Literature Review On Downsizing Of An Organization Management Essay

In 1998 the PIA have downsized their employees, which was a very disturbing situation and experience by the employees, most of the employees who were the survivors feel insecure and their trust, commitment towards the organization were also decline. To motivate the remaining employees they used human resource interventions and training programs to cope up the hallow situation. In current situation PIA is in financial crises, PIA has loss of more than 42.6 billion. The government is tried to assign more and more people without any need, they are just doing for their party popularity, but this action may take them to uncontrollable dilemma. This situation may lead to downsizing and made employees insecure about their jobs and to cover up this situation they have training programs to assists the remaining employees. In current situation there is a need of downsizing not to assigning people if PIA has to handle their financial crises.


Since in 1980s, about 10 million jobs have been eliminated in a downsizing as the organizations or companies hope to cut costs and improve performance. Now the downsizing becomes a part of management strategy whether it is a profitable or non-profitable organization (Gandolfi & Neck, 2003).

Due to the dynamic changes in the modern world, organizations need more skill-full workers which can be used as multi-task workers who can do one or more task than a single worker. To handle the economic crises and to make the organization efficient and productive so there is a need of downsizing of those worker or employees who are inefficient. Downsizing is often used to reduce the number of employees and levels of management in an organization (Reynolds, 1993, p.68).

Many organizations came and made other companies to do business differently. Changes are because of technological advancement, globalization and sophisticated customers are the examples of shifts in the business environment (Carter, 1999). Internal changes come from the downsizing, as there is emphasis on quality levels in product and service output, more educated; the top management has some expectations from the skilled employees.

As the downsizing starts immediately employees began to have panic attacks. Some people thought that they are not going to come again for work and others had to be hospitalized with heart attacks-like symptoms.

The survivor programs can to motivate the employees to engaged in their new mission and vision of the organization and they can build in employees professionalism and self confidence, as well as making employees more employable. The study offered this conclusion that: training will be challenge for the organization. After downsizing the survivors feels that how the management would be dealing with them. Survivors have better attitude towards their mission and vision when organizational efforts are made to assists them (Zick, 1998). Littler, Dunford, Bramble, and Hede (1997) assert that the after effects of a downsizing effect the whole organization and its workforce. Researchers founded that most of the organization do downsizing without planning, policies and programs(Apllem, Delage, Labibb, & Gualt, 1997). The ongoing popularity of downsizing (Harrison, 2000; Gandolfi, 2003), and most of the scholars says that downsizing is still regarded as an understudied business phenomena (Luthans & Sommer, 1999). Training has been identified as an example of human resource management practice that contributes to gain in competitive advantage (Schuler and MacMillan 1984). Most of the researchers says that training of employees would extend their skills and they can be able to work more than ones job (Tannenbaun, Mathieu,Salas, & Canon-Bowers, 1991).

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Most of the theories from the management say that training will change the attitude of the employees willingness to stay within the company. In most of the organizations Human Resource Development system personnel training is cornerstone (Nordhuag, 1989). In notable times the organization changes its policies and procedures related to training. Studies of Human Resource Development practices, including training have an influence organizational commitment (IIes etal, 1990; Meyer and Smith 2000; The reason why retaining critical talent employees is so important, the company will need them to help in stabilize and recovery efforts to get the business back on track in terms of performance and profitability. And so to let these employees go would be the same as giving away one of your organizations most competitive weapons.

During the downsizing senior management has to look and make policies in a solid foundation to build the downsizing successful. Based on past management theories managers uses the interventions for downsizing to make it successful. Changing over to a new management approach requires experimentation, creativity as managers to put that approach in action (Wright & Noe, 1996). Taylor (1911) based on scientific management theory on the following 4 principles: 1)develop a science of element for each employee work,2) select, train, teach and develop employee,3) cooperate with the employee so that he cant be feel insecure,4) there should be equally distribution of responsibility by the employee as well as management (p.15).

In 1943 Abraham Maslow presented the theory of human motivation. He categorizes needs of people into 5 broad levels. According to Maslow he says about the needs may be physiological, safety, social or belongingness, esteem and self-actualization (Wright & Noe, 1996). The specific form that these needs will take varies greatly from person to person (Maslow, 1943).

There are more than one reason that why the organization must fire employees (Downs, 1995). Downsizing can be due to the competitive market to trim the cost so the job is eliminated (Downs, 1995, p.8). Downsizing can be done because of technological changes, so we have to keep pace with the changing environment, so that may be the reason of cutting the job (Down, 1995). The key to success in today s world is learning and process improvement, the minute we stop moving forward about the learning and technology, we start moving backwards (Downs, 1995, p.8-9).

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There are different strategies have been identified. Cameron, Freeman, and Mishra(1991,1993) have conducted on of the studies of work force downsizing and reported three main findings regarding downsizing implementation strategies. That is, Work force reduction strategies, organizational redesign strategy and systematic strategy.

Downsizing implementation strategies

Workforce reduction strategy Organization redesign strategy Systemic strategy


Natural attrition Abolition of functions Staff involvement

Hiring freeze Merging of units Simplification of processes

Early retirement Job Redesign Bottom-up change

Buyout packages De-layering Continuous improvement

Layoffs Reducing overall work hours


Source: adapted from Cameron et al. (1991, 1993)

Work force reduction strategy, referred to lay-off strategy (Ryan & Macky, 1998; 38). It encompasses activities related to early retirement, hiring freezing, golden parachutes and buyout packages (Cameron etal, 1991; 1993). This strategy is related with the cost cutting measure and may serve as short term response to declining profit (Ryan & Macky, 1998).

The redesigned strategy focuses only on elimination of work rather than reducing the no. of employees (Luthans & Sommer, 1999). An organizational redesigned strategy is difficult to implement quickly as this requires advance analysis of some area concerned (Cameron et al, 1999). Systematic strategy is different from the two approaches, as systematic strategy means changing the organization s internal culture and attitude and values of employees (Luthans & Sommer, 1999). Organizations that have a number of actions of the same category of implementation have more depth in their downsizing strategy. Organizations that employ a variety of strategy have more breadth in their strategy. Two approaches to downsizing have emerged reinforcement and reorientation. These approaches were developed and used by the Freeman (1994). Reinforced or converged downsizing is applied on small scale as apart of a process aimed at reinforcing an organization strategy, systems, and structure (Ryan & Macky, 1998). And orientation is done on large scale, with major redefinition of an organization s mission, strategy, and structure (Cameron, 1993).

Before implementing the downsizing we have to be focus on the basic three principles because these principle might be clear all situation to the employees by informing, motivating, engaging and focus on the stabilization efforts throughout the process.

1) Helping employees to understand the situation for downsizing.

i) The management should communicate the current market situation and realities of the dynamic market.

ii) Make the employees understand that how and why downsizing would help the organization to achieve their goals.

iii) Explain to employees the implications for the business by not changing.

2) Make the process that employees can able to participate in decisions.

i) The management should take suggestions from the employees on the need of downsizing and getting involved in the cut costs and look for the strategies to gain revenues.

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ii) And there should be other alternatives other than the downsizing.

3) The third and most important principle is that every level of management has to communicate with each other. As the coordination between the different departments or level can help them to achieve their goals and objectives.

By using these three principles, may not work smoothly in all issues but it can make some environment in which employees that you want to retain will feel that the company is being direct and upfront with them on the realities of the business. And it gives way to help them in reducing the costs and a forum where their voices can be heard.

In 1980 s the companies were operated under the assumption of bigger is better . As Cameron (1994) point out that size can sometimes be disadvantage and that downsizing and decline can be natural, desirable phases in the organization development. Downsizing in the public sector is mostly done in the most political pressures, reduced funding and technology are forcing governments at all levels of downsizing.


Nohria and Love (1996) cited studies that chronicled reduced loyalty and commitment following downsizing projects: Researchers found that downsizing made the employees morale lower,

1) By doing low level job they are not satisfied;

2) Higher stress; feelings of betrayal, anger, fright, and confusion;

3) Lack of trust between managers and employees;

4) Nohria and Love concluded that the majority of downsizings simply did not work (p.83)


The effect of downsizing on organization employee relationship purpose employee relationships are the building block for the strategic management of communication between organization and its external publics. Broom (1985) maintained that no organization relationship is important for the employees. An employee relationship is deserves more attention in today s business environment. In Korea, researchers found that once an employee enters in the company so they believe that they would leave the company only when they retire. Noer (1993) says that one thing which organization is gain through downsizing is a depression, anxious, and angry workforce. Some research have been made over the effect of downsizing on those who remain within the organization, results have been found in terms of stress (Leana & Feldman, 1992), lower morale (Armstrong Stassen, 1993) and syndrome marked by anger, envy, and guilt (Noe, 1993). Hickok (2001) said that the prominent effect of downsizing would be in relation to the culture change, not in relation to saved costs or short term productivity. Relationship measurement .J.Grunig and Hon (1993) showed a series of projects on measurement issues. For them starting point for measuring relationship is better.

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