Downsizing Case Study

2187 Words 9 Pages
Statement of Problem and Significance Many companies struggle with budget management, so they carry out downsizing in order to meet budget and financial goals. The definition of downsizing is when companies pare their workforce by over 20 percent (Galagan). There are various reasons why companies would need to downsize; decline of sales, facility closings, and useless positions (“Corporate Downsizing Considerations”). In some situations, positions become useless due to technological advancements (Chambers). Sometimes a company simply cannot afford to keep a portion of their personnel, so they must lay a significant amount of employees off. With fluctuating industry comes fluctuations in the workforce; sometimes employees must be laid off, …show more content…
Their argument is a veritable one. There are multiple expenses that come with downsizing, such as decreases employee morale (Galagan). It has been shown in a study that companies that cut their personnel by 20 percent or more experience an industry lag for up to nine years (Galagan). Sometimes downsizing is seen as a good option because the industry seems low at the time, but when the industry recuperates they have to rehire lost personnel. An example of a company having to rehire after a recovered industry is that United States’ airlines laid people off after 9/11 because business plummeted, however when the market improved they had to spend money to rehire (“The Case Against Layoffs”). Southwest Airlines was the only airline to not downsize, and now they are the largest American airline and they have a market larger than all of its competitors combined (“The Case Against Layoffs”). This evidence is a good argument against downsizing because Southwest Airlines did not downsize—even in a time of a drought in the market—and they are extremely successful now. Financial managers who gain this knowledge will spread it to their colleagues and pass it down through generations, therefore decreasing the use of downsizing by …show more content…
There are a variety of negative consequences of downsizing. Downsizing stimulates severance, stimulates outplacement, it increases rehiring costs, it can result in lawsuits, it can lead to gradual distrust to the management and decreased employee morale, raises training costs, results in lower production of new employees (“Corporate Downsizing Considerations”). Although at the moment the company may not be able to afford to keep a portion, of the workforce, it will cost more in the end, especially if the company fires then rehires (“The Case Against Layoffs”). This type of solution—the conference style—occurs often in the business world, businesses solve internal issues by having meetings and having people pitch in ideas, and good ideas get used. The decrease of downsizing will result in better lives for downsized people, people spared from layoffs, and it will result in better financial positions for companies who downsize somewhat

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