When businesses face short-term downturns, they can engage in short-term austerity measures that range from hiring freezes to minimizing purchasing office supplies, and that include many measures in between. When the downturns become long-term, however, companies must engage in cost reductions that may be severe, and could make the difference between the company surviving or not. This analysis considers the issue of downsizing--laying off workers--and examines the benefits to an organization that may make downsizing a difficult, but ultimately beneficial, choice.
There are typically three reasons that companies engage in downsizing: immediate financial crisis, short-term improvement of financial statements and long-term strategic decision (Gordon, 1996).
Immediate financial crisis occurs when a company faces a severe financial problem, perhaps because a major customer has withdrawn business or because an anticipated contract does not come through. In other cases, a customer (or several) may withhold payment, forcing the company to take measures in order to meet its short-term obligations. In each of these situations, the immediate financial crisis is acute and short-lived: the company is either able to emerge from the situation (including companies which reorganize under Chapter 11 of the bankruptcy code), or it does not. When layoffs are associated with these types of crises, the laid off workers are frequently recalled to their jobs once the company has regained its financial health. It is important to note that immediate financial crises typically result in layoffs affecting workers who had no direct control over the situation that brought about the financial problems (Gordon, 1996).
In other situations, a company makes a long-term shift in its strategy which results in the need to downsize its operations. Such a shift might result from a change in the business environment, and the need to down
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