The business environment in much of the world has become difficult because of the economic downturn that has dragged on for more than three years now. It was a matter of course that when the economy began losing serious ground in 2008, that it would recover due to the ingenuity of American companies and the promise of governmental intervention. Unfortunately, this has not been the case. The downturn has continued, and even though there are signs that it may be getting better, people are skeptical since this has been trumpeted many times by hopeful economic gurus and gullible politicians. Because the recovery does not seem immediately imminent, companies have been forced, for the last three or more years, to find ways to remain profitable. Among the methods used is that of trimming the workforce needed to make sure that the company itself can stay in business. However, this may be a case of the cure being worse than the disease. Despite arguments that the economic downturn necessitates layoffs, and innovation at top management level positions drives economic growth, overwork among lower level employees resulting from downsizing is also a significant barrier to growth and recovery.
The first of the two statements above, that of the economic downturn necessitating layoffs, is, on the surface, correct. Companies have to find means to remain viable in order to survive difficult economic times. Since a given business has fewer customers, they are selling fewer products. That means that there is less money coming in, and less that can be spent to meet the obligations that the company has. Therefore, the company is forced to find a way to make sure that it has the money to meet obligations. It may be necessary to reduce the obligations (such as power requirements, supplies and others) a company has to meet, but that is more of a long-term solution. When a company needs to immediately reduce the amount of cash it spends, it only makes sense that a reduction in workforce would be among the solutions. Since the company is making fewer products or providing fewer services, they do not require the same quantity of people they needed prior to a reduction in positive cash flow. The immediate benefits of downsizing are readily apparent in the above scenario, but there are deeper, more lasting, negative effects to a reduction in workforce.
The second statement from the thesis states that innovation comes from the top (the management of a company) rather than from lower level employees. Whereas this may be true to some extent, it is not entirely true. This statement disregards where those in top management level positions acquired the innovative thought in the first place. It is true that there is a process in any company which moves innovation from thought to action, and top level managers are a major part of this process. However, most of the actual ideas come from lower level employees who have to follow the chain of command (as military people would say) before their idea(s) can become a salable product. Although the employee may not have all of the knowledge required to make a product from a raw idea, the initial thought process still came from the low level employee who is being downsized. Thinking that top level management is in any way completely responsible for driving an industry is an arrogant and dangerous fallacy. Many companies have prospered when they had a core of knowledgeable engineers as both management level and production level employees. But, it sometimes seems that the running of the company would be better served by people who have a lot of business knowledge but no engineering knowledge or experience. Companies with this attitude undercut themselves because they do not understand the efficacy of having innovators at top level positions. Innovation comes from all levels of a company, and is not the exclusive purview of business management types who have little knowledge of production or service.
Downsizing is seen as one of the necessities of bad economic times, but it can have negative side effects that will haunt a company, or entire industry, for decades. One group of researchers said "no other single factor has had as dramatic an impact on the erosion of trust in corporate America as the massive downsizings of the past decade" (Levitt, Wilson & Gilligan). While this "erosion" among the broader public is noted, there is the greater risk that the people who remain after downsizing has taken place will have negative thoughts about the company. Although it is assumed that the employees who are left will have a positive regard for the company because they still have jobs, this feeling may be mitigated by the fact that the survivor's jobs just became more difficult (Gandolfi). In a mega-study of what has been learned about the effects of downsizing on both survivors and victims, it has been noted that "The victims felt lower levels of stress on the job, reported higher levels of perceived job control, and experienced fewer negative effects than the survivors" (Gandolfi). This is a fact not only because of the lack of support for the survivors, but because the atmosphere of the resulting company has taken on a negative affect.
The original statement though talked about downsizing being a barrier to growth and recovery. Even researchers who try to understand the positive aspects of downsizing for survivors admit that the initial response to layoffs is decidedly negative (Armstrong-Stassen & Schlosser). These researchers findings that "Although organizational downsizing is a negative experience for many layoff survivors, some fare better than others" may sound slightly positive, it actually adds nothing to the body of research which proves that the survivors of a downsizing cycle are, more often than not, negatively impacted (Armstrong-Stassen & Schlosser). The primary barrier caused by downsizing is that the employees left behind recover very slowly if at all (Gandolfi). This means that company as a whole experiences less innovation and less growth than if they had not downsized originally (Gandolfi).
The stress experienced by survivors is a major factor in decreased growth and innovation, which leads to a longer recovery period after the initial downsizing event. Companies are thinking that the immediate need is to make sure that the company survives the present crisis. However, recovering from that crisis is made more difficult by executing downsizing as an option. Gandolfi and Oster (2009) discovered in their research that "During downsizing, significant changes in line and staff personnel are often initiated. Many nonessential employees are jettisoned; senior executives are often replaced; and those who are most innovative may be considered unnecessary baggage." By getting rid of personnel who may be able to speed a recovery, the company is basically curtailing future recovery potential.
This is not apparent unless an actual example is examined. Levitt, Wilson and Gilligan examined employees of a large insurance company (actual name never given) where a major downsizing had taken place. The surviving employees who were interviewed after the event said that they felt a breach of trust, that they endured added stress as a result, and they also felt that a lack of communication had existed. The employees who had gone through prior downsizings agreed that it was transitional.
Downsizing is a problem because although it may seem like an immediate need and some believe that a company can survive on the innovative potential of high level managers the reality is that the surviving atmosphere is poisoned and will resist recovery. Companies do recover from downsizing, but the fact that those that resist the supposed necessity fare far better than those companies which execute a downsizing program (Gandolfi). Research has focused on the negative aspects of downsizing, but when different levels of downsizing research are examined, it is obvious…