CASE STUDY ”DOWNSIZING & BUSINESS REORGANISATION” 1. Why might downsizing fail to improve the economic position of a business? Downsizing is a deliberate organizational decision to reduce the workforce that is intended to improve organizational performance. The Companies do downsizing because of falling profits & they feels that if they break the business in to smaller units then company will be more flexible & efficient. They do downsizing to reduce cost & increase productivity.
Because of downsizing the companies were focusing on core competencies, and that’s the key factor for failure of downsizing. Since companies trying to expand business & market positions. For concerned & related business they need skilled manpower which is not readily available because of downsizing. Also another factor which is relevant for failure of downsizing is Quality of operations. Some companies reduce their costs drastically affects on quality of operations, which leads to fall in revenue.
The some other negative effects of downsizing are financial failure, decreased international competitiveness, decreased stock prices, legal costs, downsizing without a strategic plan nor defined approaches, decreased innovation and creativity, decreased productivity, decreased profitability, decreased quality/broken relationships with customers, negative organizational impact. 2. What side effects other than on levels of employment might widespread downsizing on the national economy? Reduced morale occurs among survivors of downsizing. If these groups are not planned for, there is the risk of building feelings of permanent insecurity among middle-level managers. •Loss of personal relationships between employees; destruction of employee and customer trust and loyalty. •Mixed effects on firm performance: some short-term costs savings, but long-term profitability & valuation not strongly affected. Firm’s reputation as a good employer suffers. •Downsizing forces re-thinking of Employment Strategy. Lifelong employment policies not credible after a downsizing. •Many senior employees leave due to application of early retirement incentives: result is loss of institutional memory •Loss of employee productivity. •Loss of a common organizational culture. •Tradition of commitment and loyalty lost.