In recent years, managers at numerous US based organizations have practiced a kind of organizational design process that gives significant emphasis to conditions in their organizational environments. This kind of decision making is known generally as restructuring usually involves shrinking the organization or more descriptively, downsizing.
Managers at many American companies adopted bureaucratic organizational structures when times were more stable, when companies dominated their respective environments and when assumptions about continued economic growth were regularly borne out. Thus, companies as Xerox, Exxon, IBM and GM developed multilayered bureaucracies that eventually became too cumbersome when quick responses to rapidly changing times became necessary.
Waves of mergers, divestitures and acquisitions: the deregulation of some industries; and an increasing number of new, entrepreneurial firms greatly intensified global competition. Far reaching technological advances further compelled mangers at highly bureaucratic companies to adopt less hierarchical structures in order to become more adaptive to their environments. The important concepts today are efficiency, productivity and quality with organizations converting to leaner, more flexible structures that can respond more readily to the pace of change in global markets. Downsizing refers to this agenda of organizational design changes.
Downsizing has imposed a significant cost on millions who have lost their jobs. As of 1993, it appeared to be the African Americans who were suffering the most. While other groups – Hispanics (60,404 (60,404) Asian (55,104) Whites (71,144) – experienced net gains in employment, Blacks experienced a net loss of 59,479 jobs. Another group feeling the sting of downsizing is older Americans (defined as age 40 and over as covered under the protection of the Age Discrimination Act of 1967 and subsequent amendments). In fact, some employees are suing corporations in class action suits based on age. For example, 150 former employees of Nynex have joined in a class action suit alleging that the company selected them or dismissal because of their age.
Recent studies have shown that the victims of downsizing and restructuring bear costs that go beyond lost salary and often lower salaries when new employment is found to include such problems as loss of self esteem, alcoholism and divorce, and permanently lowered standards of living. Downward mobility is a term referred to the situation of many middle level and upper level managers – a ‘middle class’ American group long believed safe from losing their jobs – whose jobs and departments and divisions have been eliminated. These people join the many non-managers whose jobs have disappeared due to restructuring.
Minimizing the pain of Downsizing:
A dilemma faced not only large bureaucracies but by any organization that downsizes is how to be as fair as possible to employees whose jobs are being eliminated. A related issue is how to retain the loyalty of the remaining workforce and restore their sense of security. With downsizing seen as a competitive imperative by many organizations it is an ethical challenge for the 1990s.
Health One demonstrated that companies do not have to abandon their employees when they downsize, that they can even profit from looking out for their employees. When this organization closed a subsidiary, Metropolitan Mount Sinai Medical Center (MMS) it successfully placed 90 percent of MMS’s 1,200 former employees in new jobs. Heath One relocated about 30 percent of them in positions elsewhere in the organization, and another 30 percent in positions with affiliated or competitor organizations. It assisted the rest through career transition training, job fairs, and retraining. At the same time Health One was able to save millions of dollars. Although the company invested $500,000 in a full service placement center, it saved the money that would have been spent in unemployment and severance expenses, which could have reached as much as $18 million. Saving money was the short term advantage pointed out. In the long run, they developed trust and respect with a significant number of their employees.