Successful Downsizing: The Case of the Boeing Reemployment Program

Abstract

Introduction Faced with a downturn in the commercial aircraft business and reduced military spending, The Boeing Company was forced to downsize approximately 55,000 people over a five-year period. The company's management, organized labor, the local community, multiple levels of government, and community colleges collectively worked together to develop Reemployment Centers to assist in the transition of their specialized workforce into alternative forms of employment. The following is a description of how The Boeing Company successfully completed this effort at downsizing. Downsizing is thought to be an effective human resources strategy to increase global competitiveness. Labor costs, generally one of the largest costs for most organizations can be reduced through downsizing. In many cases the downsizing process includes outsourcing or subcontracting jobs previously performed within the organization. Although organizations often consider downsizing necessary in order to remain competitive, this strategy does not always result in increased organizational profitability and performance. One recent survey conducted by the Society for Human Resource Management reported that only 26% of firms reported productivity improvements while 58% said that productivity was flat or had declined after downsizing (The Washington Post, 1996). In addition, the study found that approximately 54% of companies surveyed cut jobs in 1994 but only 25% expected any further downsizing. Whatever the future course of downsizing, many companies have utilized this business strategy to meet the demands and challenges of U.S. and global competition. Why Companies downsize One of the primary reason that downsizing occurs is that jobs are subcontracted out, both domestically and internationally, to reduce corporate overhead. The Boeing Company is no different than many other multinational enterprises. There are three reasons that most companies subcontract jobs. The first is to lower the total costs of production. This is accomplished by relocating jobs to lower cost wage regions, either domestically or internationally. The subcontracting of jobs internationally not only lowers production costs, but also assists in gaining market share which is the second reason that many companies subcontract out component development. Sometimes firms are required by local content requirements to produce components locally. Other countries require production facilities in order to gain access to their market. For example, China and The Boeing Company celebrated 25 years of working together in June, 1996 (The Boeing News, 1996). Over the past few years, The Boeing Company has invested heavily in developing all areas of the aviation industry in China to the tune of $100 million U.S. dollars. This has been more than recouped by the gain in market share through purchases from the Chinese-owned and operated airlines. The most recent order alone from Air China was for $510 million for three B747-400 planes. A total of 47 jet aircraft have been purchased by China, making this a strong market for The Boeing Company. For the same reason, General Motors is increasing its overseas presence in Asia. It recently announced that its Opel unit could take over Peugot's position as the non-Chinese partner in southern China's automotive industry (Cox, 1996). GM is also awaiting approval from the Chinese government to build a plant in Guangzhou to supply engines for a plant that GM is building in Thailand. This second Chinese plant is in addition to the Shanghai plant which will begin producing Buick sedans in 1998. The third major reason for subcontracting of jobs is also driven by the desire to lower total production costs. Many countries will contribute to a company's development costs in order to gain production plants and develop industries. In the case of The Boeing Company and Japan, the development costs for the 777 jet airliner were $5 billion. …