.This research examines corporate downsizing from both a company standpoint and a human resource standpoint, and attempts to determine whether downsizing meets a company's objectives.
When companies opt for a downsizing solution, they generally do so because they have decided to cut costs by reducing their workforce (). Labor is often the most significant cost that a company has, and reducing the labor force results in savings not only directly (by eliminating wages and salaries), but also indirectly, by reducing benefits and overhead associated with employees.
There is no specific type of company which downsizes; small companies and large companies both engage in the proactive, as do privately held companies and publicly traded companies. If there is a single commonality which can be found among companies which engage in downsizing, it is a desire to become more competitive in the marketplace (), and to do so by becoming "leaner and meaner." All companies which engage in downsizing do so as part of a cost cutting program. In some cases, the labor reduction is the only step that is taken, but more often, there are other steps which accompany the process.
The immediate effect of downsizing can actually be a boost in the company's financial liabilities. Severance packages, accrued vacation and other related costs must be paid immediately when an employee is terminated. In some cases, employees may have attractive "golden parachutes" which make it more expensive to lay the employee off than to retain them; this is particularly the case with senior executives. However, despite short-term cash demands, downsizing can reduce the company's costs in the long term, which is why it is a popular cost reduction technique (Miller, 1996, p. 4).
Another financial effect of downsizing is that it can have a beneficial effect on the company's stock, a critical factor if the company is publicly held. Companies which are seen as taking...