Abstract
The aim of the chapter is to present the concept of downsizing from different points of view: as a strategic option, as a management tool and as a phenomenon. It describes the evolution of the term, its definitions, and different directions of development. A scale and possible outcomes are described on the basis of financial analysis; however it also discusses the role of non-financial aspects. The chapter points out reasons, aims and a wide range of tools that may be used during implementation of downsizing. One of the conclusions of the chapter is to present future research directions aiming at increasing knowledge of managers and providing them with detailed good practices.
TopBackground
When analyzing the origins and evolution of downsizing, one should step beyond the original narrow definition and extend one’s view to accommodate for such related solutions and methods as restructuring, exit strategies and strategic renewal.
Downsizing originated in the 1980s in the US, where most major American companies opted for downsizing activities when struggling with over-employment, inefficiency, low flexibility (Cameron, Freeman and Mishra, 1993, pp. 20, 22), growing competition (also at the international level) and rising debts (Appelbaum, Everard and Hung, 1999, p. 537; Mishra and Mishra, 1994).
Key Terms in this Chapter
Downsizing: A deliberate choice (evolutionary, anticipatory, adaptive or remedial) to reduce the scale of the entire organization or its parts in selected areas (e.g. infrastructure, assets, finances, HR) through implementing changes (e.g., in internal and external organization, technology) with the aim to increase its efficiency and protect or increase its value.
Restructuring: Introduction of significant and comprehensive changes in many areas of activity as a reaction to the existing or expected significant changes in the internal situation of an organization or the conditions in which it operates.
Strategic Renewal: Relevant actions aimed at redesigning an organization and changing its business model based on radical changes and progress in the environment that lead to a strategic opening (a discrepancy between an organization’s capacity and potential to grow).
Exit Strategy: Defensive actions aimed at protecting the value of a company at a risk of internal or external problems.
Anti-Crisis Management: Actions aimed at preventing and/or mitigating effects of an internal or external crisis.