthrie, Basuil, and Pandey (2010, p. 282) suggest, “given its magnitude and impact, employee downsizing can legitimately be viewed as one of the most far reaching and significant management issues of the current era.” Very importantly, what used to be a primarily US practice has now become a global phenomenon with large-scale layoffs becoming commonplace in European and Asian corporations.