Downsizing the Effects of Downsizing a Noted Term Paper

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The Effects of Downsizing

A noted scholar recently assessed downsizing as "probably the most pervasive yet understudied phenomenon in the business world" (Cameron, 1994). While we have become numbed by the near daily accounts of new layoffs, a New York Times national survey finding is perhaps more telling: since 1980, a family member in one-third of all U.S. households has been laid off (New York Times, 1996). By some measures, downsizing has failed abjectly as a tool to achieve the main raison d'etre, reduced costs. According to a Wyatt Company survey covering the period between 1985 and 1990, 89% of organizations, which engaged in downsizing, reported expense reduction as their primary goal, while only 42% actually reduced expenses. Downsizing for the sake of cost reduction alone has been castigated intellectually as shortsighted and neglectful of what resources will be needed to increase the revenue stream of the future (Hamel and Prahalad, 1994).

A truer and fuller understanding of the forces shaping and thrusting downsizing forward today comes from an appreciation of increased global competition; changing technologies, which in turn are profoundly impacting the nature of work; increasing availability of a contingent workforce (Fierman, 1994); and shifting balance of power among organizational constituents away from rank and file employees and in the direction of shareholders and the chief executives who serve as their proxy. When we conceptualize downsizing within these broader frameworks, it becomes clear that we are speaking of downsizing both as a response to and as a catalyst of organizational culture change.


This paper will later provide a formal definition of "organizational culture." For the moment, it is suggested that culture is to an organization what personality is to an individual. As with personality, change takes time and may be hard to discern, especially for persons inside the organization. This article will argue that, ultimately, the most prominent effects of downsizing will be in relation to culture change, not in relation to saved costs or short-term productivity gains. Key drivers of organizational culture will tend to shape an organization's approach to downsizing. For whose benefit does the organization exist? What are the basic assumptions among people who work in the organization? What are the basic assumptions the organization and the employee make in relation to each other?

Establishing a direct link between downsizing and organizational culture is not an easy matter, however, as the following example will demonstrate. The Chief Executive Officer of Apple Computer recently bought himself more time with disgruntled shareholders by promising to take forceful action on a number of fronts, including downsizing. The executive cited "five crises: lack of cash; declining quality; a failed operating system development project; Apple's chaotic culture; and a fragmented strategy" (Markoff, 1997). How do you connect downsizing, which is one of a number of actions being taken, with corporate culture, which is only one of a number of "crises" being solved in a manner and to a level that establishes a positive relationship?

Another reason that it is difficult to draw a specific link between downsizing and organizational culture is that there are many different variations and approaches to downsizing. A distinction has been made between proactive downsizing, which is planned in advance and usually integrated with a larger set of objectives, and reactive downsizing, which would be typified by cost-cutting as a last resort after a prolonged period of inattention to looming problems by management (Kozlowski et. al., 1991). Workforce reductions can range from forceful in nature, i.e., involuntary reductions, to the milder approaches, such as resignation incentives and job sharing (Sutton and D'Aunno, 1989). There are different ways of deciding "who stays, who goes" from the outwardly arbitrary to criterion-based (Brockner, 1992). There are different modes of planning, ranging from secretive sessions to open discussions and solicitation of ideas from employees. There are different standards of notice of terminations, including relatively harsh same day terminations as well as more generous 90 day or longer notices. There are even differences in intentionality, i.e., reductions can be planned to present employees with as little a break as possible from what they have known in the past or they can be designed to be deliberately disruptive to the status quo (Noer, 1993).

Organizational Culture Defined

It has been observed with respect to the concept of "power" that its omnipresence makes it difficult to usefully apply in specific situations (Pfeffer, 1981). The same may be said of "culture." If it is everywhere, and pervades every aspect of our existence, then how can it be subject to analysis. Schein (1992) offers at least a partial solution. He divides organizational culture into three levels: 1) at the surface are "artifacts," those aspects (such as dress) which can be easily discerned, yet are hard to understand; 2) beneath artifacts are "espoused values" which are conscious strategies, goals and philosophies; 3) the core, or essence, of culture is represented by the basic underlying assumptions and values, which are difficult to discern because they exist at a largely unconscious level, yet provide the key to understanding why things happen the way they do. These basic assumptions form around deeper dimensions of human existence such as the nature of humans; human relationships and activity; reality; and truth.

Schein (1992) himself acknowledges that, even with rigorous study, we can only make statements about elements of culture, not culture in its entirety. The approach which Schein recommends for inquiring about culture is an iterative, clinical approach, similar to a therapeutic relationship between a psychologist and a patient. Schein's disciplined approach to culture stands in contrast to the almost flippant way in which culture is referred to in some of the popular management literature.

Downsizing Defined

Like culture, "downsizing" is problematic in its usefulness. Because it is popularly associated with giving people the "axe" in organizations, it is not a term that many management consultants go out of their way to use. On the other side of the spectrum, there are researchers who are concerned that downsizing has become too closely associated with the process of organizational decline and its naturally negative effects. Cameron, for example, defines downsizing as a positive and purposive strategy: "a set of organizational activities undertaken on the part of management of an organization and designed to improve organizational efficiency, productivity, and/or competitiveness" (Cameron, 1994:194). Downsizing thus defined falls into the category of management tools for achieving desired change, much like "rightsizing" and "reengineering."

Clearly, the Cameron definition is overly expansive. Downsizing may and very likely will impact or impinge on systemic change efforts such as the introduction of "total quality management," "reengineering," or "reinventing" initiatives. They are not one and the same, however, as the Cameron definition would imply. This is significant, because Cameron's connection of downsizing with a larger, purposive strategy allows him to conclude unabashedly that downsizing is a good and positive thing and that organizations should seek to do it on a regular and continuing basis (Cameron, 1994). This cheery conclusion flies in the face of Cameron's own four-year study of thirty firms in the automotive industry, data from which revealed that "very few of the organizations in the study implemented downsizing in a way that improved their effectiveness. Most deteriorated in terms of pre-downsizing levels of quality, productivity, effectiveness, and the 'dirty dozen', e.g., conflict, low morale, loss of trust, rigidity, scapegoating)" (Cameron, Freeman, and Mishra, 1993). Downsizing is defined in this effort simply as a reduction in the size of the workforce. This definition provides some analytical clarity, because it does not imply a value, either positive or negative, and encompasses a wide range of possible approaches. Thus defined, downsizing does not necessarily imply a reduction in the assets of the organization; for example, an organization may contract out a function that was previously done by permanent employees. The elimination of the jobs of the employees constitutes downsizing.

The political aspects of culture change associated with downsizing are also quite dramatic. Downsizing represents a power shift in the direction of top management and shareholders. One way of conceptualizing the change is via expectancy theory (Vroom, 1964). The unsaid message is that management is not afraid to decide who "has a future" with this organization and who does not. The message is "if you want to continue to work here, you will have to work harder, be more responsive, be more of a team player, etc.

There are "Theory X" and/or "Theory Y" dynamics (McGregor, 1960) at work with downsizing as well, depending upon the circumstances. The underlying theme of Theory X thinking is that workers can not be trusted to put forth effort on their own. They need to be externally motivated by the threat of punishment in order to put out their best efforts. Of all the downsizing practices, the one most closely associated with Theory X is the practice of giving people no termination notice. In spite of what would seem the obvious inhumanity of walking people who have worked for an organization for twenty or more…

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