Companies that faced a decrease in sales, market share, or profits in the 1980s and early 1990s began to realize that their human resources were expensive and underutilized. Consequently, they gradually lower their payroll numbers in order to become more competitive in the market, locally or globally. For example, Mobil Chemical eliminated 2,300 jobs in a 1994 restructuring, blaming lower earnings and excess capacity (Kirschner, E. 1997). Other forces that promote downsizing include increased global competition (Stein, H. 1996), rapidly changing technologies, and increasing availability of a contingent workforce (Fierman, J. 1994: 32). Downsizing has become a critical issue not only in US, but also all around the world and the number of organizations and jobs affected by downsizing has been staggering.
While we become numbed by the near daily accounts of new layoffs, a New York Times national survey found that at least a family member in one-third of all U.S. households has been laid off since 1980 (New York Times, 1996, cited in Hickok, n.d.). In fact, according the U.S. Department of Labor Statistics on September 2003, 93 000 jobs were lost in August 2003 (Baumol et al, 2003). By some measures, downsizing has failed as a tool to achieve the main purpose, i.e. reduce costs. According to a Wyatt Company survey covering the period between 1985 and 1990, 89% of downsizing organizations to downsize for the favor of reducing expenses. However, only 42% of them actually met their goal (Hickock, T. n.d.). The trend toward downsizing has widened its focus from blue-collar jobs to include white-collar jobs (Stein, H.1996).
The purpose of this paper is to identify the key drivers to downsizing and discuss the consequences and impact of downsizing on organization and employees, both in short-term and long-term, and whether downsizing is effective for the firm. Besides the basic assumptions of the employees and the management will be pinpointed. This paper will then be ended by drawing conclusion to the whole issue, stating whether downsizing is an efficient and effective strategy for firms to adopt in order to compete in global business environment.
II. Downsizing Defined
According to Kozlowski (1993), downsizing has been defined as a deliberate organizational decision to reduce the workforce that's intended to improve organizational performance (Shaw and Barrett-Power, 1997, cited in Appelbaum, 1999: 437). Kozlowski et al. (1993) even draw distinction to downsizing as "proactive" downsizing, which is planned in advance and usually integrated with a larger set of objectives, and "reactive" downsizing that would be typified by cost-cutting as a last resort after a prolonged period of inattention to looming problems by management (Thornhill, A and Saunders, M. 1998: 276-277). According to Hickok (n.d), downsizing is framed within the context of improving and streamlining work processes, as exemplified by total...