Benefits of Downsizing for both the Company and Employee
Benefits of Downsizing for both the Company and Employee
Downsizing, �a systematic reduction of a workforce by an employer� (pages.infinit.net/Rodrigo/downsizing.html), is a popular practice in large firms these days, and for good reason. Downsizing can reduce the company�s expenses, increase productivity, free up workers for other industries, speed up the corporate decision making process, raise stock prices, and lower unemployment percentages. For these reasons, companies greatly benefit when they choose to downsize.
Downsizing can take many forms. When companies merge together, oftentimes there are many jobs that overlap. In these cases it would be silly to keep two people performing the same tasks, so companies eliminate one of the positions. This enables the company to work more efficiently to achieve the company�s desired results. When organizations are considering filing for bankruptcy, downsizing is often an alternative in order to save money immediately. In addition, downsizing is often used by companies in order to compete with the cheaper labor that South America and Asia can provide by keeping costs to a minimum (pages.infinit.net/Rodrigo/downsizing.html).
The benefits of downsizing are numerous. The most obvious benefit is the reduction of expenses that comes after layoffs are made. A survey conducted by the Wall Street Journal found that after downsizing, 46% of the firms interviewed reported reduced expenses (pages.infinit.net/Rodrigo/downsizing.html). It also means lower prices on products for consumers. For instance, General Motors is known for having a very strong loyalty to its employees, therefore layoffs in the organization are rare. The result is that GM has to charge $2000 more for its cars than companies like Ford and Chrysler. If GM would shut down one of its plants, for example its brake parts plant, and buy the brakes from another company, GM could significantly cut its costs (www.startribune.com). As this case indicates, downsizing reduces the company�s costs, which is good for the company as well as the consumer. In addition, the day after downsizing plans are announced, most firms� stock prices rise. For example, IBM�s stock rose 7.7% as a result of announcing its downsizing plans (pages.infinit.net/Rodrigo/downsizing.html). This is definitely a benefit for the company.
Downsizing also increases a company�s productivity. Computers have aided this increase tremendously. For example, in 1970 the telephone industry needed 421,000 switchboard operators to aid Americans in making 9.9 billion long-distance calls. In 1994,...