Strategic downsizing: Critical success factors

Abstract

Aims to review the literature pertaining to downsizing with an emphasis on the organization level, and establish the critical success factors of downsizing, that is, guidelines to the successful implementation of downsizing activities. Addresses these objectives by examining first, how downsizing is defined in the literature reviewed, then discusses the different ways in which or measures by which organizations carry out downsizing activities and the reasons that prompt companies to downsize. Addresses the rationale utilized by firms to downsize, the expected outcomes in terms of economic and human consequences, the approaches to downsizing (reorientation and convergence) and specific strategies such as workforce reduction, work redesign and systemic strategy. Also downsizing tactics, human resources as assets vs costs, planning, participation, leadership, communications, and support to victims/survivors are examined. Both laboratory experiments and empirical research concerning survivors’ reactions are explored. The role of trust as well as the human resource professional in the process are included. Conclusions and recommendations complete the article.

Full text

Strategic downsizing: critical success factors
Steven H. Appelbaum
Concordia University, West Montreal, Quebec, Canada
Andrea Everard
Concordia University, West Montreal, Quebec, Canada
Loretta T. S. Hung
Concordia University, West Montreal, Quebec, Canada
Introduction
For three decades, downsizing has been a
reality for many North American organiza-
tions. ``More than three million jobs have
been eliminated each year since 1989, for a
loss of 43 million jobs since 1979'' (Mishra et
al., 1998). Stemming from the desire to
become more efficient and effective, firms in
both the private and the public sectors have
adopted downsizing strategies (Cameron,
1994a). Furthermore, the increasingly dy-
namic and competitive workplace and the
trend toward globalization have prompted
many firms to downsize (Appelbaum et al.,
1987a; de Meuse et al., 1994; Mroczkowski and
Hanaoka, 1997). Originally in the 1970s and
1980s, mainly blue-collar workers felt the
impact of massive layoffs and drastic cut-
backs, typically during cyclical downturns
(Cameron, 1994a; Touby, 1993), but by the
mid-1980s white-collar workers on a large
scale had also become the target of down-
sizing activities (Freeman, 1994). While many
unionized blue-collar workers are able to
trade off wage freezes or concessions for job
security, white-collar workers in the lower
ranks do not have that security. As a result,
these white-collar workers are often the
hardest hit by downsizing (Cascio, 1993).
Downsizing is not only prevalent in North
America. Because of competitive pressures
around the world, firms are increasingly
forced to cut costs, restructure, and reduce
their labor force. Moreover, in countries that
are moving from a state-dominated to a
market system such as countries in Latin
America and Eastern Europe, privatization
often brings about the need to reduce firms'
headcount. Downsizing has even become
common in industrialized countries such as
Japan and Sweden; restructuring in the 1990s
led to employment reductions in industry
and hence, increases in the levels of unem-
ployment (Mroczkowski and Hanaoka, 1997).
More and more, business publications and
the media are uncovering reports of corpo-
rate downsizing (Cascio et al., 1997; Freeman,
1994), as a result, fundamental structure
changes in the economy have occurred,
painfully impacting the labor force (Cascio et
al., 1997). For example, job security can easily
be termed a ``thing of the past'' (Appelbaum et
al., 1987a) continuous staff reductions have
become the expected norm. Unfortunately,
downsizing is rarely part of the overall
strategic plan for the firm, but rather a
shortsighted, knee-jerk reaction to changes
in competition (Bruton et al., 1996). Though
firms aim to become ``lean and mean'' (Ap-
pelbaum et al., 1987a), many end up being
``lean and lame'' (Mroczkowski and Hanaoka,
1997).
Much of the academic literature on down-
sizing deals with examples from the North
American automotive industry. According to
Cameron (1994a) and Mishra and Mishra
(1994), this industry was selected for several
reasons: its deeply competitive and dynamic
environment, the extent of its downsizing
activities, and its importance in the North
American economy (the automotive industry
accounted for nearly 40 percent of US GDP).
There are three perspectives from which
downsizing can be reviewed: the industry
level, the organization level, and the indivi-
dual level. In terms of the industry or global
perspective, related topics include mergers
and acquisitions, joint ventures and national
employment trends (Cameron, 1994b). The
second perspective lends itself to the organi-
zation or strategy level. This perspective
concerns itself mainly with how to imple-
ment downsizing and the expected benefits
and pitfalls of downsizing on the firm's
performance, efficiency, and effectiveness. At
the individual level, also termed the micro
level, areas of discussion associated with
downsizing are psychological coping strate-
gies, individual stress, and the study of the
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[ 535 ]
Management Decision
37/7 [
1999] 535±552
# MCB University Press
[
ISSN 0025-1747]
Keywords
Downsizing, Strategy, Employees,
Work
Abstract
Aims to review the literature per-
taining to downsizing with an
emphasis on the organization le-
vel, and establish the critical
success factors of downsizing,
that is, guidelines to the success-
ful implementation of downsizing
activities. Addresses these objec-
tives by examining first, how
downsizing is defined in the litera-
ture reviewed, then discusses the
different ways in which or mea-
sures by which organizations carry
out downsizing activities and the
reasons that prompt companies to
downsize. Addresses the rationale
utilized by firms to downsize, the
expected outcomes in terms of
economic and human conse-
quences, the approaches to
downsizing (reorientation and
convergence) and specific strate-
gies such as workforce reduction,
work redesign and systemic strat-
egy. Also downsizing tactics, hu-
man resources as assets vs costs,
planning, participation, leader-
ship, communications, and sup-
port to victims/survivors are
examined. Both laboratory experi-
ments and empirical research
concerning survivors' reactions
are explored. The role of trust as
well as the human resource pro-
fessional in the process are in-
cluded. Conclusions and
recommendations complete the
article.

``survivors' syndrome''. This article will ad-
dress the organization perspective of down-
sizing. Therefore, the objectives of this
article are to review the literature pertaining
to downsizing with an emphasis on the
organization level, and to establish the cri-
tical success factors of downsizing, that is,
guidelines to the successful implementation
of downsizing activities.
The article will address these objectives in
the following manner. First, how downsizing
is defined in the literature is reviewed. Then,
the different ways or measures in which
organizations carry out downsizing activities
are discussed, and the reasons that prompt
companies to downsize are examined. For
example, firms downsize to cut costs, to
remain competitive, to adjust to the increas-
ing technological advancements, and to re-
spond to social pressures. Next, the outcomes
that organizations expect when undertaking
downsizing are described. Subsequently, the
actual consequences of downsizing in terms
of economic and human aspects are re-
viewed; do downsized firms really experience
gains in productivity, efficiency and effec-
tiveness, and maintain the employees' mor-
ale, commitment, loyalty and trust? When an
organization decides to downsize, it must
first look at its current mission, objectives
and core competencies, as well as its ``fit''
with the environment. Based on this internal
and external diagnostic, the firm can then
determine which downsizing approach to
take, reorientation or convergence. While the
former is a redefinition of the firm's mission
in reaction to past missteps or environmental
change, the latter is a fine-tuning of the
firm's present vision, mission, strategy and
structure. Once the downsizing approach has
been decided, the firm must establish which
downsizing strategy or strategies to adopt.
The three common downsizing strategies are
workforce reduction, work redesign, and
systemic strategy. These strategies are not
mutually exclusive, that is, they can be
implemented individually or jointly. In order
to successfully downsize, there are certain
downsizing tactics of which firms should be
aware, such as employees should be consid-
ered as assets not costs, the importance of
planning, the critical participation of all
stakeholders, the presence of supportive and
committed leadership, the significance of
open and honest communication, the im-
perative need of mutual trust between man-
agement and employees, and the critical role
played specifically by the human resource
department. In conclusion, some recommen-
dations on how to successfully downsize,
along with some future research topics, will
be presented.
Downsizing
Contemporary terms such as reengineering,
rightsizing, layoffs, reductions in force, or-
ganization decline, and reorganizing are
regularly used as substitutes for downsizing.
While they do denote to some extent a
common meaning, each has its own conno-
tation (Cameron, 1994a; de Meuse et al., 1994;
Freeman, 1994).
Downsizing is the systematic reduction of a
workforce through an intentionally insti-
tuted set of activities by which organizations
aim to improve efficiency and performance
(Appelbaum et al., 1987b; Cameron, 1994a;
Cascio, 1993). As a result, the firms' costs,
processes and workforce are affected. It is
understood that downsizing efforts are un-
dertaken for the improvement of the organi-
zation. However, that does not imply that
only firms that are experiencing problems
downsize; quite to the contrary, firms that
are growing are just as likely to downsize.
Equally important to point out is that down-
sizing can be proactive and anticipatory or
reactive and defensive (Cameron, 1994a).
Finally, downsizing can refer to large per-
manent, reactive layoffs, a streamlining of
functions, a redesign of systems, a redefini-
tion of policies aimed at cutting costs, and a
proactive strategy (de Meuse et al., 1994).
Layoffs are still the most common way to
downsize, although many alternatives exist
(McCune et al., 1988; Mishra and Mishra,
1994). Appelbaum et al. (1987b), Cameron et
al. (1991), McKinley et al. (1995), Mishra and
Mishra (1994), and Mone (1994) cite intended
staff reductions as a downsizing strategy,
through attrition, early retirements or out-
placements. Reducing the work, not only the
number of employees is another downsizing
measure (Cameron et al., 1991; Cascio, 1993).
In a survey by the Right Associate consulting
firm, 70 percent of firms that had downsized
used a hiring freeze. Other courses of action
included divesting unrelated businesses
(Bruton et al., 1996; Mone, 1994), selling off
capital assets (Mone, 1994), eliminating func-
tions, hierarchical levels and units (Cascio,
1993), restricting overtime (Mishra and Mis-
hra, 1994) and retraining or redeploying
employees (Cameron et al., 1991; Mishra and
Mishra, 1994). Finally, downsizing sometimes
invokes cost containment strategies through
which activities, for example, transaction
processing, information systems, and sign-off
policies are streamlined (Cameron et al., 1991;
Cascio, 1993). The strategies and rationale to
engage in this process are often divergent
and need to be examined.
[ 536 ]
Steven H. Appelbaum,
Andrea Everard and
Loretta T.S. Hung
Strategic downsizing: critical
success factors
Management Decision
37/7 [1999] 535±552

The rationale to downsize
Strapped by hard times, struggling with more
debt than ever, firms downsize in an attempt
to cut costs (Cascio, 1993; Freeman, 1994;
Mishra and Mishra, 1994). Moreover, in
attempting to remain competitive in an ever-
increasing global marketplace, firms see few
alternatives to downsizing (Appelbaum et al.,
1987a; Cameron, 1994a; Mishra and Mishra,
1994).
According to Mishra and Mishra (1994), the
downsizing, which took place in the early
1980s, was mainly an effort to reduce the
number of employees in order to stay com-
petitive. That trend continued into the 1990s
with firms attempting to cut costs to remain
competitive in the global marketplace (Ap-
pelbaum et al., 1987a; Cameron et al., 1991).
Projections until the end of this century do
not see a lapse in downsizing activities; in
fact, firms are expected to continue to down-
size extensively. One possible reason for this
is that firms poorly planned or carried out
earlier downsizing projects and hence must
remedy past failures (Mishra and Mishra,
1994).
Downsizing begets downsizing (Cascio,
1993). To illustrate, Kodak downsized four
times between 1982 and 1992, Honeywell
twice in four years, and Xerox, IBM and
Digital Equipment have experienced several
cutbacks throughout the 1990s. In a like
manner, firms that have experienced market
share loss coupled with losses in profitability
tend to perpetually downsize. These trends
are troublesome since they appear to be
``knee jerk'' reactions to other firms in the
field in a ``follow the leader'' zero-sum game.
This is referred to as cloning which will be
presented shortly.
Other factors that may contribute to
downsizing are technological advancement
and innovations that result in heightened
productivity and fewer workers required
(Appelbaum et al., 1987a; Wagar, 1997).
Nonetheless, Dunford et al. (1998) state that a
change in technology is not a primary reason
for firms to engage in downsizing activities.
In the past, technological improvements
often resulted in hiring additional workers
rather than replacing the existing employees;
the numbers that were added are now being
cut (Cameron, 1994a). De Vries and Balazs
(1997) also incorporate the influence of tech-
nology on downsizing, although in a slightly
different vein. They state that rather than
simply the introduction of technology, it is
the ``administrative impact of the revolu-
tionary transformation in information and
communication technology'' that has im-
pacted downsizing. The outcome of
technological advances has been an increas-
ing redundancy of middle management; these
employees, who previously were responsible
for collecting, analyzing, and transmitting
information within the firm, are no longer
needed.
According to McKinley et al. (1995), there
are three main social forces that lead to
downsizing, constraining, cloning and learn-
ing. First, constraining is essentially the
exertion of pressure on firms to conform to
institutional rules with regard to legitimate
structures and management activities. In-
creasingly, firms aim to conform to an ideal
model of ``lean''; often they achieve this result
through downsizing (McKinley et al., 1995;
Tomasko, 1991).
Second, McKinley et al. (1995) define clon-
ing as the pressure exerted on firms to mimic
those companies that provide a benchmark
for the industry in terms of excellence and
prestige. Similarly to constraining, whether
actual benefits can be drawn from the down-
sizing activities is not of importance to those
firms involved in cloning, but rather whether
downsizing has taken place (McKinley et al.
1995; Mentzer, 1996). In a like manner, Palmer
et al. (1997) examine the rationale of firms
that downsize. While initially firms justified
their downsizing initiatives by using the
business environment as a rationale, by the
1990s firms began to use the trend toward
globalization as a rationale. In both in-
stances, the ``explanations'' make use of
external deterministic rationales. Rather
than targeting weak business and manage-
ment decisions absorbing the responsibility
for any downsizing that is deemed required,
the ``blame'' is put on the external conditions
that are not under management's control
(Palmer et al., 1997).
Finally, learning experiences involving
what is being discussed in educational in-
stitutions, such as universities and profes-
sional associations, exacerbate this activity.
By teaching different approaches to and
theories of downsizing, the role of down-
sizing activities becomes legitimized, and
more easily considered to be acceptable.
While Appelbaum et al. (1987a) and Cascio
et al. (1997) state that companies that are not
performing well, are experiencing financial
losses and cash flow difficulties are more
likely to engage in downsizing, Mentzer
(1996) interestingly found that in large Ca-
nadian firms there was no consistent rela-
tionship between a financially distressed
firm and its intention to downsize.
Another area of disagreement within the
downsizing literature involves the role of the
recession of the late 1970s and the early 1980s.
Recessions are often associated with good
[ 537 ]
Steven H. Appelbaum,
Andrea Everard and
Loretta T.S. Hung
Strategic downsizing: critical
success factors
Management Decision
37/7 [1999] 535±552

opportunities to improve a firm's productiv-
ity through the introduction of automated
equipment and the reduction of workforce
numbers (Cascio, 1993). Although Appelbaum
et al. (1987a) contend that the recession has
been the main cause of downsizing activities,
a survey conducted by the American Man-
agement Association reported that nearly
half of the respondents felt the recession had
no influence whatsoever on downsizing.
Rather, mergers and acquisitions, technolo-
gical advances, and transfers of operations
are to be held accountable for the ongoing
downsizing projects (Cascio, 1993). Now that
the rationale why firms downsize has been
described, what they expect to achieve from
their downsizing efforts in terms of outcomes
will be presented.
Expected outcomes: economic and
human consequences
A common response aimed at ``reducing fat
and waste'' for firms that are experiencing
difficulties due to decreasing sales, rising
costs, and increasing competition is to cut
the size of the organization, most often in the
form of cutting employees (de Meuse et al.,
1994).
Firms undertake downsizing with the ex-
pectation that they will experience financial
and organizational benefits (Bruton et al.,
1996; Cascio, 1993; Freeman, 1994) and that
organizational health will be restored to the
firm (Freeman, 1994). Often, the goal of
downsizing is to enhance efficiency and
productivity within a firm (de Vries and
Balazs, 1997; Cascio, 1993; Mishra et al., 1998;
Mone, 1994), that is, to do more with less.
Another economic benefit results from firms
being able to increase value for their share-
holders (Cascio, 1993; Cascio et al., 1997).
Moreover, Mone (1994, 1997) suggests that
benefits may equally be present in the form
of lower average salaries for the less senior
surviving labor force, fewer management
layers, and more decentralized organiza-
tional structures.
Beneficial consequences in terms of cost
cutting considerations are also among the
expected outcomes of firms that downsized
(Appelbaum et al., 1987b; Cameron et al., 1991;
Cascio et al., 1997). According to Cascio
(1993), executives are able to better predict
future costs than future revenues; hence,
lowering costs by decreasing the number of
employees is a good way to heighten earnings
and, by implication, the price of the firm's
stock (Mishra et al., 1998). By essentially
removing middle management, overhead is
reduced and the number of hierarchical
levels is lessened (de Vries and Balazs, 1997;
Cascio, 1993).
According to Cascio (1993) and de Vries and
Balazs (1997), expected economic benefits of
downsizing include lower expense ratios,
increased return on investment, higher prof-
its and stock prices. In a like manner,
organizational benefits that firms seek as a
result of downsizing are lower overhead,
smoother communications, increased entre-
preneurship, and heightened productivity
(de Vriesa and Balazs, 1997; Cascio, 1993).
Finally, downsizing also helps firms to
remain competitive, especially in an ever-
increasingly global environment (Appel-
baum et al., 1987b; Cascio et al. 1997; de Vries
and Balazs, 1997). Firms that downsize should
be able to lower their labor costs and, as a
result, to control product prices to improve
competitiveness (Cascio et al., 1997). As per
Appelbaum et al. (1987b) firms have been
prompted to become ``lean and mean''
through downsizing activities, competitive
consideration on national and international
levels have to be taken into account. While
this section examined the expected outcomes
of downsizing, the actual economic effects
will now be addressed.
Actual economic consequences
Although downsizing is undertaken by many
firms to reduce costs, there is evidence that it
does not decrease costs as much as desired
and that in some cases expenses actually
increase (McKinley et al., 1995).
In a survey carried out by Wyatt Associ-
ates in which 1,005 firms that had downsized
between 1986 and 1991 were examined, the
results indicated 46 percent of the firms had
reduced expenses, 32 percent had increased
profits, 22 percent had experienced gains in
productivity, and 17 percent had reduced
bureaucracy (Cameron, 1994a; Cascio, 1993).
In other survey results from the Society for
Human Resource Management, over 50 per-
cent of the 1,468 firms that had downsized
reported that productivity had declined as a
result of downsizing (Cameron, 1994a; Cascio,
1993). Drops in productivity were also ac-
knowledged by Mabert and Schmenner
(1997); their study enumerates a number of
other costs, most of which are hard-to-quan-
tify, including costs of quality which are a
result of increased rework, scrap, and in-
spection, overtime costs as fewer employees
try to handle the same amount of work as
before, and forgone new business opportu-
nities since the company does not have the
resources to take on any more work.
[ 538 ]
Steven H. Appelbaum,
Andrea Everard and
Loretta T.S. Hung
Strategic downsizing: critical
success factors
Management Decision
37/7 [1999] 535±552

Mirvis (1997) cites that over one third of the
downsizing companies that were surveyed
reported an unexpected increase in tempor-
ary workers and consultants, and the need
for employees to put in overtime and to be
retrained. Similarly, de Vries and Balazs
(1997) claim that when long-term employees
were cut, organizations experienced loss of
``institutional memory'' and that when head
office employees who had had a more long-
term strategic mindset were dismissed, often
``new'' executives adopted a short-term ap-
proach to decision making. This resulted in
an overall sense of alienation for the firm and
gave rise to serious and negative conse-
quences for the research and development
department, capital investments, training
and development, and over-all performance
of these organizations.
de Meuse et al. (1994) reported the findings
of their study which contrasted the financial
performance of the 17 Fortune 100 firms that
made public layoff announcements in 1989
with the 35 Fortune 100 companies that made
no layoff announcements from 1989 to 1991.
They found that the financial performance of
firms that downsize continues to lag after
downsizing efforts as they expect more lay-
offs in the future. In a like manner, Bruton et
al. (1996) report that, in general, for two years
following downsizing the stock value of firms
decreases.
Within the downsizing literature dealing
with the non-realization of the expected
benefits of cutting the number of employees,
several reasons for unsuccessful downsizing
are cited:
1 the downsizing projects were poorly exe-
cuted or not managed properly (Cameron,
1994a; Freeman, 1994);
2 the inability of firms to look beyond the
traditional 3-C approach to organization
design and management (principles of
command, control, and compartmentali-
zation) (Cascio, 1993);
3 the extent of resentment and resistance to
change within the firm resulting in the
loss of productivity, efficiency, and com-
petitiveness (Cameron, 1994a);
4 firms not well prepared for the types of
problems that arise due to downsizing
(employee resentment and concern, loss of
morale, lack of innovation and creation,
etc.) (Cascio, 1993; Dougherty and Bow-
man, 1995; Freeman, 1994); and
5 downsizing is driven by social forces
instead of finding motivation in predict-
able financial benefits (McKinley et al.,
1995)
According to Freeman (1994), many down-
sizing projects fail because rather than
take the opportunity to reorient themselves
and engage in a major turnaround, firms
focus on internal efficiency. Firms aim to
become smaller versions of their previous
selves; instead they should be questioning
their very existence in their present state. In
a study conducted by Mirvis (1997), it was
found that firms that engaged in downsizing
in order to cut costs were more likely to
encounter post-downsizing problems than
firms that downsized to increase productiv-
ity. Similarly, firms that downsize as a
defensive reaction to decline are less likely to
be successful than those who undertake
downsizing activities to increase perfor-
mance (Bedeian and Armenakis, 1998).
Furthermore, Cascio et al. (1997) performed
an empirical study on 5,479 employment
change occurrences using data from Stan-
dard & Poor's 500 companies, between 1980
and 1994. The two dependent variables that
were examined were return on asset and
return on common stock. The authors found
that firms that undertook pure employment
downsizing did not report significantly
higher returns than the industry average.
However, they found that firms that not only
downsized but also engaged in asset restruc-
turing were more likely to show higher
returns on assets and stocks than other
companies in their industry. Finally, they
warn that strictly downsizing may not gen-
erate the benefits that management expects.
Examining the economic consequences of
downsizing is a modest index; the evaluation
of human resource consequences sheds a
different light on this perplexing topic.
Actual human consequences
While those who lose their jobs may seem the
most affected by downsizing, it is more likely
that the employees who remain suffer the
more negative effects. In a survey conducted
by Right Associates, 70 percent of senior
managers who remained in downsized firms
reported that morale, trust, and productivity
declined after downsizing. Mirvis (1997)
states that over 60 percent of the employees
interviewed found as the main downside of
downsizing the lower morale of the survi-
vors. In addition to these negative effects,
employees suffer from heightened levels of
stress, conflict, role ambiguity, and job dis-
satisfaction, the inability to monitor, control
and support business units effectively, an
overall sense of dissatisfaction with super-
visors and colleagues, and burnout (Appel-
baum et al., 1987b; Cascio, 1993; de Vries and
Balazs, 1997; Mone, 1994). As a result, firms
lose their stability and experience declines in
[ 539 ]
Steven H. Appelbaum,
Andrea Everard and
Loretta T.S. Hung
Strategic downsizing: critical
success factors
Management Decision
37/7 [1999] 535±552

terms of their levels of coordination and
motivation; in due time, it is the company's
performance levels that suffer to the greatest
extent (Appelbaum et al., 1987b; de Vries and
Balazs, 1997).
According to Cascio (1993), the effects of
downsizing are longer-term than most would
like to admit. While immediate negative
consequences include loss of morale, dis-
trust, and drops in productivity as well as
employees becoming self-centered, narrow-
minded and risk averse, the literature stres-
ses long-term impacts such as a lack of
commitment to one's employer, ultimately
resulting in recurring career transactions
and greater turnover for firms (Cascio, 1993;
de Vries and Balazs, 1997; Mone, 1994).
A case study conducted by Mone (1994) on a
major Fortune 100 organization that operates
internationally reports that employees who
have greater self-efficacy and self-esteem are
more likely to contribute to increased em-
ployee turnover in downsizing firms than in
non-downsizing firms. These results were
found after a hierarchical regression analy-
sis was performed on the data of 145 returned
usable surveys. Often, these high self-efficacy
employees are dissatisfied with the fewer
benefits, rewards, and opportunities avail-
able due to the downsizing that has occurred,
feel less committed to the firm, and are thus
more likely to seek employment elsewhere
(Cascio, 1993; Evans et al., 1996; Mone, 1994).
Conversely, Mone (1994) found that employ-
ees with low self-efficacy tend to perform at
lower levels and have less confidence to look
for other employment opportunities.
Furthermore, these results suggested that
low self-efficacy employees become more
committed to the downsizing firm and are
less inclined to leave the company. Para-
doxically, to restore organizational health, to
be able to compete and to survive, down-
sizing firms most need the competent, suc-
cessful and confident employees who are
more inclined to leave (Mone, 1994).
Some of the reasons why firms downsize,
their expected outcomes, and the actual
economic and human consequences, have
now been discussed. The following sections
will explore downsizing approaches, strate-
gies, and tactics, which will provide some
guidance for firms to downsize successfully.
Downsizing approaches
When a firm initially decides to downsize, it
must first evaluate whether its internal
operations and environment are compatible
with the external environment. This will
determine which downsizing approach ±
reorientation or convergence ± the firm
should undertake. Neither of the approaches
is invariably the one to adopt in all down-
sizing efforts as each of them addresses
distinct strategic and redesign issues. The
following data are intended to modestly
summarize the concepts of reorientation and
convergence, and are largely based on the
works of Freeman and Cameron (1993) and
Freeman (1994). However, other researchers
have also contributed to strategies.
Downsizing as reorientation
Firms which engage in major downsizing
efforts and aim to realign the internal
organization with the external environment
(most likely to improve its competitive posi-
tioning within the industry) should adopt a
reorientation approach (Bailey and Szerdy,
1988; Bruton et al., 1996). Reorientation forces
the organization to question the very essence
of its existence; it prompts the firm to address
not only issues concerning how things are
done but also if things need to be done in the
first place. The objective of reorientation is to
redefine the firm's mission, according to its
``fit'' with the environment.
The basic objective of reorientation is for
the firm to adopt a new, more efficient and
effective overall structure following an in-
depth analysis of its present mission and
strategic direction. This track follows natu-
rally that reorientation results in downsiz-
ing. Through reorientation, the manner in
which the firm will downsize is made clear,
for example, through combining units, elim-
inating redundancies, etc. Reorientation
rarely results in across-the-board cuts. How-
ever, needs and skills analyses are conducted
and selective layoffs are strongly encouraged;
not massive indiscriminate firings.
There are four critical issues to successful
reorientation:
1 The entire organization must be involved
in systematic analysis; this analysis will
review the firm's structure, skills, jobs,
and tasks.
2 Participation from all levels of the orga-
nization is necessary. Suggestions as to
identifying ways to downsize and to
reorient the organization should come
from all levels and areas of the firm; all
employees should feel some responsibility
for any changes that may occur.
3 Communication is vital to successful
reorientation activities. It must be made
clear to all employees that the firm will be
experiencing critical change and that a
completely restructured firm will soon be
reality; the use of communication and
symbolic management activities (reward
ceremonies, slogans, inspirational
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speeches, etc.) is very important at this
stage.
4 Emphasis must be placed on the firm's
relationship with other organizations
with respect to their potential help or
hindrance to the downsizing efforts. For
example, tasks formerly performed by the
organization may, following reorienta-
tion, be transferred outside the organiza-
tion. Essentially, reorientation involves
direction coming from management yet
with a high degree of participation from
all employees.
While reorientation aims to redesign the
entire organization, the goal of convergence,
the other approach, is to reinforce the firm's
present structure and strategy by continu-
ously attempting to make the firm more
efficient.
Downsizing as convergence
Generally, convergence does not imply any
type of major change but rather solicits
continuous improvement. All members of the
organization are urged to think in terms of
how the firm can continue doing what it does
better, in a more efficient manner; ways to
improve productivity, streamline operations,
and increases in efficiency are continually
being sought.
In convergence, all employees of the orga-
nization participate in downsizing; it is not
solely the responsibility of upper manage-
ment. Throughout the entire organization,
there is a sense that operations are not being
ideally performed and that there is always
room for improvement as a driving force;
innovation is encouraged, as are suggestions
for improvement from individual employees,
task forces, and improvement teams. While
in reorientation changes occur across-the-
board in all areas of the organization. How-
ever, when downsizing via convergence,
changes occur in a piecemeal manner in
selected areas of the firm. Convergence en-
tails incremental change.
Convergence is best implemented not at
the organization level (as is reorientation)
but rather at the micro level, for example, at
localized tasks, jobs, and processes. More
extensive participation is required from
those directly being affected by the down-
sizing nonetheless, the entire organization is
urged to adopt a mindset of continuous
improvement. While management may set
the general direction and goals of the down-
sizing effort, the process of downsizing as
convergence is mainly a bottom-up approach.
In reorientation, communication and sym-
bolic management are of the greatest impor-
tance during the process of redesign;
however, during convergence, the critical
time frame for communication and symbolic
management is before the downsizing effort
is ever initiated. As a result, the mindset of
continuous improvement is instilled before
the process begins, and communication and
symbolic management are then used to
reinforce the notion of continuous improve-
ment.
One of the main advantages of downsizing
as convergence is that the firm is involved in
perpetual improvement, and that managers
and employees of the firm strive to make the
firm as efficient as possible by reducing
headcount and streamlining operations,
while at the same time ensuring that the
skills and knowledge required by the orga-
nization are conserved (Hardy, 1987). Ironi-
cally, though, a major downside of
convergence is that employees who suggest
improvements to operations and other effi-
ciency-seeking activities may find them-
selves without employment or increased
workload, as their suggestions for improve-
ment and refinement entail headcount re-
duction.
Ideally, firms that engage in downsizing as
reorientation should subsequently follow
practices pertaining to convergence. Once
the firms have undergone a major upheaval
in terms of their structure and processes,
they should adopt a continuous improvement
mindset, never ceasing to seek improvement
in efficiency. Once a firm has decided which
downsizing approach to adopt, it must then
establish which downsizing strategy or stra-
tegies to use.
Downsizing strategies
Within the downsizing literature, there are
three common strategies that firms adopt to
downsize: workforce reduction, work rede-
sign, and systemic strategy. Each will be
examined:
1 Workforce reduction strategy. Workforce
reduction, often the first choice of strate-
gies for firms that downsize, is generally
thought of as a quick fix, short-term
``grenade'' type solution and includes
transfers, outplacements, retirement in-
centives, buyout packages, layoffs, and
attrition (Cameron, 1994a; Cascio, 1993;
Feldman and Leana, 1994; de Meuse et al.,
1994). Attrition, induced redeployment,
involuntary redeployment, layoffs with
outplacement assistance, and layoffs
without redeployment assistance are the
five ways in which to implement work-
force reduction (Greenhalgh et al., 1988;
Wagar, 1997). Each method provides the
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employee with a lesser degree of protec-
tion. According to Cameron (1994a), this
type of strategy is carried out at all levels
of the organization, without consideration
given to insuring that crucial skills and
critical human resources are maintained;
this leads to a form of ``competency
anemia''. Mentzer (1996) suggests that
instead of indiscriminately laying off
employees, the most effective way to
downsize may be to consciously and care-
fully choose the employees to be cut.
2 Work redesign strategy. Work redesign
aims to reduce work instead of cutting the
number of employees. This is a mid-term
strategy implemented by phasing out
functions, hierarchical levels, depart-
ments or divisions, redesigning tasks,
combining units and adopting a shorter
work week. Cameron (1994a) claims that it
is important that the changes carried out
are clearly focussed on redesigning work
and organizational processes. The re-
search findings indicate that 50 percent of
the firms studied had adopted a redesign
strategy at least once.
3 Systemic strategy. The main objective of a
systemic strategy is to try to ensure that
continuous, repetitive, seemingly never-
ending workforce reduction will not have
to be carried out in the future. This is a
long-term strategy. A systemic strategy
relates downsizing with simplifying all
areas of the company, including suppliers,
design processes, marketing, sales sup-
port, and production methods; in essence,
the whole organization is simplified. A
systemic strategy focuses on eliminating
the status quo, emphasizing culture, al-
lowing the appropriate amount of time for
implementation, looking at long-term
payoff (Cameron, 1994a).
The three downsizing strategies are not
necessarily independent of each other; how-
ever, per Cameron (1994a), it is more common
for firms that are downsizing to rely on
alternative methods of one type of strategy
than to adopt several alternatives across the
different strategies. In doing so, firms there-
fore have more depth than breadth when
undertaking downsizing efforts (Cameron,
1994a).
There are several benefits associated with
workforce reduction: it provides an immedi-
ate shrinkage, its across-the-board nature
draws the attention of all employees to take
account of the unhealthy situation of the
firm, it prompts cost savings of day-to-day
operations, and finally it gets the intense
attention of the employees of the firm who
anticipate further change (Cameron, 1994a).
There are, however, many more negative
consequences associated with this downsiz-
ing strategy. When a workforce reduction
strategy is undertaken, it is often difficult to
know in advance of time who will be
eliminated, what skills may be voided from
the firm, and what the exact result in terms
of human resources will be once the employ-
ees leave (Bruton et al., 1996; Cameron, 1994a;
Feldman and Leana, 1994). Moreover, this
type of downsizing strategy is associated
with firm dysfunction, organizational inef-
fectiveness, and loss of loyalty and commit-
ment. Employees become self-absorbed and a
me-first attitude prevails (Cameron, 1994a;
Cascio, 1993). Although firms may feel the
necessity to use workforce reduction for their
short-term benefits, in the long-term these
benefits are negated by long term costs. For
example, as discussed by Bruton et al. (1996)
and de Meuse et al. (1994), engaging in
workforce reduction may have merit when
looked at only in the short term. However,
the research found that firms continue to
accrue financial problems as they continue to
announce layoffs; therefore, the rationale
behind using such a strategy is not easily
supported.
Instead of engaging in workforce reduc-
tion, firms can implement other human
resource alternatives which entail cutting
labor costs, streamlining operations, putting
hiring on hold, decreasing or eliminating
employee benefits or perks, or shortening the
work week (de Meuse et al., 1994; Feldman
and Leana, 1994).
When firms undertake a work redesign
strategy, they are usually able to increase
their level of efficiency because of the
simplified structure. However, this mid-term
strategy involves only localized improvement
within the organization, and hence it does
not produce the widespread effects that
systemic strategies produce.
Within the downsizing literature, of the
three strategies, the systemic strategy was
deemed the most likely to produce positive
results. According to Cascio (1993), in order
to sustain long-term improvements in effi-
ciency, organizations must engage in contin-
uous improvement processes which include
not only organization redesign but also
systemic changes which help eliminate re-
dundancies, waste and inefficiency. By en-
gaging in continuous improvement
strategies, the need for periodic radical and
drastic reduction in headcount is alleviated.
Simply laying off workers and not making
any attempt to change work processes or
tasks results in ineffective downsizing. Firms
that try to improve productivity by cutting
headcount often end up with over-worked,
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over-stressed, distrustful, bitter and angry
employees (de Vries and Balazs, 1997;
Mentzer, 1996; Schmenner and Lackey, 1994;
Touby, 1993).
Firms that effectively downsize generally
plan, invest in analysis, encourage partici-
pation from all stakeholders, and thrive on
information exchange between depart-
ments, among supervisors and subordi-
nates, and throughout the entire
organization (Cameron, 1994a). These are
some of the downsizing tactics that will be
discussed in the following paragraphs of
this article.
Downsizing tactics
This section of the article will discuss
human resources as assets, the need to
plan, employee participation, leadership
demands, communication requirements,
support to victims and survivors, mutual
trust, reactions of survivors as reported in
seven laboratory experimental and em-
pirical studies, and the role of human
resource professionals in the process of
downsizing.
Human resources as assets versus costs
Human resources are often referred to as
human liabilities; hence many downsizing
efforts, especially those adopting a top-
down approach, simply focus on reducing
the number of employees (Cameron, 1994a;
Cascio, 1993). Because employees are under
management's control and are associated
with the greatest part of production costs,
they are often targeted first (Appelbaum et
al., 1987b). However, employees need to be
recognized as a firm's most valuable assets
and thus deserving of the appropriate
attention; long-term planning of its human
resources including proper diagnosis of the
employees' reactions and organizational
dysfunctioning is required for a firm to
survive and to succeed (de Meuse et al.,
1994; de Vries and Balazs, 1997). Rather than
simply reduce headcount when attempting
to cut costs and restructure assets, firms
must strategically analyze, restructure and
deploy employees on a continuous basis,
taking into account all costs including
those associated with future employment
needs (Appelbaum et al., 1987b; Cascio et al.,
1997; de Meuse et al., 1994). To illustrate,
according to Mishra et al.(1998), training or
retraining employees boosts their confi-
dence to work in new environments; as a
result, they feel more empowered and more
competent to deal with any uncertainty
they face.
Planning
Planning is an important part of the down-
sizing effort. Before downsizing actually
takes place, firms need to have developed a
long-term strategic plan which takes into
account how departments, areas, and pro-
cesses can be redesigned while retaining
high performers who are crucial to the
organization (de Meuse et al., 1994; Freeman,
1994; Mone, 1994). It is important to include
staff analysis and realignment into the plan-
ning phase of downsizing (Schmenner and
Lackey, 1994); this will help to retain vital
skills and knowledge (de Meuse et al., 1994;
Freeman, 1994). Also, if younger, creative
employees leave the organization, its ability
to compete in the future may be compro-
mised (Mone, 1994).
Furthermore, management has to take into
consideration that any form of downsizing
will result in increased levels of stress, job
insecurity and uncertainty; it is manage-
ment's responsibility to minimize these ne-
gative consequences (Mone, 1994). According
to Mishra et al. (1998), many firms are
primarily concerned about damage control
and hence react to employees' negative feed-
back instead of making plans to alleviate
their worries and to maintain a sense of trust
in the organization. Many companies that are
ill-prepared for the consequences of down-
sizing make no retraining or redeployment
plans and are soon faced with many more
problems than they ever anticipated (Mabert
and Schmenner, 1997). Finally, firms that
downsize must realize that to ``light a new
fire of employee enthusiasm,'' programs that
build positive attitudes toward downsizing
and the firm must be initiated (Emshoff, 1994)
during this planning phase.
Participation
Typical top-down downsizing approaches are
most likely the least effective plan of action
(Cameron, 1994a). Cascio (1993) counsels
against surprising employees with downsiz-
ing activities; rather, all members of the
organization should be involved in the plan-
ning stage. By full participation of the firm,
employees are more likely to accept and feel
responsible for the changes, and this in-
creases the probability of successful down-
sizing (Freeman, 1994); the planning and
implementation of downsizing should be
representative of all members' interests
(Mishra et al., 1998). Freeman (1994) suggests
even consulting customers and suppliers as
they may offer innovative ways to a firm to
accomplish its mission. This is an avant-
garde action with a great deal to offer for
future downsizings.
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Strategically planning for downsizing re-
quires contributions not only from top man-
agement but also from middle and lower
levels of employees within the organization
(Appelbaum et al., 1987b; de Meuse et al., 1994;
Freeman, 1994). Employees want to feel that
all levels of the organization are sharing in
the effects of downsizing, no matter how
negative; for example, Touby (1993) states
that employees feel disillusioned when ex-
ecutive management does not relinquish
their own bonuses and other privileges while
all levels of the organization have been
negatively impacted by the downsizing.
By involving all members of the firm in the
downsizing effort, the level of uncertainty is
reduced and the amount of control over the
process is increased (Appelbaum et al., 1987a;
Mishra et al., 1997). To illustrate, employees
who were asked to rate the relative impor-
tance of job-related issues pertaining to
attracting, motivating and retaining superior
employees cited ``opportunities to participate
in decisions'' was one of the most important
aspects (Mirvis, 1997).
Leadership
Within the downsizing literature, full parti-
cipation of members of the organization is
strongly recommended, as are top manage-
ment support and commitment (Appelbaum
et al., 1987a; de Meuse et al., 1994; Freeman,
1994). The overall vision, strategy, and di-
rection have to come from top management
that is composed of highly visible, suppor-
tive, aggressive, and confidence-building
leaders who know the business and its people
well (Appelbaum et al., 1987b; de Meuse et al.,
1994; Freeman, 1994; Mishra et al., 1998).
The presence of senior managers indicates
to employees that top management is con-
cerned about them. However, to truly in-
crease trust and open, honest
communication, it is not enough for top
managers to be present, they must also be
willing and prepared to help employees and
to answer any questions that may arise.
Employees, who feel that top management is
acting solely in self-interest, are likely to
backlash and to feel resentment toward top
management and the organization (Mishra et
al., 1998). Moreover, employees do not want
leaders to manage relationships only in down
times, but rather on an ongoing basis (Man-
sour-Cole and Scott, 1998).
Communication
In order to encourage the entire firm to
participate, open and honest communication
is required (de Meuse et al., 1994). According
to Mansour-Cole and Scott (1998) one reason
that expected profits from downsizing are not
fulfilled is that firms fail to make employees
feel respected and valued. There are numer-
ous avenues through which to communicate,
including memos, speeches, department
meetings, videos, and bulletin boards.
Employees must feel they are being informed
accurately and in a timely fashion of the
downsizing efforts. Management must an-
nounce the downsizing after mature consid-
eration and in a convincing manner (Mishra
et al., 1998). Furthermore, by sharing con-
fidential financial and competitive informa-
tion with employees, and by showing a
willingness to communicate everything all
the time, management establishes a greater
sense of trust and honesty. This, in turn,
encourages employees to cooperate and to
help the company survive the temporary
unhealthy situation (de Vries and Balazs,
1997; Mishra et al., 1998).
A communication plan must be established
in order to announce to the firm's employees,
suppliers, customers, and investors any pro-
gress in terms of downsizing activities (Ap-
pelbaum et al., 1987b; de Meuse et al., 1994;
Mone, 1994). Likewise, management must
communicate to employees the firm's com-
mitment to retaining high performers who
are likely to succeed in the downsized firms
(Mone, 1994). Without such communication,
employees will feel excluded, rumors are
likely to spread, and employees will become
demoralized (Appelbaum et al., 1987b; de
Meuse et al., 1994; Schweiger and DeNisi,
1991; Smeltzer, 1991); it is of greatest impor-
tance that the communication lines between
the Human Resources manager and the
employees remain open at all times (Appel-
baum et al., 1987b). While currently much
communication takes place via technology,
Cascio (1993) states that human interaction
cannot be completely replaced by computer
networks and video conferences; open and
honest communication requires human in-
teraction.
Support to victims and survivors
While much of the literature deals with the
survivors, those left in the company after the
downsizing effort, the employees who have
been terminated are also one of the topics
often included in downsizing papers. It is
important to provide support not only for the
survivors but also for the victims. In order to
help the laid-off employees, firms can provide
help in outplacement services, redeployment,
training, collaboration between the private
and the public sectors, and securing financial
aid from governments (de Meuse et al., 1994).
For example, with the help of their former
employers, victims of downsizing can take
advantage of services provided to assess their
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skills, to develop job search abilities, and to
improve their chances of finding employ-
ment elsewhere (Feldmand and Leana, 1994).
Furthermore, personal and financial coun-
seling to laid-off employees can help
maintain their feelings of empowerment and
combat their feelings of despair (Mishra et
al., 1998).
As stated in Appelbaum et al. (1997), it is
important to pay equal attention and to
provide support both to the downsized em-
ployees and to those who remain in the
organization. Many firms still believe that
their success depends largely on the com-
mitment of their employees (Emshoff, 1994);
it is therefore imperative that morale among
the survivors is not compromised (Schmen-
ner and Lackey, 1994). For employees who
remain, it can be very painful for them to see
their colleagues losing their jobs. The way in
which surviving employees are handled right
after downsizing is therefore crucial (Appel-
baum et al., 1997). Furthermore, survivors
will act as they see appropriate according to
how the firm treated its laid off workers
(Mishra et al., 1998). As stated by Brockner et
al. (1987), when survivors perceived that
layoff victims had not been properly taken
care of, they reacted negatively, either by not
performing as well as they had or by not
feeling as loyal to the firm as before.
Reactions: seven laboratory experiments
A series of laboratory studies on the survi-
vors of layoffs was conducted by Brockner et
al. (1987) and Brockner (1988). Owing to the
research design, it is impossible to generalize
their results. However, this research is useful
in that it succeeded in isolating various
factors that impact survivors, and it sug-
gested how events could unfold in real life
situations. This research provided support
for the hypothesis that positive inequity
theory might help in explaining the reactions
of survivors to layoffs. In addition, pre-
existing stress and fair treatment of victims
also seem to play a role in survivors' reac-
tions.
Brockner et al. (1987) identified four psy-
chological states that survivors might ex-
perience as a consequence of witnessed
layoffs: job insecurity, positive inequity,
anger, and relief. Further, if these psycholo-
gical states materialize, both survivors' work
behaviors and their attitudes could be af-
fected. Particular attention is given to posi-
tive inequity, also called survivor guilt,
which can be defined as follows, ``to the
extent that survivors perceive that their
inputs were no greater than those of dis-
missed workers ... they may work harder in
order to redress the inequity''.
In the first laboratory experiment dis-
cussed by Brockner et al. (1987), it is shown
that survivors who saw a co-worker being
dismissed felt more positive inequity and
guilt than workers from a controlled group
in which there was no layoff. In this
experiment, the individual degree of self-
esteem is a moderator variable that influ-
ences the efforts put into work after the
layoff. This finding shows that survivor guilt
potentially depends on many factors, which
led the way for further studies.
The second study is based on the possibi-
lity that if the decision as to who is laid off is
based on merit or seniority, survivors are in
a position to reasonably believe that they
were chosen to remain due to their greater
inputs. This could conceivably induce them
to feel less positive inequity or guilt than
would survivors of layoffs effectuated ran-
domly. This intuition was corroborated by
the fact that, after the layoff, productivity
increased more for survivors of a random
group than for survivors of a merit group.
However, this does not suggest that survivors
chosen on the basis of merit do not feel guilt
and positive inequity. Two further studies
(numbers three and four) that were con-
ducted suggested that seniority-based layoffs,
in the experimental context, produce little
impact on the survivors' work performance.
This corroborates the findings of the second
study.
In a fifth study, the level of attachment felt
by survivors toward the victims was ma-
nipulated so that they would identify with
them at various levels, and the layoffs were
conducted on a random basis, in which case
survivor guilt is expected to be present. All
combinations of situations in which there
were high or low identification with the
victim and fair or unfair compensation of the
victim were examined. It was observed that
survivors' work performance increase was
the lowest when high identification was
correlated with uncompensated layoff. Under
that situation, survivors judged the treat-
ment to be the least fair, and they might have
reacted in such a way to protest against
management's unfair treatment of victims.
A sixth study revealed that survivors'
work performance increased after the layoffs
regardless of whether they experienced job
insecurity. However, Brockner et al. (1987)
found that, when there is job insecurity,
there is in addition a more negative feeling
toward fellow survivors. As a consequence,
competition increases in which everyone
tries to work as hard as possible and produce
the most, so as to insure that they will
deserve to stay in case of future cutbacks.
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Finally, a seventh study of survivors
examined the effect that their work environ-
ment could have on their stress level. It was
found that the more severe the layoffs, the
least organizational commitment is present
among survivors. It was also deduced that
commitment to the company is more strongly
correlated with layoff severity than to the
commitment to work.
A general conclusion from these seven
laboratory studies is that real life layoffs may
cause positive inequity which in turn would
induce increases in work performance.
However, it is impossible to say whether
these increases would be permanent. In the
case where negative inequity is felt, negative
feelings toward management could result,
especially when the victims are treated
unfairly and survivors strongly identified
with them. Finally, perceived fairness, as
well as stress, seem to be important media-
tors of behavioral and attitudinal conse-
quences of layoffs. These laboratory
experiments furnish ground for field re-
search, as their results can serve as guide-
lines of what avenues to investigate.
Survivors' reactions: empirical
studies
In order to get an appreciation of how
survivors experience the layoff of their
colleagues in real situations, Noer (1993)
developed a brief listing and overview. He
identified the following negative feelings and
concerns experienced by survivors, job in-
security, unfairness, depression, anxiety,
fatigue, reduced risk taking, lower motiva-
tion, distrust, betrayal, lack of reciprocal
commitment, dissatisfaction with planning
and communication, dissatisfaction with the
layoff process, lack of strategic direction,
lack of management credibility, short-term
profit orientation, and sense of permanent
change. These feelings are not to be taken
lightly; in fact, they indicate that survivors
are very much impacted upon by what
occurred in their firms.
To this effect, Kets de Vries and Balazs'
(1997) position on the reactions to downsizing
is perspicacious: ``It is our belief that the
existing literature in this field could be
enhanced if more attention were given to the
mindset of different actors in this all-too
realistic psychodrama and to the roles that
the various parties play in the process''. The
researchers also illuminate the fact that it is
important to consider not only the feelings
experienced by the employees that were not
laid-off, but also how those who implemented
the actual downsizing are affected by it
psychologically. The researchers felt down-
sizing breaks down a complex set of inter-
connections within the organization, and
often induces dramatic changes in corporate
environment. Presented this way, downsiz-
ing is strong enough to tear apart a whole
value system, and the resulting organization
is thus necessarily different from what it was
before.
In their study, Kets de Vries and Balazs
(1997) established, in line with the previous
results obtained by Brockner et al. (1987), that
job insecurity impacts organizational effec-
tiveness. As a matter of fact, those chosen to
stay with the organization cannot help but
wonder how long they will stay. If they
witness a first round of layoffs, they cannot
help but think that there might be another
one coming. Another capital issue is that,
with those who leave, especially when they
are key people, part of the memory of the
organization disappears with them. As for
executives, given this context, they become
more likely to use a short-term decision
approach, seeking ways to generate immedi-
ate profits, and not always realizing the long-
term implications of their decisions under
the stress of downsizing. They learn to adjust
their decision-making style to the urgency of
what they perceive as threatening.
In those cases where downsizing was
conducted by cutting jobs without the estab-
lishment of a proper plan, it was observed
that survivors' commitment and loyalty to
the employer disappeared, and that employ-
ees started distrusting top management. The
only way to remedy such an outcome is by
conducting planned layoffs and by commu-
nicating more efficiently with employees.
Survivors' reactions in this study fell into
one of two categories: either they distanced
themselves from the victims when they did
not particularly relate to them, or when they
did identify with the victims, they distanced
themselves from the organization. Survivor
guilt was observed, but some survivors
increased their productivity. In such a case,
this was coupled with a race among survi-
vors, due to the insecurity they felt with
respect to their own jobs. Generally, survi-
vors also tried to convince themselves that
the layoffs were legitimate; that is, that those
who left were those that deserved to leave,
and this phenomenon also contributed to
increase productivity ± however, with lower
morale. Such results were consistent with
Brockner et al. (1987) and Brockner (1988).
A new perspective is also given by Kets de
Vries and Balazs (1997), who stated that it can
be interesting to view the similarities that
exist between survivors and victims. Looking
at the situation from this angle, both groups
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37/7 [1999] 535±552

were put under extremely stressful circum-
stances, both lost work colleagues and
friends, and both were constrained to live
without the formerly enjoyed job security. To
this effect, Kets de Vries and Balazs (1997)
reiterated the fact that all involved human
beings need to go through a mourning
process in which they successively live a
period of disarray, one of yearning and
searching for what they lost, and wonder
where they will be able to fit. Not surpris-
ingly, victims as well as survivors in the
study had the tendency to feel as though they
were to blame for the firm's troubles. It is
only when a certain time had elapsed that
survivors started to accept the facts they
were faced with, to redefine themselves and
to accept their new organization.
Trust
Mutual trust between managers and employ-
ees is a critical element in building effective
work relationships; it is especially important
when firms undertake downsizing efforts,
which entail much uncertainty and conflict
(Mishra et al., 1998). As Mone (1997) states,
the extent to which employees trust man-
agement largely impacts their response to
downsizing. Layoff victims and survivors
need to feel that management is concerned
with their needs. All employees must feel
that they are in control of their future, of
their destiny, even if it means that they will
be laid off (Mishra et al., 1998). It is therefore
important that trust be built among internal
and external (employees, suppliers, custo-
mers, shareholders, etc.) stakeholders (Mis-
hra and Mishra, 1994), as ultimately,
downsizing affects not only the organization
and its employees, but also the industry,
society and national economic health as a
whole (Mone, 1997).
Furthermore, Mone (1997) believes job
security, uncertainty, self-efficacy, stress,
commitment, loyalty, morale, self-esteem and
job satisfaction can all be negatively affected
by a low level of trust. Likewise, a lack of
trust can lead to increased absenteeism,
tardiness, theft, and sabotage which can
result in decreased workplace cooperation,
innovation, productivity and quality perfor-
mance. Essentially, a low level of trust
results in employees viewing the downsizing
activities as purely negative and manage-
ment will have much difficulty getting em-
ployee support when undertaking future
initiatives. de Vries and Balazs (1997) suc-
cinctly express the dilemma of trust: ``People
need to believe in the organization to make it
work, but they need to see that it works to
believe in it!''. Building trust among all
members of the organization is one of the
most critical success factors to successful
downsizing operations.
In order to downsize successfully, firms
need the expertise of human resource pro-
fessionals who will help in formulating all
aspects of the strategic plan of their down-
sizing activities; they occupy a crucial role.
Role of human resource personnel
Active participation of the human resource
department is very important to the success-
ful implementation of downsizing strategies
(Cameron, 1994a; de Meuse et al., 1994; Free-
man, 1994; Mone, 1994). Because successful
downsizing is largely dependent on the
effective management of the human resource
system, human resource professionals need
to be involved in the strategic issues of
downsizing (Appelbaum et al., 1987b; Camer-
on, 1994a; de Meuse et al., 1994; Freeman,
1994). For example, the selection, appraisal,
rewards and development of employees
(Freeman, 1994), the identification and eva-
luation of skills, knowledge and abilities
(Mone, 1994), the design of effective educa-
tional programs for all levels of the organi-
zation (de Meuse et al., 1994) and the
examination of current and foreseen work-
force requirements (Mone, 1994) must be
implemented in collaboration with the hu-
man resource department.
Ultimately, the employees of an organiza-
tion provide the much needed constant
innovation, superior customer performance,
and healthy corporate culture that en-
courages members to be team players; hence,
organizations that downsize must be pre-
pared to make significant investments in
their employees (de Vries and Balazs, 1997).
In the downsizing literature, many re-
searchers provide ``downsizing models'',
strategies for effective downsizing, or vari-
eties of checklist they recommend be adopted
by those organizations with the intention of
downsizing. The following section provides a
summary view of some conclusions drawn
from the research and the most common
recommendations.
Conclusion and recommendations
In order to make the implementation of
downsizing more successful, certain guide-
lines are proposed in the literature. Mone
(1994) stresses three issues, namely training
employees for jobs that they may have to
undertake during and after downsizing, pro-
viding performance feedback that is relevant
and specific to the employees' jobs, and
rewards that appropriately reflect the ap-
praisal systems. De Meuse et al. (1994) also
[ 547 ]
Steven H. Appelbaum,
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Management Decision
37/7 [1999] 535±552

provide guidelines which include: plan the
downsizing activities with the human re-
sources department, encourage the partici-
pation of all members of the organization,
ensure that communication is open and
honest, treat the layoff victims with respect
and dignity while supporting the survivors,
assure that top management is visible and is
responsible to provide direction and overall
vision.
Mishra et al. (1998) accentuate the need for
open and honest communication during and
after the downsizing effort in order to
promote a sense of trust throughout the
organization. Survivors are very conscious of
how those who have been laid off are treated;
when those remaining know that their for-
mer colleagues have been taken care of, their
feelings of trust and commitment are en-
hanced.
Moreover, technology can be used to in-
crease the extent of managers' control. Mid-
level managers have derived the most benefit
from the introduction of computers and their
applications that include word processing,
voice mail, electronic mail, and tracking of
orders. Technology has decreased signifi-
cantly the time that mid-level mangers spent
``pushing paper work'' (Schmenner and
Lackey, 1994).
Firms should not view downsizing as a one-
time quick fix solution, but rather as part of
the organization's long-term strategy (Ca-
meron, 1994; Cascio, 1993). One of the 14
better practices provided by Feldman and
Leana (1994) to manage layoffs calls for
corporate-level financial assistance com-
bined with corporate-level safeguards against
short-term expedient actions. Organizations
intending to downsize have to avoid short-
term actions as they threaten long-term
strategy. Cameron et al. (1991) suggest that
downsizing be defined as a proactive strat-
egy, that is, an aggressive strategy which
provides a solution to an end in the present
and an increase in productivity in the long
term. Finally, Appelbaum et al. (1987a,b)
encourage firms to look to the future of the
organization; they suggest that the notion of
``continuity of career'' be emphasized and
that all employees adopt a mindset that
includes them in the firm's new mission.
Another downsizing ``must'' subsumes that
headcount reductions are only one way of
cutting costs, and that firms must consider
alternatives to permanent, large-scale layoffs
(Feldman and Leana, 1994). Cameron (1994)
suggests a variety of activities including
restricting overtime and providing leave
without pay. Appelbaum et al. (1987a,b) warn
against equating downsizing with termina-
tions and layoffs. Terminations should be
used as a last resort; on the one hand, they
are costly, on the other hand, they make
hiring good employees in the future difficult.
Furthermore, reductions in headcount
should be integrated with planned changes
pertaining to how work processes are de-
signed (Cascio, 1993).
Before engaging in any downsizing activ-
ities, the organization must undertake a
thorough analysis of the organization itself;
this includes identifying the future mission
and vision of the firm as well as its core
competencies, and setting goals, deadlines
and targets for the downsizing effort (Ca-
meron, 1994). The first step in the downsizing
model provided by Appelbaum et al. (1987a,b)
urges organizations to conduct a thorough
evaluation of the business; problem recogni-
tion and the initial decision take precedence
over any other issues at this point. The firm
must address its short- and long-term objec-
tives and the effects of downsizing. Moreover,
part of the advanced analysis requires that
redundancies, excess costs, and inefficiencies
be identified (Cameron et al., 1991).
Planning is another issue that must be
taken very seriously. The plan must take into
consideration several issues, including the
severity of the firm's problem, the employees'
skills and abilities that have become redun-
dant or unnecessary, whether the firm is in a
hiring mode, and in what position the com-
munity finds itself with respect to the overall
hiring environment (Appelbaum et al.,
1987a,b). Furthermore, the downsizing team
is responsible for any decisions pertaining to
how, when, where and with whom down-
sizing activities will take place (Appelbaum
et al. 1987a,b). Feldman and Leana (1994)
recommend that during the planning stage,
alternatives to extensive downsizing be ex-
amined. Cameron (1994) and Cameron et al.
(1991) state that a broad array of downsizing
strategies should be implemented; for exam-
ple, short-term workforce reductions, long-
term organizational redesign, and systemic
change should be adopted.
It is essential that employees be involved in
all aspects of downsizing. Cameron (1994)
suggests that employees should be implicated
in the identification of what needs to be
changed. Similarly, Cameron et al. (1991)
state that the most effective downsizing
strategies are those that are actually recom-
mended and designed by the employees of the
firm. Cascio (1993) associates survivors' syn-
drome with a lack of employee involvement.
He suggests that by actively including all
employees in the planning stage of down-
sizing, it is possible to avoid the negative
consequences felt by survivors. In a similar
vein, Cameron (1994) recommends that
[ 548 ]
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Strategic downsizing: critical
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customers and suppliers also be implicated
in designing and suggesting improvements.
Honest, direct and empathetic communi-
cation is vital to effective downsizing opera-
tions (Feldman and Leana, 1994). Employees
must feel that the layoff plans are being
carried out because of economic necessity,
not due to individual performance. Although
Appelbaum et al. (1987a,b) stress that com-
munication is important throughout down-
sizing, they emphasize that it becomes even
more crucial near the end. It is important
that all affected employees be properly ad-
vised of the organization's plans to downsize.
Moreover, they suggest that when it comes
time for the actual announcements of down-
sizing to be made, groups of employees
should be addressed, not individuals. When
firms clearly and honestly inform employees
of the reasons why layoffs are necessary, the
employees are able to retain their sense of
dignity and to go to their colleagues and
supervisors for social support (Feldman and
Leana, 1994).
Another important element in successful
downsizing concerns the extent of support
that survivors and victims of layoffs receive.
Concern, attention and support must be
given to survivors and victims alike (Ca-
meron, 1994). Support for victims may in-
clude enough advance warning, financial
benefits, counseling, and outplacement ser-
vices, while for survivors, training, cross-
training, and retraining should be provided.
According to Cameron (1994), post hoc on-the-
job training is to be avoided; employees
should be made to feel as competent and as
capable as possible.
Likewise, Feldman and Leana (1994) in-
clude in their eight organizational policies
and interventions the need to provide to
displaced workers advance notification of
layoffs, severance pay and extended benefits,
education and retraining programs, outpla-
cement assistance, and other services stem-
ming from collaboration among private and
public sector organizations. In order to help
survivors accomplish their work with re-
duced staff, avoid high turnover among the
employees remaining in the firm, and main-
tain employees' sense of commitment and job
involvement, they suggest that survivors be
paid equal attention as layoff victims.
Lastly, Appelbaum et al. (1987a,b) advise
firms to create outplacement opportunities
for layoff victims and survivors. For layoff
victims, strategies include giving employees
enough advance warning so that they may
find employment elsewhere, contacting other
firms and seeking outplacement; for survi-
vors, support can include early retirement
packages, incentives for voluntarily leaving
and informing employees of employment
openings at other companies.
Although there is an abundance of recent
literature covering downsizing, much of it
has been collected through case studies and
is thus descriptive in nature. Consequently,
there is still much room for research, espe-
cially empirical studies, to be undertaken in
the field of downsizing.
Future research
The hypothesis that downsizing results in
greater efficiency could be further studied.
The reasons that compel some executives to
downsize also warrant future research. In
fact, the decision-making process of execu-
tives could be empirically tested as well as
whether certain personality characteristics
are significantly related to the decision-
making process adopted. Future research
could investigate, through longitudinal stu-
dies, the long-term financial performance of
downsized companies. The controversial role
of information technology should be ad-
dressed in order to establish a harmonized
view pertaining to the effects provided by
such investments. Finally, employees (survi-
vors and victims) are of course affected by
downsizing; it is of interest, however, to
investigate how other stakeholders, for ex-
ample, customers, suppliers, and the com-
munity at large, may be impacted by
downsizing activities. This is a modest chal-
lenge.
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Application questions
1 What should organizations invest in re-
training and outplacement of downsized
staff? What are some economic reasons for
doing so as well as moralistic ones?
2 Consider your own organization or orga-
nizations which you know well, where
downsizing has taken place. How could it
have been better conducted?
[ 552 ]
Steven H. Appelbaum,
Andrea Everard and
Loretta T.S. Hung
Strategic downsizing: critical
success factors
Management Decision
37/7 [1999] 535±552