Downsizing as a positive and purposive strategy, a set of organisational activities undertaken on the part of the management of an organisation and designed to improve organisational efficiency, productivity, and/or competitiveness. Downsizing thus defined falls into the category of management tools for achieving desired change, much like “rightsizing” and “re-engineering”.
Clearly, the definition is overly expensive. Downsizing may and very likely will impact or impinge on systemic change efforts such as the introduction of “total quality management, “reengineering,” or “reinventing” initiative. They are not one and the same.
Downsizing does not necessarily imply a reduction in the assets of the organisation; for example, an organisation may contract out a function that was previously done by permanent employees. The elimination of the jobs of the employees constitutes downsizing.
The Paradox of Downsizing
Information will be examined as a prime determinant of the value of a stock. Specifically, the choice of how many workers a firm wil1 hire or fire may be interpreted as news that signals the health of that firm. Downsizing will be defined in the context of a special case of the labour input strategy of a firm. Questions relating to how downsizing functions as a signal of firm health will be raised, and the methods for answering those questions will be presented. The economy was strong, inflation was falling, and real GNP was growing at a steady, confident pace.
Corporate profits had reached historically high levels, and investors were on a buying spree in the stock market, pushing it from one record close to the next. Unemployment had fallen to a level that many economists felt was consistent with non-accelerating inflation. Expectations of inflation were abated, and the boom seemed to be poised to last for a long time, with no economic downturn in sight. At the same time, the major corporations in the US appeared to be firing workers by the hundreds of thousands, and job insecurity had risen to a surprisingly high level. Regardless of seniority, the company’s profitability or the surging demand for the firm’s outputs, the threat to an employee of finding a pink slip in the next pay envelope was real and widespread. No job seemed safe.