Downsizing: What do we know? What have we learned?

Abstract

Executive Overview Downsizing, the planned elimination of positions or jobs, is a phenomenon that has affected hundreds of companies and millions of workers since the late 1980s. While there is no shortage of articles on “How To” or “How Not To” downsize, the current article attempts to synthesize what is known in terms of the economic and organizational consequences of downsizing. We argue that in many firms anticipated economic benefits fail to materialize, for example, lower expense ratios, higher profits, increased return-on-investment, and boosted stock prices. Likewise, many anticipated organizational benefits do not develop, such as lower overhead, smoother communications, greater entrepreneurship, and increases in productivity. To a large extent, this is a result of a failure to break out of the traditional approach to organization design and management—an approach founded on the principles of command, control, and compartmentalization. For long-term. sustained improvements in efficiency, reductions in headcount need to be viewed as part of a process of continuous improvement that includes organization redesign, along with broad, systemic changes designed to eliminate redundancies, waste, and inefficiency.