Downsizing: the Financial and Human Implications

Downsizing: The Financial and Human Implications

This essay examines the effects of downsizing with regard to the human and financial implications. Since the mid to late 1980s, downsizing has “transformed the corporate landscape and changed the lives of hundreds of millions of individuals around the world” (Gandolfi, 2008, p.3). For the purposes of this essay, downsizing is defined as the planned elimination of jobs, involving redundancies, and is designed to improve financial performance (Macky, 2004). It will be argued that while downsizing can be an effective strategy, it frequently does not improve financial health, and the human implications can be severe and costly. This essay will discuss: first, downsizing definitions; second, motivation for downsizing; third, a brief history of downsizing; fourth, approaches the implementation of downsizing; fifth, the human implications; sixth, the financial consequences; and, seventh, the reasons for the continued use of downsizing.
There are differing perspectives regarding the downsizing phenomenon. At the most simple level, the strategy involves a planned contraction of the number of employees in an organisation (Cascio, 1993). For example, Macky (2004) describes downsizing as “an intentional reduction by management of a firm’s internal labour force using redundancies” (p. 2). However, other definitions encompass a wider range of implementation methods. Cameron (1994) defines downsizing as “a set of activities, undertaken on the part of the management of an organisation and designed to improve organisational efficiency, productivity, and/or competitiveness” (p. 192). These activities include hiring freezes, salary reductions, voluntary sabbaticals, exit incentives and reducing hours worked by employees. This essay will focus solely on the downsizing activity of redundancies. Various synonyms exist for downsizing, including resizing, rightsizing, smartsizing, restructuring, redundancies and reduction-in-force

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