Organizational Downsizing: From Concepts to Practices

Abstract

Downsizing is currently one of the most popular strategies being used by organizations in an effort to survive and compete in the current business scenario. Existing literature in the area has broadly focused on the following three issues: Why do organizations downsize? What are the consequences of downsizing on the individual and the organization as a whole? What are the strategies that can be adopted for successful downsizing? While imperatives for downsizing have been considered from economic, institutional, strategic, ideological, and arational perspectives, suggestions for successful downsizing strategies have repeatedly reinforced the importance of adopting a planned, long-term, and people-oriented approach to implementation. The bulk of empirical research, however, appears to have focused on the consequences of downsizing both at the individual and organizational level. Given that downsizing today has achieved the status of an institutionalized norm, the relevant question is not so much whether or why organizations should downsize, but rather, how best to implement the process in a way which will enable organizations to accrue benefits and effectively manage the negative consequences of such an exercise. A review of literature reveals that a planned approach to the implementation process would lead to sustained and long-term benefits to the organization. Drawing from change management theories as well as related theories in organizational learning, theory of business, and business model innovations, this paper has attempted to identify issues that need to be addressed at each stage of downsizing in order to ensure effective implementation. At one level, this would imply a need to question the very rationale for downsizing in terms of whether it really is the best alternative under the existing situation. At another level, assuming that downsizing has been accepted to be the most viable option, and given that any successful planned change would need to be handled as a multi-stage activity, this would include : reframing of the existing mental models and assumptions about the business extensive communication with employees at each stage managing the needs and expectations of survivors, victims, and implementers themselves planning for employability initiatives for employees helping employees to renegotiate their existing psychological contract with the organization. This would necessitate bringing about a change in the mindsets and attitudes of the people involved in the exercise. Moreover, a downsizing exercise would also need to be implemented as a part of an overall corporate renewal package rather than as an isolated strategy on its own. Suggestions for future research in this area, especially in the Indian context, have been identified with a view to adding to the existing body of knowledge and also facilitating greater understanding on the part of practitioners in handling a downsizing exercise.