Downsizing has now become a standard organizational practice in the corporate world. Living human beings are thrown out of their jobs like junks to reduce cost. A new concept of employability is presented as an alternative to job-security. Both these concepts come from a ruthlessly pragmatic approach to human beings. This article examines this specter of downsizing in a critical perspective and presents a more humane approach to the problem. The first part of the article is a review of some of the recent studies and research on the impact of downsizing, which shows that this practice is more of a malaise than a remedy and its impact on productivity, morale and motivation of workers are adverse and negative. The next part of the article presents a similar critical review of the concept of employability and its limitations. The last part of the article provides a more humane, holistic and compassionate alternative to downsizing.
One of the alarming trends in the corporate world is reckless downsizing, tossing off people from their jobs, which are, for most workers, the main source of livelihood and survival. This questionable practice is justified in the name of “change” “market realities” and many other jargons which are part of the new corporate lingo. We are repeatedly told by management pundits that the concept of job-security is obsolete in the emerging corporate world driven by fierce competition, break-neck change and galloping technological advancement. A new concept “employability” is offered as an alternative to job security. But this new jargon in management, for all practical purposes, nothing more than another justification for downsizing but presented as a pragmatic solution to the problem. We have here a serious corporate malaise which needs a humane, compassionate and a long term solution, an approach that comes form the Heart rather than from the Mind. This article is a critical reappraisal of this disturbing trend in the corporate world based on research studies and in the light of a more humane perspective.
The Spectre of Downsizing
One of the amusing contradictions of the new corporate culture is that on one hand there is a constant parroting of the cliché “people are our greatest asset”, but at the same time there is no hesitations in ruthlessly downsizing these “greatest asset” to reduce costs. As Dr. Wayne F. Cascio, Professor of Management, at University of Colarado, points out: ‘Human resources represent costs, so to become profitable it seems logical for a company to reduce these costs through decreasing the number of people. Unfortunately, when confronted with the need to reduce costs, many of the same executives who tout people as their “greatest asset” see those assets as ripe opportunities for cutting cost’ (W. Casico, 1998). But some of the latest research on this practice of downsizing shows that in many cases it is not entirely inevitable and it is done in a heartless and cavalier manner without exploring other more humane alternatives. Here are some of the conclusions of research studies on the subject conducted by Canadian and US scholars:
- Even organizations that are profitable downsize, in anticipation of an increasingly competitive market place.
- Downsizing is too often done indiscriminately. Downsizing is limited to reductions in headcount rather than part of a broader restructuring.
- Some organizational philosophies suggest that firms manage people as they manage inventories—keep both as low as possible “Downsize first, ask questions later” is a dominant theme.
- Many companies say they turn to layoff only as a last resort. The facts indicate otherwise, Right Associates, in surveys of 1204 organisations that downsized, reported that only 6% of employers had tried cutting pay, 9% had shortened work weeks, 9% used vacations without pay, and 14% developed job sharing plans. (R.J. Burke and D. Nelson, 1998)
The other important finding of the study is that bottom-line benefits of downsizing are mostly either negative or minimal when compared to its human and societal costs. As management academics, Ronald Burke and Debra Nelson in their comprehensive review of the North American experience of downsizing, point out: ‘More than half of 1468 firms surveyed by Society for Human Resource Management reported that productivity either stayed same or deteriorated after downsizing.’(1998) The human and societal cost of downsizing in terms of unemployment, lowered morale and other negative psychological impact are considerable. Here are some more conclusions of studies on the adverse impact of downsizing:
- Studies that examine survivors attitude in the aftermath of corporate layoff consistently indicate that their job attitudes such as job satisfaction, job involvement, organizational commitment and intention to remain with the organization become more negative.
- Middle managers interviewed after a downsizing in an organization displayed highly charged negative emotions like anger, anxiety, cynicism, resentment and desire for retribution.
- Research on stressful effects on job insecurity show the effects of job insecurity is similar to job loss itself. Workers were in greater distress when anticipating job loss than when thy have actually lost their jobs.
- Under the heading of “Broader Societal Implications” of downsizing, Burke and Nelson state, that The New York Times (1996) observed that after the economic recovery of 1990, more income was going to management and owners of capital than workers. Corporate profits have risen dramatically while worker compensation as a share of national income, has fallen. (R.J. Burke and D. Nelson, 1998)
In a front page story on downsizing in Newsweek, Jeffrey Pfeiffer, professor of organizational behaviour at Stanford University, admirably sums up all the latest research on downsizing and their conclusion. Pfeiffer argues convincingly, based on an array of new research studies and many examples, that the benefits of downsizing interms of productivity or profit are either nil or negative or illusory and their negative impact on morale and human wellbeing are crippling and destructive. The Stanford professor concludes his article with the following message:
“The facts seem clear Layoffs are mostly bad for companies, harmful for the economy and devastating for employees. This is not new or should not be. There is a substantial research literature in fields from epidemiology to organizational behaviour documenting these effects. The damage from over jealous downsizing will linger even as the economy recovers and as it does perhaps managers will learn from their mistakes.” (Pfeiffer, J, 2010)
We must note here, the disturbance and misery created by downsizing are not merely personal or individual but collective, effecting adversely the social and psychological environment of the community. For environment is not merely physical; it is also social and psychological. Constant downsizing may lead to social unrest and also degradation of the psychological environment of the community. The laid off workers are more prone to violent, vengeful and criminal behaviour. Pfeiffer cites latest research studies to show that people who had no history of violent behaviour were six times more likely to exhibit violent behaviour after a lay off than similar people who remained employed. (2010) Thus, downsizing is a social and environmental hazard.
But then why most of the executives indulge in this unhealthy practice of downsizing? One of the reasons could be lack of awareness or understanding of the long-term consequences of downsizing. The other reason is the inability to resist the short-term solution to get over the immediate competitive pressures and show results. The third reason is the pressure of the corporate environment. As Pfeiffer points out:
“Despite all the research suggesting downsizing hurts companies, managers everywhere continue to do it. -That raises the obvious question why? Part of the answer lies in the immense pressure corporate leaders feel-from the media, from analyst, from peers, to follow the crowd no matter What-One study of downsizing over a 15-year period, found a strong ‘adoption effect’-companies copied the behaviour of other firms to which they had social ties.” (2010)
Southwest Airlines is a company which did not follow the crowd and as a result gained competitive advantage over its rivals! When US airlines industry was facing a severe slump in demand due to the combined effect of 9/11 attack and recession, most of the airline companies in US went into a frenzy of layoffs. But Southwest Airlines desisted from this crowd behaviour and never had an involuntary layoff in its almost 40-year history. It is now the largest domestic airline in US and has a market capitalization higher than all its domestic competitors. This highly admired airlines is a concrete example that demonstrates two things: first, the illusory nature of the imagined benefits of downsizing; second, what a principle stand on people and human values can do to the long-term effectiveness of an organization. When a HRD executive of Southwest asks, ‘If people are your most important asset, why would you get rid of them?”, she has the moral authority to put that question to other managers because she is part of an organisation which walks the talk!
Security and Employability
This brings us to the relevance of the concept of job security in the new corporate environment. Job-Security and loyalty to organization are now considered as outdated values not in tune with the present organizational realities. Rapid change and technological progress and hyper competition are cited as some of the new “market realities” which makes downsizing unavoidable. The new concept which is gaining wide acceptance among management thinkers and professionals is “employability”. The rationale behind the concept is that in the new and emerging business environment management can not guarantee job-security; what it can do is to provide the employee with opportunity, training and the experience which will give the competence and skill that will make him “employable” or rather reemployable, elsewhere even if he loses his job. But the concept of employability is valid under two conditions or categories. First, when there is a surge in the Job-market as it happened in the IT and ITES sector in India during the 1990’s. Second, to a small group of highly skilled managers, knowledge-workers or specialist in the executive level in big, premier, high-tech or leading organization which can provide the opportunity or training or experience to make them “employable”. But job-market is not something stable or fixed. At any moment scarcity can turn into a glut. And for the large number of the lesser skilled work force in the lower levels, “employability” offers no hope.
This brings us to the question is this concept of “employability” a verbal and conceptual gloss to justify firing of employees? The management tells the employee “We can’t guarantee you job-security. We may have to fire you when you are no longer needed for the organization. But we will provide you whatever that is needed to make you employable elsewhere”. But if an employee is no longer employable within the company, what is the guarantee he will be employable elsewhere? If the management fires an employee because his experience, knowledge and skill are no longer relevant or useful to the company, how they will become relevant or useful to other companies which are facing the same type of environmental pressures or marker-forces? Even if the retrenched workers find alternative employment, they may not be able to find a job with the same level of wages, benefits or working condition. In their study of 2000 laid-off steelworkers in the United States, Leana and Fieldman (1992) reported that only 66% of the reemployed were working full-time, 85% were making 40% less money than in their former jobs and 70% were receiving fewer fringe benefits than in their previous jobs. In otherwords, if the company will not make any special effort to make the employee employable then the promise of “employability” is an illusion. If the company makes a conscious and continuous effort to make the existing employees employable within the company always, under all circumstances, then there is no need for downsizing.
In fact, the mind-set behind downsizing or employability betrays inability to use the existing human potential in the best possible way. As the distinguished management scholar C.K.Prahalad points out: ‘Think about how many opportunities may have actually been lost through restructuring. Think what might have happened if companies had used all the “redundant” brainpower that they got rid of to imagine new markets for tomorrow or to build new core competencies that would give them an advantage in these markets’. (Prahalad C.K, 2001) So if a company is growing constantly, exploring new opportunities and anticipating future possibilities and utilizes fully the collective creativity of its employee at all the levels to solve the problems, challenges and difficulties facing it, then it will have much less need for downsizing or “restructuring”.
The other major defect of the concept of employability is that it fosters a purely contractual relation between employee and the management. For all practical purposes the employee is viewed as a knowledge-skill engine, kept as long as it is needed, and thrown away when it becomes obsolete. There is so much of lofty talk in the new management literature about vision, values and purpose as the basis of higher motivation and long-term effectiveness. But the concept of employability is out of sync with a heart-felt commitment to company’s values, vision or purpose. In a corporate culture governed by the concept of employability, the management looks upon the employee as a bundle of knowledge and skill and the employee looks upon the organization as a means for enhancing his or her employability. The employee has no real need for any emotional or long-term commitment to company’s vision or values or goals though he may adhere to it as a part of his professional commitment, which means short-term thinking. The attitude of the employee is something like what Charles Hardy says ‘I’m working for you purely because I’m earning money or because it’s teaching me some skills which I will somewhere else use’ which means as Hardy comments further ‘very selish, very short-term thinking’. (Hardy.C, 1998)
So “employability” should not be used as an excuse to indulge in indiscriminate lay offs. There are many examples in the corporate world to show that wherever there is a firm and sincere commitment by the management to people, the need for downsizing is either eliminated or a more humane alternative is found. There are organizations like Body Shop in Europe, Southwest Airlines in US, Semco in Brazil and the Tata Group and Wipro in India which have never resorted to large scale downsizing. When Intel has to close down its consumer product division, all the employees in the division were reabsorbed into the parent organization. This happened mainly because the executive in charge of the division insisted on it and was able to convince the top management. When AT and T decided to eliminate 40,000 jobs as part of its organizational restructuring programme, its management made a conscious attempt towards helping individuals effected by downsizing to find new jobs within or outside the company. The company formed partnership with other businesses and found creative ways to address the issue of job security like for example creating a national job bank, exchanging talent. (Burke R.J, Nelson D, 1998)
Towards a More Heartful Approach
So the solution to the problem of downsizing and security lies in greater creativity and a long-term approach in managing human resources and also a greater participation of the heart than the mind.
If rapid change, technology and competition are the factors which make downsizing necessary, then a humane and long-term solution to the problem is to prepare the existing work-force to cope with these market-realities of the present, and also the emerging possibilities of the future. This require much time and investment in education, training and pro-active planning. Many of the smaller companies may not have the resources and capabilities to implement this long-term solution. Here comes the utility of industry associations. They can act as or create coordinating agencies which by working in close and synergic cooperation or tie-up with individual companies, government agencies, NGO’s, private HR consultants, educational and training institutions can form a social security network for felicitating the reemployment of the displaced workers and thereby ensure a reasonable job-security for the corporate work-force. The main objective of this approach is creating employment as well as employability, which means a two-fold task: first is to discover or create employment opportunities for the displaced worker; second is to provide education and training facilities for upgrading or updating the knowledge and skill of the worker. The corporate world can undertake this task as a part of its social responsibility agenda. For as we have indicated earlier, downsizing is not merely a corporate problem but also a social problem. It creates unemployment in the society and affects not only the individual workers but also his family and the society as a whole.
However to arrive at the most effective solution, the problem of downsizing has to be approached more with the heart than with the mind. At present the downsizing is viewed mainly as a managerial or organizational strategy and dealt with a ruthless professionalism of the pragmatic mind. But a better approach would be to look at it as a human problem involving human wellbeing and putting ourselves in the position of the victims of downsizing, try to tackle it with heart’s understanding, sympathy and compassion. The heart’s sympathy and intuition can perhaps discover the true solution which the cold pragmatic mind can not or unwilling to find.
We must keep in mind that the will and creativity of the human Spirit is greater than all the “market-realities” and environmental forces. History bears witness to this fact. Whenever human spirit stood firmly in favour of some higher human values and against opposing forces of the environment, like for example when Mahatma Gandhi stood against British Empire or when allied forces under the leadership of Churchill against the demoniac might of Hitler or when Abraham Lincoln against slavery in America, it has triumphed over the environment. Downsizing has become rampant in the corporate world because the corporate mind has meekly succumbed to the marker-realities for some short-term gains. If the corporate mind makes a conscious and concerted effort to find a humane and compassionate solution to the problem of downsizing, nothing can stand in its way. What we need is a less coldly pragmatic and a more genuinely humanistic approach to the problem. As American management consultant, Lance Secreton states:
‘If we treat labourers as trash—something to be thrown away as soon as it is no longer of value—we will be stripped of our spirit. If we treat labour as a commodity to be exchanged or traded as a thing, we will be treated the same way. If we treat the labour as a spirit seeking a human experience, we will begin to operate at an entirely different level. This is the higher ground where trust, dignity and compassion nourish the soul and build world-wide reputation for great teams.’(L.H. Secreton, 1996)
Downsizing is now accepted as a legitimate organization practice and justified as something inevitable in a world of change. But the practice and its justification is questionable because it is the result of short-term and heartless thinking. The other concept of employability, offered as an alternative, is also more or less in the same level. Many research findings indicate that downsizing leads to the deterioration of the productivity and morale of the workers, though it may show a mirage of increased profitability in the short-term. A more humane, holistic and compassionate approach which takes into sensitive consideration the human cost of downsizing can lead to a better result in the human as well as in the bottom-line dimensions of the organization.
Burke R.J and Nelson. D, (1998) ‘Mergers and Acquisitions, Downsizing and Privatization : A North American Perspective’, The New Organisational Reality: Downsizing, Restructuring and Revitalisation, ed: Gowing R.K. and Draft D.J, American Psychological Association, Washington DC, pp.21 to 50.
Casio. W.H, (1998) ‘Learning From Outcomes: Financial Experiences of 311 Firms That Downsized,’ The New Organisational Reality, Downsizing, Restructuring and Revitalisation, pp.55
Hardy Charles, (1998) ‘Finding Sense in Uncertainty,’ Ed. Rowan Gison, Rethinking the Future, p.17-33
Pfeiffer, Jeffrey (2010), ‘Lay off the Lay offs’, Newsweek, February, 15.
Prahalad. C.K, (1998) ‘Strategies for Growth,’ Ed: Rethinking the Future, p.63-75.
Secreton L.H.K (1996), Reclaiming Lost Ground, New Delhi, Response Books, pp. 75