10 Compelling Reasons Not to Downsize


Almost daily, newspapers, business magazines, radio and television carry reports of corporations, large and small, that are downsizing. Their attention is chiefly focused on the impact to the employees, as they are the ones most acutely experiencing the immediate effects. But what are the effects on the companies? Downsizing, rightsizing or any of the number of synonyms for radically cutting expenses and employees, may provide a decrease in operating expenses in the near term, but how will they impact the longer term future?

In my experience over several decades of business cycles, I have witnessed a succession of economic contractions and expansions and although at times the outlook has appeared bleak, in fact, far bleaker then our present circumstances, every decline has been followed by a subsequent period of growth. It was not that long ago that we awoke to "Black Friday" when the stock market appeared to teeter on the brink of a cataclysmic collapse. What followed however, was the beginning of what proved to be one of the longest lived economic booms in memory. The lesson here is that there will be a new economic tomorrow and we appear presently to be in the beginning stages of a new economic growth period.

Therefore, it is with eyes wide open that business leaders need to carefully consider the long range effects their present cost cutting actions will have on their organizations. This is especially true as the nature of those cuts, especially where they concern personnel, are fundamentally different today from what they were in the past. Circa 1950's, 60's, 70's 80's and even much of the 90's, downturns in employment for the most part meant layoffs. Certainly, there were specific industries where structural decline resulted in large scale permanent job losses. However, in general, most cutbacks precipitated layoffs vs. permanent terminations. Not so today. The new order is that of permanent severance. For many the proverbial "pink slip" has turned to bright red.

Moreover, the level of employee being severed has also changed dramatically. In previous decades, the cuts were heavily weighted toward production personnel and were therefore, first line, blue collar worker oriented. Today, with our heavy reliance upon technology to drive the economic engine, the cutbacks in both the manufacturing and service sectors are skewed toward white collar workers. Additionally, more senior workers in their 40's, 50's and 60's have borne the brunt of the reductions more heavily than ever before, as their higher cost compensation and benefit packages are targeted for maximum near term bottom-line savings.

Conjointly these changes have set in motion what could become a veritable time-bomb for companies that decide to pursue cost reductions through massive staff cuts. The negative consequences will likely include:

1. Lack of a recallable employee pool. Historically, layoffs inherently communicated at a minimum the possibility, if not the probability, of being recalled by the employer when economic conditions improved. Many furloughed employees expected to eventually return to their employers and, reacted to the layoff accordingly by taking interim and part-time jobs. Today many severed employees are not only informed that their release is final, they are provided outplacement services funded by their former employers. Thus, the employers themselves are ensuring that these people will, indeed, not remain available to them. Many of the more senior employees, finding new employment at their current compensation levels difficult if not impossible and having personal savings at their disposal, are choosing to become entrepreneurs, thereby, forever removing them from the available labor pool. We entered 2001 experiencing labor shortages across most industries, which were particularly acute for high skill and technology workers. At the moment this scarcity may have temporarily abated, but its root causes remain and the scenario is certain to revisit us as soon as the economy enters the next upturn.

2. Poor morale & lack of trust among younger employees as terminations increasingly target older employees. Much has been exposited recently in the press about the disturbing loss of employee loyalty. Terminating large numbers of older, more senior and experienced employees who have faithfully served the corporation for many years, has a profound long term effect on younger, newer employees. Place yourself in their shoes for a moment. They have already been indoctrinated by friends, relatives, neighbors and the media that business, especially big business, is not to be trusted. Now they see their co-workers, supervisors, and mentors being fired because "cost cuts need to be made and these individuals represent higher per capita costs to the organization." The message is clear and they understand. The reward for loyalty is to be axed when you are over fifty and unlikely to find another comparable position. They may not bolt today, due to a tightening job market, but they will remember and when the economy improves they will seek a future where they feel more secure.

3. Loss of knowledge and experience base. This is a frequently overlooked aspect of the cost of losing long term employees. Many companies and even industries are currently developing knowledge bases in order to capture and access organizational knowledge resources. Yet, no matter how effective these databases are, and they can be extremely beneficial, they will never be a substitute for the knowledge, experience and wisdom that rests in the veterans of the organization. Although this is true in terms of deductive knowledge, it is even more important regarding the organization's continuity and history. People need to feel a sense of belonging to more than just the present, the "now" of an organization. They also need a sense of past and future. Without this, there are no ties, no traditions, no continuity and often no shared ethics and values.

4. Loss of corporate culture and available mentors for existing and new employees. This loss of continuity is also reflected in dispossession of the corporate culture. I am a great believer in change vs. the status quo. However, there are some things that should not change. "In this company we do thus and so, because we believe it to be fundamentally right." Every organization needs to have incontrovertible statements that transcend the fluctuating business climate and current trends. These values can and should be committed to pen and paper, but they are not passed on in this manner, at least not primarily. Rather, they are taught and lived and mentored from one person to the next. The fewer seasoned people the company has to pass these on, the less they will be able to maintain the soul of the organization.

5. Loss of established customer service and customer contact points. It happens to all of us. One day you call your favorite supplier or vendor and ask for good ole' Joe who you have done business with for years and are shocked to learn he is no longer there. "Why? Has he died or contracted cancer?" you ask. "No," is the response. We have had a major reduction in staff due to the economy. In silence you ponder: "If after all these years Joe is gone, who's left? Will they even be in business tomorrow? Maybe, I should begin looking around for another supplier." No one is irreplaceable. However, long term customer and supplier/vendor relationships are invaluable; they also say something about the reliability and stability of your organization. Although the organization's investment in these relationships does not show as a line item on the asset portion of your balance sheet, do not underestimate their value, especially in a day when the global search for new suppliers and vendors is made instantaneous by the internet. Without relationships, price rules and the only price that matters today is the lowest one. Years spent in commodity businesses taught me this principle all too well.

6. Employees may be needed again before termination savings are fully realized. If the economy does begin rebounding by mid 2002, then many of the anticipated savings of reducing the workforce will have not yet been fully realized before companies will need to begin replacing the terminated workers. The expense of replacement includes both the termination costs as well as the costs of training and integrating the new hires. Thus, in cases where terminations include substantial severance and outplacement costs, these plus the training and initial inefficiency costs of the new hires frequently equal one to several years of the terminated workers' cost to the organization.

7. Possible need to bring employees back as independent contractors at higher total cost. The shrinking labor pool together with the fact that a high percentage of the middle-aged and older terminated employees are either beginning their own businesses or opting for early retirement will mean that many of those who remain and are willing to return to former employers will want to do so under their own conditions. A large number of these may choose to do so as independent contractors preferring to gain a greater degree of control over their own lives. Many companies initially prefer this approach believing that they may only require the services of the former employees for a limited period of time. Frequently, however, the weeks and months become years and the independent contractors, knowing the inner workings of the organization and where projects and sponsors may be found, remain costing the company significantly more than if they had stayed on the payroll.

8. Hidden costs that are never fully accounted for such as declining morale, lost customer relationships and lost productivity due to over-stressing the remaining employees. There are very real costs associated with mass layoffs that in my experience are almost never fully assessed. Declining morale, disrupted customer relationships, a frequently steep decline in customer service and the frustration of remaining employees who cannot possibly absorb all of the responsibilities of their departed coworkers, results in an attitude of surrender to cutting corners wherever possible.

9. Future sales may be lost due to the inability to ramp up delivery quickly as the economy improves. I have already addressed at some length the labor pool shortage that may well be just around the corner. An economy spurred by the tax cut, a weakened dollar propelling export sales and/or a drop in oil and gas prices could individually or in combination cause demand in many industries to grow rapidly. Where will they find sufficient personnel fast enough to meet that demand? Any failure to respond quickly to the increased demand will result in lost sales and possibly long term market share erosion.

10. Diminished market position and status as market leader, innovator and corporate citizen. I am frequently amazed at the lengths that major corporations will go to and the investment they willingly incur during "good times" to build their image in the public's mind. However, as soon as the economy dips, the slashing begins with little thought as to the negative impact it can have within days upon years of careful work and millions of dollars invested to build that image.

When cutting is absolutely necessary, do so with a scalpel rather than meat cleaver. Across-the-board percentage staff reductions are the most damaging variety and should only be used in those instances which demand the immediate and drastic cost reductions compelled by the imminence of business failure. The use of global reductions as a general cost reduction methodology is tantamount to an abdication of responsibility by the leadership and management.

Whenever large scale reductions of any sort are made, they should be matched by reductions of a corresponding magnitude in senior executive compensation. Huge compensation packages for corporate executive leaders have been justified as necessary to attract and motivate the best talent available and as just rewards for their leading mega-corporations to unprecedented high profit levels and market valuations. This standard must also apply in the reverse and thus, significant drops in profit and worth, requiring deep cost cutting throughout the organization, should be equally reflected in deep cuts to the senior executive compensation levels.

As an alternative to layoffs and terminations, corporate leaders and managers should look to rapidly redeploy corporate assets in order to bolster revenues and profits. In the case of people assets, this can often be done through the reassignment of personnel to those areas and functions of the organization offering the greatest potential for rapid internal innovation. Such action frequently results in innovative breakthroughs of enormous and immediate value to the company as people new to a given function approach it with a fresh perspective and a different experience and personal knowledge base from which to draw upon.

Although severe cost cutting can increase the near term profitability of virtually any corporation, ultimately, the broad-based innovations of its committed and motivated employees is essential to restoring profitable long term growth, especially in periods of economic downturn. And its is sustainable growth, not temporary savings, that should be the primary goal of every corporate business leader.

Copyright 2005 by John DiFrances

John Di Frances is an internationally recognized www.thelegacyproject.us/" TARGET="_new">organizational legacy expert and www.difrances.com/professional_speaker.htm" TARGET="_new">professional speaker. www.difrances.com/" TARGET="_new">www.difrances.com


MORE RESOURCES:

Governments including the US, Brazil, Australia and China accused of frustrating COP25 negotiations in Madrid

Global climate talks have continued past midnight on Saturday after a marathon final negotiating session in Madrid that has lasted since Friday without clear resolutions on how to implement the Paris agreement.

Campaigners from around the world expressed their frustration at the lack of progress, with one group of activists dumping horse manure and staging a mock hanging outside the venue.

Continue reading...

Move is being considered by EU officials in face of Johnson not seeking extension beyond 11 months

EU leaders would take the initiative and request an extension to the transition period, keeping the UK under Brussels regulations beyond 2020, under a plan mooted for getting around Boris Johnson’s stated refusal to seek a delay.

The move is being considered by EU officials as a way out of the problem posed by the short time available to negotiate a new relationship and the prime minister’s insistence that he will not seek an extension beyond 11 months.

Continue reading...

Muslim victims of Myanmar ‘clearances’ voice outrage as peace prize winner dismisses atrocity charges

When Aung San Suu Kyi rose to denounce genocide charges against her country at the “world court” last week, three victims of Myanmar’s ethnic violence were sitting close behind the Nobel peace prize winner – disbelieving and seething with anger.

Hamida Khatun, Yousuf Ali and Hasina Begum had travelled from the sprawling Kutupalong refugee camp outside Cox’s Bazar in Bangladesh to sit on the legal delegation attending the International Court of Justice’s emergency hearing in The Hague, in the Netherlands.

Continue reading...

Thai anti-government rally held in response to ban on Future Forward opposition party

Thousands of people joined the biggest protest in Bangkok since a 2014 coup on Saturday, after Thai authorities moved to ban a party that has rallied opposition to the government of the former military ruler Prayuth Chan-ocha.

The demonstration, called a day earlier by the Future Forward party leader, Thanathorn Juangroongruangkit, a 41-year-old billionaire, was reminiscent of the street protests that have roiled Bangkok over the past two decades of turbulent politics.

Continue reading...

A key theme of the trove of documents published this week was the lack of coherence in Washington’s approach to Afghanistan from the outset

In the midst of Barack Obama’s much-vaunted military surge against the Taliban in Afghanistan in 2010, Hayam Mohammed, an elder from Panjwai near the Pakistani border confronted an officer from the US 101st Airborne who had come into his village.

You walk here during the day,” the elder told the soldier bitterly as the Observer listened. “But at night [the Taliban] come bringing night letters” – threats targeting those collaborating with foreign forces.

Continue reading...

Hundreds of demonstrators call for international hub in Amsterdam to curb emissions

Dutch military police have begun forcibly removing a group of climate protesters at Schiphol airport, in Amsterdam, after they refused to leave during a demonstration organised by Greenpeace.

Hundreds of protesters attended the demonstration on Saturday calling on the international air hub to adopt a plan to curb greenhouse emissions. The group had been allowed to protest outside the building only, but they broke that restriction, arguing that citizens’ rights to peaceful protest should not be restricted.

Continue reading...

Pyongyang continues to pressurise Trump administration for concessions

North Korea has said it successfully performed another “crucial test” at its long-range rocket launch site that it claims will further strengthen its nuclear deterrent.

The test may have included technologies to improve intercontinental ballistic missiles (ICBMs) which could potentially reach the continental US.

Continue reading...

Deposed president convicted of corruption, receiving illegal gifts and possessing foreign currency

Omar al-Bashir, the former president of Sudan, has been sentenced to two years in detention after being found guilty of corruption, receiving illegal gifts and possessing foreign currency.

Bashir has been in prison in Khartoum since being forced from power in April when security forces withdrew their support for his repressive regime after months of protests.

Continue reading...

  • Incident was broadcast during Savannah running event
  • Reporter Alex Bozarjian felt ‘violated, objectified’ by slap

A Georgia man who was videotaped slapping a female reporter’s bottom on live TV was arrested on Friday on a misdemeanor charge of sexual battery.

Related: Los Angeles police officer charged with groping dead woman's breast

Continue reading...

  • Soccer star praises Warren for being ‘bold and real’
  • SI Sportsperson of the Year posts video of call with candidate

Two-time World Cup champion Megan Rapinoe has announced her support for the Democratic presidential candidate Elizabeth Warren.

“I truly believe the best things in life are a result of being bold and being real,” wrote the soccer star, whom Sports Illustrated this week named Sportsperson of the Year.

Continue reading...

For Chinese tourists who cannot travel, the Window of the World theme park offers versions of 130 global attractions. Photojournalist Anthony Micallef took a whistlestop tour

More than 3 million visitors a year flock to the Window of the World theme park in the megacity of Shenzhen to see 130 copies of the world’s largest tourist sites gathered in a single place.

For Chinese tourists who may not be able to travel out of the country this is their only chance of seeing the New York skyline, the pyramids of Giza or the Taj Mahal – or smaller replicas of them, at least.

Continue reading...

The Union Carbide factory explosion remains the world’s worst industrial accident – but as its dreadful legacy becomes increasingly apparent, victims are still waiting for justice

The residents of JP Nagar have no way to escape their ghosts. This ramshackle neighbourhood, on the outskirts of the Indian city of Bhopal, stands just metres away from the chemical factory which exploded just after midnight on 2 December 1984 and seeped poison into their lives forever. The blackened ruins of the Union Carbide plant still loom untouched behind the factory walls.

Related: The Bhopal disaster victims still waiting for justice 35 years on – in pictures

Continue reading...

Photographer Judah Passow has documented those were affected by the Bhopal disaster 35 years ago, which killed an estimated 25,000 people ad has left more than 150,000 suffering from chronic medical conditions

Judah Passow has waived his fee for this work. Contributions to the Bhopal Medical Appeal can be made at www.bhopal.org

Continue reading...

Exclusive: With heatwaves predicted to worsen dramatically over the next 30 years, many big US cities are failing to fully plan to protect those most vulnerable to extreme heat

When heatwaves hammered US cities this summer, one of the hottest in recorded history, some city governments had plans in place to protect their most at-risk residents.

Philadelphia’s plan sent homeless outreach teams to distribute water and bring people to cooling centers. Austin’s plan suspended electricity shutoffs for low-income or fixed-income customers. Chicago’s plan dispatched building inspectors to monitor shelters and other buildings without air conditioning.

Continue reading...

Many Māori say it is wrong for anyone to set foot on Whakaari, which is considered a living ancestor

As dawn broke on Saturday, the small coastal community of Whakatāne was keeping its fingers collectively crossed. About 50km away, across the slate-grey water, naval divers were deploying in rubber boats to retrieve the bodies of two victims still missing after the White Island volcano disaster.

The first of the six recovered bodies to be identified was that of Krystal Browitt, a 21-year-old Melbourne woman who was on holiday with her family, police said on Saturday.

Continue reading...

Mateus Zonegibbar was killed and his son Estefan injured in Argentina after being targeted by robbers

A British tourist was killed and his son seriously wounded when they were shot outside a luxury hotel in Buenos Aires during a robbery.

Mateus Zonegibbar, aged 50 and his son Estefan, 28, were targeted on Saturday by robbers on a motorcycle, supported by accomplices in a car, according to local reports.

Continue reading...

For more than a century, the Nordic country has blazed a trail for women in politics. But even there, the battle for equality isn’t over, writes Emma Graham-Harrison

Just off Helsinki’s main shopping drag, toddlers in glitter paint whirl round their mothers, who are somehow managing to listen intently to a lecture on how to boost their careers with LinkedIn. No one bats an eye at the intermittent shrieks.

It’s business as usual at this Christmas networking meeting in the country that has come closer than perhaps anywhere else to making “having it all” a feminist reality, rather than an impossible goal to torment exhausted, overstretched women.

Continue reading...

Lindsey Graham will not try to “pretend to be a fair juror” should Donald Trump face an impeachment trial in the US Senate.

Related: Democrat Jeff Van Drew met Trump and will switch parties, sources say

Continue reading...

Defence force operatives fail to locate missing pair as death toll from tragedy rises to 15 after a patient dies from injuries

A follow-up mission to New Zealand’s White Island in a bid to retrieve the remains of those still missing after Monday’s volcanic eruption has been unsuccessful.

Defence force operatives returned to Whakaari on Sunday, two days after their successful high-stakes trip to the active volcano brought back six bodies.

Continue reading...

Towns north of Perth threatened by out-of-control blazes as mercury set to hit 40C for third day, and 111 fires continue to burn in NSW

Thousands of properties have been saved from a bushfire burning out-of-control north of Perth in Western Australia but lives and homes remain under threat.

The fire near Yanchep has destroyed nearly 12,000 hectares, with about 400 firefighters battling to bring it under control ahead of another day of scorching temperatures.

Continue reading...

Many cases blamed on a single individual who appears to have caught virus for second time

Health officials are investigating an alarming spike in Ebola cases in the Democratic Republic of the Congo, with many blamed on a single individual who appears to have contracted the disease for a second time this year.

Amid the struggle to bring the 16-month outbreak under control, the World Health Organization noted an almost 300% increase in cases in the last three weeks, with 17 of 27 linked to a single chain of transmission.

Continue reading...

Regional court ruling hailed as ‘landmark moment for thousands of girls’ who will no longer be forced to miss lessons and exams

Pregnant schoolgirls in Sierra Leone will no longer be banned from attending class or sitting exams, after a regional court ordered the immediate overturn of a “discriminatory” policy that has denied tens of thousands the right to finish their education.

In a ruling handed down in Nigeria on Thursday, a top regional court found that a 2015 directive barring pregnant girls from attending school amounted to discrimination and a violation of human rights.

Continue reading...

Two years after their city on the Philippine island of Mindanao was liberated, tens of thousands of people driven from their homes remain in limbo

Thousands of survivors of an Islamic State siege in the Philippines are stuck in makeshift dwellings more than two years after their city was liberated, with many forced to drink contaminated water despite the presence of EU-funded aid agencies.

They were among an estimated 350,000 people driven from their homes when Islamist fighters seized control of the city of Marawi, on the island of Mindanao, in May 2017.

Continue reading...

If Washington wants to be on the right side of history, it must open the way for Sudan to receive economic support

Over the past year, the Sudanese people have staged a near miraculous revolution, overthrowing the 30-year dictatorship of President Omar al-Bashir.

Following mediation led by the African Union and Ethiopia, a transitional government consisting of civilians and military generals is headed by Abdalla Hamdok, a veteran economist untainted by the decades of corruption and misrule. It is the best compromise: the army, and especially the paramilitary Rapid Support Force, are simply too powerful to be removed from politics in one fell swoop.

Continue reading...

Borrowers have accused NGOs of charging unfairly high interest, demanding rapid payback, and reporting debts to the police

The world’s largest NGO has been forced to conduct an internal review of a money-lending scheme it runs for the poor in Sierra Leone after some borrowers amassed significant debts and were reported to police when they couldn’t repay loans.

A Guardian investigation into a microfinance programme run by Brac found that the NGO’s staff were failing to fully explain the conditions of the loan to borrowers, or ensure they could afford the high interest rates associated with such loans.

Continue reading...

The film Richard Jewell promotes the trope that women sleep their way to the top. It’s sexist, insulting – and nonsensical

Sign up for The week in patriarchy, a newsletter​ on feminism and sexism sent every Saturday.

Continue reading...

The motivations behind today’s efforts to overturn elections and remove black elected officials are not very different than Reconstruction-era motivations

On 5 November, Hester Jackson-McCray, a black woman, narrowly defeated Republican incumbent Ashley Henley by 14 votes in a heated race for a seat in the Mississippi house of representatives.

Shortly after, Henley asked the Republican-dominated Mississippi house to overturn the election results, based on claims including that one precinct didn’t collect voter signatures (a technicality required to process ballots in the state) and that her campaign had found three uncounted paper ballots. Jackson-McCray, meanwhile, pointed out that the election had been run by the Republicans – Henley’s party – making it unlikely that she had manipulated the race in her favor. This turn of events was particularly surprising because the Republican party tends to cast doubts on the existence of voter suppression, the idea that political parties find ways to prevent Americans from voting, calling it a Democratic myth.

Continue reading...

New Zealand’s accident compensation scheme covers cost of treatment for all injuries and bars victims from taking legal action against operators

In New Zealand, where bodies still lie on a volcano after Monday’s eruption and survivors fill hospital burns units across the country to capacity, questions are mounting about who exactly was responsible for the safety of tourists on Whakaari or White Island, and, if failings are found, who will be held accountable.

Questions are also being asked about the wisdom of allowing tourists on to the island while it was assigned a volcanic alert level of two out of five, signalling volcanic unrest – a practice that has happened for years.

Continue reading...

Myanmar leader tells court in The Hague that civilian deaths were not genocide but part of a civil war

She might have been saving her best defence for the highest stage of all. But the arguments advanced by Aung San Suu Kyi at The Hague in response to allegations including genocide were much the same as the Burmese leader has been making for years. Most had been discredited long before she delivered her 20-minute address at the international court of justice on Wednesday morning.

There had undoubtedly been violence in the country’s restive northern Rakhine state, Aung San Suu Kyi told the judges. Armed groups had attacked the Burmese army, which had responded with force, sending more than 700,000 Rohingya fleeing to Bangladesh. But she challenged the idea that the military’s actions were carried out with genocidal intent – “to destroy the Rohingya as a group, in whole or in part”.

Continue reading...

The US House judiciary committee chairman, Jerry Nadler, said the vote to approve two articles of impeachment against Donald Trump marked 'a solemn and sad day'.

The vote was swift with 23 for, 17 against. The ranking Republican Doug Collins displayed anger on 12 December when Nadler suddenly gaveled the marathon hearing closed after 11pm  without the crucial vote

Continue reading...

Thousands of people took to the streets in central Algiers, as the authorities held a presidential election that the mass protest movement views as a charade intended to keep the ruling elite in power. Local media showed videos of demonstrators throwing ballot papers to the ground. Only 33% of Algerians turned out to vote

Continue reading...


A Houston man, Johnny Mathis, saves the day – and the dog – by leaping into action when the leash of a neighbour's pet gets caught in an elevator door.  A security camera at their apartment complex captures the entire dramatic rescue. Mathis is thankful he was on hand to help: 'It could happen to anyone. A second is all it takes' 

• Florida dog drives doughnuts in unmanned car before police rescue

Continue reading...

Fishermen on Canada’s Vancouver Island have filmed the moment they rescued a bald eagle from the grips of an octopus’s tentacles after the bird of prey tried to attack it. The footage shows the fisherman removing the bird from the octopus's tight hold, before they release it back to safety

Continue reading...

A four-hour long gun battle which left six people dead started as a targeted attack by two suspects on a Jewish kosher market in New Jersey, say officials.

Police in the New York metropolitan area were put on high alert to protect Jewish neighbourhoods after the attack

Continue reading...

Donald Trump addressed a boisterous crowd in Hershey, Pennsylvania, on Tuesday night. While the president wore a sober navy suit, his supporters chose more partisan attire

Continue reading...

odrnews.com ©