The Effects of Corporate Downsizing

Essay by pleasuretymeUniversity, Bachelor'sA+, February 2006

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The effects of corporate downsizing have greatly affected business profitability and how an employee views their employer. The goal of downsizing is to lower costs and increase efficiency thus increasing profitability. This can be an effective strategy to accomplish these goals but is often a knee-jerk reaction to today's profitability goals and has not been put together with long range planning. Companies began downsizing in the late 1970s to cut costs and improve the bottom line (Boone, 2000). This article will discuss the effects of downsizing, its effects on long term growth and strategies to successfully downsize.

Today in tough economic times, many corporations face the dilemma of how to cut cost and increase profits as businesses have had to do in the past. Most agree the profits and profitability are the driving force behind many corporations perceived need to reduce their workforce. The trend that many companies now follow is the elimination of jobs by what has become to be known as corporate downsizing.

The American Heritage Dictionary of the English Language, Fourth Edition, defines to downsize as:

1. To reduce in number or size: a corporation that downsized its personnel in response to a poor economy.

2. To dismiss or lay off from work: workers who were downsized during the recession.

3. To make in a smaller size: cars that were downsized during an era of high gasoline prices.

To become smaller in size by reductions in personnel: Corporations continued to downsize after the economy recovered.

It is also defined as, "Downsizing is the systematic reduction of a workforce though an intentionally instituted set of activities by which organizations aim to improve efficiency and performance" (Cameron, 1994).

Sadly, downsizing has become the short term stop-gap measure used by many in Corporate America today to increase bottom...