Employee Downsizing

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Case Details:

Case Code : HROB016
Case Length : 09 Pages
Period : 1990 - 2001
Pub Date : 2001
Teaching Note : Available
Organization : Varied
Industry : Varied
Countries : USA, India, etc...

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Please note:

This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"Next to the death of a relative or friend, there's nothing more traumatic than losing a job. Corporate cutbacks threaten the security and self-esteem of survivors and victims alike. They cause turmoil and shatter morale inside organizations and they confirm the view that profits always come before people."

- Laura Rubach, Industry Analyst, in 1994.

"The market is going to determine where we stop with the layoffs."

- Tom Ryan, a Boeing spokesman, in August 2002.

Downsizing Blues all over the World

The job markets across the world looked very gloomy in the early 21st century, with many companies having downsized a considerable part of their employee base and many more revealing plans to do so in the near future.

Companies on the Forbes 500 and Forbes International 800 lists had laid off over 460,000 employees' altogether, during early 2001 itself.

This trend created havoc in the lives of millions of employees across the world, Many people lost their jobs at a very short or no advance notice, and many others lived in a state of uncertainty regarding their jobs.

Companies claimed that worldwide economic slowdown during the late-1990s had had forced them to downsize, cut costs, optimize resources and survive the slump. Though the concept of downsizing had existed for a long time, its use had increased only recently, since the late-1990s. (Refer Table I for information on downsizing by major companies).

Analysts commented that downsizing did more damage than good to the companies as it resulted in low morale of retained employees, loss of employee loyalty and loss of expertise as key personnel/experts left to find more secure jobs. Moreover, the uncertain job environment created by downsizing negatively effected the quality of the work produced. Analysts also felt that most companies adopted downsizing just as a 'me-too' strategy even when it was not required. However, despite these concerns, the number of companies that chose to downsize their employee base increased in the early 21st century. Downsizing strategy was adopted by almost all major industries such as banking, automobiles, chemical, information technology, fabrics, FMCG, air transportation and petroleum.

In mid-2002, some of the major companies that announced downsizing plans involving a large number of employees included Jaguar (UK), Boeing (US), Charles Schwab (US), Alactel (France), Dresdner (Germany), Lucent Technologies (US), Ciena Corp. (US) and Goldman Sachs Group (US). Even in companies' developing countries such as India, Indonesia, Thailand, Malaysia and South Korea were going in for downsizing.

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