The Essence of Downsizing: A Review of Literature.

AuthorRay, Prantika


The aftermath of the process of downsizing by organizations is a very crucial point of concern. Several researchers have spoken about the possible outcomes in relation to firm's operational performance such as organizational learning capacity, change in the organizational culture (Cascio, 1993), technological advancement (Maheshwari & Kulkarni, 2003), improvement of the organization's competitive position (Amabile & Conti, 1999), financial and market outcomes such as market valuation (Love & Kraatz, 2009;), short-term market reaction (Love & Kraatz, 2009), signal for potential synergies (Bowman & Singh, 1993; Cascio et al., 1997; Demuse et al., 1994), and willingness for future acquisitions (Krishnan, Hitt & Park, 2007). However, after the organization has been downsized, additional challenges are made in handling the remaining human capital in the organization. In this paper, we have concentrated on the outcomes of downsizing based on current and potential employees. It is vital for an organization as an employer to consider various factors to ensure high commitment and low turnover intentions of the present employees and the attractiveness of the organization for the potential job-seekers. These factors are firm characteristics, industry characteristics, individual characteristics (employee and their supervisors); possible outcomes of various downsizing processes, and various steps implemented by the organization to combat negative effects of downsizing.

What Is Downsizing?

Downsizing has been defined as "the planned elimination of positions and jobs, which does not include the normal retirements or resignations, but the voluntary severance and early retirement packages" (Cascio, 1993). It refers to a deliberate intention of laying off a certain number of workforce from the organization. Organizational decision makers provide various reasons behind downsizing, which are the following:

(a) To reduce costs (Gandolfi & Hansson, 2011; Sahdev, 2003), (b) to improve the speed of decision-making (Cameron, 1994), (c)to improve one's competitive strategy (Levitt, Wilson, & Gilligan, 2008; Macky, 2004), (d) to enhance communications within the organization (Cameron, 1994), (e) to maximize shareholder returns (Escalante, 2001), and (f) to improve organizational efficiency (Zyglidopoulos, 2003) and productivity (Cameron, 1994). Downsizing is basically considered a mode to remove the redundancies in the organization, and it is mostly considered in the terms of headcount reduction; but it can also be a form of revamping the job design and revisiting and redesigning certain jobs (Cascio, 1993).

Forms of Downsizing

Downsizing can thus be broadly categorized into three types:

Workforce Reduction: Organizations have taken up workforce reductions not only to reduce the salary, training, promotion, and rewards related to the costs in the organizations but also as an attempt to create a 'lean' organization. The workforce reduction could be in terms of hiring freezes, layoffs, voluntary retirement, and golden handshakes (Howard, 1988; Maheshwari & Kulkarni, 2003; Tourish, Paulsen, Hobman & Bordia, 2004). The first form of workforce reduction unlike the other three is the stoppage of the recruitment into the organization, and thus barring the entry of the potential employees and keeping the current employees unaffected (Feldman, 1996). The downside of hiring freezes is the signal to the job market about the difficulties in the functioning of the company, which will affect the future jobseeker's attraction to the organization (Feldman, 1996). The effectiveness of voluntary retirement and golden handshakes is decided by the timing, the composition of the people asked to leave, and the rationale behind the reduction in workforce. If the employees in the organization are nearing their retirement age, their commitment and productivity probably decrease, the early departure of such employees enhances the proportion of highly motivated and productive employees in the organization (Howard, 1988).

Work Redesign: Organizations take up work redesign to eliminate redundant jobs and units, and the target of the redesign is to define better job roles and refine the work done by the employees. The redesigning of work could be in the form of abolition of functions, merger of units, job redesign, and reduction of work hours (Gandolfi, 2005). Work redesign is based on two parameters of work in the organization--autonomy and workload; the primary aspect is to bring change in the two parameters (Mishra & Spreitzer, 1998). Gandolfi (2005) discussed the depth and breadth of the downsizing strategies; the four levels of downsizing with the objective of work redesign are layer elimination, unit combination, product removal, and process arrangement. With the merger of organizations, there are instances where similar units or products in both the organizations are merged, and thus, these redundancies could either be completely eliminated or redesigned with newer process roles or objectives. Griffin (1991) showed that the work redesign has no immediate short-term effects, but in the long term, it affects employees' behavioral outcomes as well as the organizational outcomes.

Systemic Strategy: This strategy, unlike the other two, aims at eliminating workforce or at changing the organizational culture and brings about attitudinal differences in the employees. The strategy aims at a bottom-up approach and increases the accountability of the entire organization (Cameron, 1994). Cascio (1993) discussed the systemic strategy, which being a long-term strategy leads to the development of a continuous improvement in the organization. These strategies can vouch for a better employer brand, as it sends a signal to the potential employees about the organization's objectives to develop an environment for the employee's career advancement.

Process Elements & Outcomes

Organizational Commitment and Turnover Intentions : Downsizing is implemented through workforce reduction, and hence, it is often followed by role overload and lack of role clarity. In addition, the survivors or the employees retained in the organization exhibit low levels of organizational commitment and high turnover intentions (Allen, Freeman& Russell, 2001; Waraich & Bharadwaj, 2012). Thus, organizations implementing the downsizing processes through work redesign strategy further intend to develop clearer roles for the employees, reduce the role overload, and enhance role...

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