Learning from the Mistakes of Downsizing

From: Conscious Capitalism by David A. Schwerin

Butterworth-Heinemann, 1998

Copyright © 1998 by D J Investment Advisors, Inc.

Observers of the business scene are well aware that all companies face intense global competition and, as a result, are forced to become more cost- and productivity-conscious. Businesses worldwide are anxious to speed the transition from human workers to less costly forms of artificial intelligence such as robots and computers. Smart machines and networks linking computing and communications are putting a wide array of occupations at risk. From clerks and unskilled laborers to engineers and bank tellers, few workers are likely to be spared.

While the transition from people to machines has been going on for several decades, it is only recently that technology has enabled corporations to eliminate layers of middle management, compress job categories, streamline administrative functions and shorten and simplify production and distribution processes. Downsizing and restructuring, with their unpredictable and seemingly capricious layoffs and forced retirements, have resulted in a workplace where worker loyalty and motivation are understandably shaken. Such a volatile climate has generated a high degree of counterproductive stress and resentment.

More progressive managements have tried to counteract this situation by introducing a number of nontraditional perquisites such as time off for employees to care for parents and greater latitude and benefits for those needing to work from home and/or on a part-time basis. They have also begun to delegate greater authority to all levels of the organization. Nonetheless, the reality is that a significant number of people have been unwittingly left with time on their hands. Some predict that corporate re-engineering could eliminate over one million jobs a year for the foreseeable future. [Note] In fact, a growing number of businesses are expressing concern about the future consequences of the high-tech revolution.

Service jobs provide most of the employment opportunities in a mature economy. Since new information networks enable companies to reduce service employment, the consensus view that technology will create more jobs than it destroys is thrown into a state of confusion. Many economists believe that the adverse effects of automation are transitory, but a growing number of forecasters think the current wave of technological change differs from previous ones in several respects. First, no other industrial revolution has been able to affect so many unrelated industries or skill levels. Second, the power of the technology is increasing at an almost exponential rate. The price/performance ratio of computers and related equipment (the combination of prices declining and performance improving) increases at a startling pace, doubling about every eighteen months. [Note] This allows even more industries to participate in the technological revolution which, in turn, puts more jobs in jeopardy.

Surveys show that, when corporations do restructure, management often insists that output remain constant, or even increase, despite fewer workers. In addition, there is frequently a failure to delegate sufficient authority to lower-level employees whose responsibilities have increased due to the contraction of management levels above them. Morale amongst the remaining employees falls leading to increased turnover and, ultimately, lower productivity. Thus, the hoped-for benefits of restructuring may not materialize. In fact, the American Management Association found . . . that fewer than half the companies undergoing downsizing were actually able to increase their operating profits.

When corporate layoffs and restructurings are implemented with deliberation and compassion they will not only increase productivity but win the indispensable support of the surrounding community.