Some of the downsizing craze may be pure herd behavior; if everyone else seems to be doing it, you should also. Some of this herd behavior may be induced by the financial markets In other cases, downsizing is a managerial response to inane incentives – for example, a division chief is told that her performance will be assessed based on per capita sales or earnings, where the denominator in the per capita calculation is full-time equivalent regular employees. Thus, the manager is given an incentive to cut regular employees and replace them with outsourced labor, even if the outsourced labor is (not too much) more expensive.

But in many cases some serious and substantial reasons are given. The layoff announcements given above illustrate a number of the chief objectives that companies have:

– Cut costs, especially overhead.

– Increase adaptability: Speed up decision-making, foster entrepreneurship, ease adaptation to the business cycle, and so on. Efforts to trim management layers are often particularly focused on this goal.

– Enhance a focus on the company\’s core competence by eliminating peripheral and superfluous positions and activities.

– Increase productivity.

– Shift some or all of an activity previously done in-house to external parties (that is, by outsourcing), to neutralize \”political\” behavior by an entrenched subunit, spread risk on high-risk projects, and help get knowledge and skills from the outside transferred inside the organization.

– By doing some or all of these things, improve shareholder equity, under the assumption that the market responds positively to initiatives undertaken by firms to get lean, mean, and focused.

Presumably companies have always wanted to achieve these objectives, so what is driving them to do so more ferociously now? Among the more common rationales given are:

– Competition has intensified and is now on a global scale.

– Product life cycles have decreased, putting a premium on faster response and shorter cycle times.

– Increasingly diverse customer needs mandate more agile organizational response.

– Escalating benefits costs (particularly for health care) and legal liabilities have made labor more expensive, favoring a less labor-intensive, more capital-intensive strategy.

– Innovations, improvements, and cost reductions in information technology have led firms to automate tasks previously done by administrative functionaries and generally reduce the need for human labor.

– Increased capital market discipline through hostile takeovers and other means has focused top management on short-run, bottom-line performance, which often can be improved more easily by cutting costs, particularly labor costs, than through other means.

– Managers are responding to a new and not necessarily rational belief on the part of both private and institutional investors that downsizing is a palliative for companies whose performance is sluggish or worse. Insofar as this explanation applies and the belief is the product of market psychology rather than rational analysis, we have heard behavior at one remove, where the herd is the investing public, believing based on fairly limited that downsizing is in fact a profit – or profitability – enhancing strategy.

– In the case of downsizing that is tied to outsourcing, the growth of contracting services and various labor market intermediaries-temporary agencies, leasing firms, and the like-has made it easier for firms to meet their labor needs by relying on third-party providers. Moreover, the rampant competition among such providers enables firms purchasing their services to impose stringent quality standards. Many labor supply firms will provide \”guarantees\” that anyone they place will be acceptable to the client firm, whereas such guarantees are neither easy nor inexpensive to obtain if the client firm hires a regular employee for the same activity.

– Finally, some commentators argue that outsourcing has become cheaper and thus more attractive because a larger segment of the labor force desires more flexibility and variety in their lives than the traditional long-term attachment of an individual to an employer affords.

http://www.arturvictoria.info/
http://sites.google.com/site/cliptheschoolbeginning/
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http://adesg-europa.blogspot.com/

http://www.arturvictoria.info/
http://sites.google.com/site/cliptheschoolbeginning/
http://sites.google.com/site/arturvictoriasite
http://adesg-europa.blogspot.com/

Author Bio: http://www.arturvictoria.info/
http://sites.google.com/site/cliptheschoolbeginning/
http://sites.google.com/site/arturvictoriasite
http://adesg-europa.blogspot.com/

Category: Business Management
Keywords: Organization, behavior, human, information, career, responsible, planning, human resources, leader,