Project on

IMPACT OF DOWNSIZING IN INDIAN

ORGANISATION

Submitted to :-

Submitted by :-

Mrs.Shanu Khatri

Jyotsna Aggarwal

Date :- 2 Feb.,2012

BBA. LLB. 1st yr

SIDDHARTHA LAW COLLAGE,DEHRADUN

Approved from BAR COUNCIL OF INDIA (BCI)
Affiliated with UTTRAKHAND TECHNICAL UNIVERSITY

Acknowledgement
I would like to express my sincere gratitude to Mrs. Shanu Khatri for
providing this opportunity to work on this topic. She has always been
Supportive and encouraging.
I have really enjoyed to working on this project.

CONTENTS
Index

Page No.

Introduction
Study of downsizing
Why Do Organizations Downsize?
The Economic Perspective
The Arational Perspective
The Ideological Perspective
The Institutional Perspective
The Strategic Perspective
Consequences of Downsizing
The Structural Consequences of Downsizing
Macroeconomic consequences of Downsizing
Strategies for responsible restructuring
Executive Overview
The Economic Logic That Drives Downsizing
What Does Research on the Economic Consequences of
Employment Downsizing Tell Us?
Issues In Initiating And Implementing Downsizing
Pre-downsizing Stage

Pre-implementation Stage
Implementation Stage
Post-implementation Stage
IS THERE A SOLUTION?
Boeing Company
Introduction
Successful Downsizing: The Case of the Boeing
Reemployment Program
Why Boeing Company Downsize?
The evidence noted by Pritchard and MacPherson
Doing Well Before
An effective Cure
Advantages & Disadvantages of Downsizing
Conclusion
Bibliography

Introduction:
Companies should take care that downsizing helps in shedding fat and not the
organizational muscle. Further, downsizing should not be mistaken to be strategy; it
is a tactic, it is like giving oxygen to accompany in an intensive care unit. The new
size gives a second chance to companies to survive and an opportunity to start
afresh. However done improperly it can be a death sentence for the company.
Research data on the impact of downsizing on company revival is not encouraging.
This is because the manner in which downsizing typically happens, does not enable
growth. A ten year study of companies in US and Canada showed that companies
that downsized were relatively worse off than companies that did not. This was partly
because companies do not seem to have got it right on how to down size when in
trouble so that they can GROW in future. Indian companies can benefit by rethinking
the process of planning and implementing downsizing in a systemic manner. Based
on our global and Indian experience in providing consulting support to companies
that are downsizing, we have identified eight steps that greatly impact the value
realization from downsizing.
Downsizing is currently one of the most popular strategies being used by
organizations in an effort to survive and compete in the current business scenario.
Existing literature in the area has broadly focused on the following three issues: Why do organizations downsize?
What are the consequences of downsizing on the individual and the organization
as a whole?
What are the strategies that can be adopted for successful downsizing?
While imperatives for downsizing have been considered from economic, institutional,
strategic, ideological, and a rational perspectives, suggestions for successful
downsizing strategies have repeatedly reinforced the importance of adopting a
planned, long-term, and people-oriented approach to implementation. The bulk of
empirical research, however, appears to have focused on the consequences of
downsizing both at the individual and organizational level. Given that downsizing
today has achieved the status of an institutionalized norm, the relevant question is
not so much whether or why organizations should downsize, but rather, how best to
implement the process in a way which will enable organizations to accrue benefits
and effectively manage the negative consequences of such an exercise.
A review of literature reveals that a planned approach to the implementation process
would lead to sustained and long-term benefits to the organization. Drawing from
change management theories as well as related theories in organizational learning,
theory of business, and business model innovations, this paper has attempted to
identify issues that need to be addressed at each stage of downsizing in order to
ensure effective implementation. At one level, this would imply a need to question
the very rationale for downsizing in terms of whether it really is the best alternative
under the existing situation. At another level, assuming that downsizing has been
accepted to be the most viable option, and given that any successful planned
change would need to be handled as a multi-stage activity, this would include :
reframing of the existing mental models and assumptions about the business
extensive communication with employees at each stage
managing the needs and expectations of survivors, victims, and implementers
themselves
planning for employability initiatives for employees

 helping employees to renegotiate their existing psychological contract with the

organization.
This would necessitate bringing about a change in the mindsets and attitudes of the
people involved in the exercise. Moreover, a downsizing exercise would also need to
be implemented as a part of an overall corporate renewal package rather than as an
isolated strategy on its own. Suggestions for future research in this area, especially
in the Indian context, have been identified with a view to adding to the existing body
of knowledge and also facilitating greater understanding on the part of practitioners
in handling a downsizing exercise.

STUDY OF DOWNSIZING
In tandem with the rise in its popularity, a substantial body of literature has also
developed exploring various aspects of downsizing. While some studies have
attempted to understand the theoretical imperatives which motivate organizations to
downsize, others have studied the possible consequences that downsizing might
have on the individual employee as well as on the organization as a whole. A few
studies have also tried to examine the various ways in which downsizing can best be
implemented in order to yield the maximum benefits to the organization. Broadly,
therefore, the study of downsizing till date appears to have encompassed three
major issues:
Why do organizations downsize?
What are the consequences of downsizing on the individual and the organization as
a whole?
What are the strategies that can be adopted for successful downsizing?

Why Do Organizations Downsize?

Researchers have approached this question from a variety of perspectives ranging
from economic imperatives and market constraints, approaches based on
organizational theories, and ideological motivations to social compulsions. Kets de
Vries and Balazs (1997) feel that downsizing is often a price paid by organizations
for previous mismanagement and strategic errors in reading the market by the top
management. According to Nelson and Burke (1998), globalization of the
marketplace, technological advances, and growing importance of the service sector
coupled with global benchmarking with competitors in terms of overhead costs are
some of the market forces that have motivated organizations to resort to downsizing.
Some organizational benefits expected from downsizing may include increase in
productivity, improved quality, enhanced competitive advantage, potential
regeneration of success (Nelson and Burke, 1998), lower overheads, less
bureaucracy, more effective decision-making, improved communication, and greater
innovativeness. Broadly, the various perspectives and approaches to understanding
why organizations downsize may be classified as follows:

The Economic Perspective

The economic perspective rests on the assumption that managers actions are
inherently rational and that downsizing is undertaken with a view to increasing an
organizations future productivity and economic performance. But, even though

downsizing helps to reduce costs, it may be offset by increases in other expenses

arising from negative consequences of downsizing. Moreover, researchers are yet
to prove conclusively that downsizing results in improved financial performance of a
firm (Krishnan and Park, 1998). While, in the early eighties, companies began
downsizing with a view to cutting costs and improving the bottom line, today, even
companies posting record profits are resorting to downsizing to become lean and
mean. Therefore, while economic imperatives might have been the overriding
motivation for companies to downsize in the initial stages, today, other non-economic
factors may also be providing the impetus to downsize.

The Arational Perspective

Budros (1999) has attempted to address the issue of why economically viable and
financially sound organizations also go in for downsizing. In characterizing
downsizing as an organizational innovation, his framework proposes a marriage
between (1) the social context which can be either organizational or extra
organizational, and (2) the basis of organizational action which may be both
rational and a rational. In his framework, Budros has identified four quadrants
representing four conditions/ factors which cause organizations to downsize and also
determine their rate of downsizing. Some of these factors are organizational size,
employee compensation levels, extent of deregulation of the industry and extent of
economic troughs and peaks, employee-centeredness of the firm, financial vs. nonfinancial background of the CEOs, linkage with the organizations that have
downsized earlier, and percentage of downsized organizations considered as the
frontrunners in the industry. Budros approach is unique in that his framework breaks
away from the restrictive assumptions of rationality and incorporates a wider
spectrum of perspectives for viewing downsizing. However, his propositions might
have been better strengthened by more empirical bases rather then relying
substantially on data from the popular press.

The Ideological Perspective

Adding ideological variables to the list of possible determinants of downsizing,
McKinley, Mone and Barker (1998) have identified two ideologies, viz., the ideology
of self-reliance of the employee and the ideology of debureaucratization which
provide a cognitive framework in which the concept of downsizing gains legitimacy.
The ideology of self-reliance of the employee stresses that, ultimately, it is the
employee himself who should be responsible for his own career welfare and job
security instead of relying on the organization to take care of his career. The ideology
of debureaucratization recommends the reduction or elimination of hierarchies. In
reducing hierarchies, middle managers are most often displaced from their jobs
leading to workforce reduction. Hence, organizations whose top management
espouses these ideologies are more likely to downsize.

The Institutional Perspective

The institutional perspective emphasizes that the search for legitimacy and
uncertainty reduction are more potent motivators for downsizing than economic
efficiency and profits (McKinley, Zhao and Rust, 2000). This perspective states that
downsizing has taken on the status of an institutionalized norm and hence imparts
legitimacy to those adopting this strategy. In fact, McKinley,Sanchez and Schick
(1995) have drawn on this institutional perspective to identify three social forces, viz.,

constraining, cloning, and learning which motivate downsizing in organizations.

Since the current thinking among organizations is to get leaner and smaller,
managers are constrained to do what is considered right, in this case, getting
smaller by reducing the workforce. Cloning forces result from imitating competitors
and following their actions irrespective of whether their strategies have proved
beneficial or not. Since downsizing has become the order of the day, imitating
competitors in this respect imparts some legitimacy to the manager. Finally, learning
forces occur through educational institutions and professional associations where the
effectiveness of the downsizing approach is further reinforced. The concepts of
constraining, cloning, and
learning forces are equivalent to the institutional theoretic concepts of coercive
isomorphism, mimetic isomorphism, and normative isomorphism respectively, which
explain how organizations strive for legitimacy.

The Strategic Perspective

Dewitt (1998) has attempted to broaden the definition of downsizing to include not
only reductions in manpower but also reductions in non-human resources of the
organizations. Hence, the choice of downsizing approach in terms of reduction
strategies, viz., retrenchment, downscaling, and down scoping is likely to be based
on firm, industry, and strategy influences. Distinguishing between broad and
focused firm strategies, it was found that while firm-level influences (recent capacity
expansions, recent product introductions, and recent investments) were the only
significant predictors of broad firm choice of downsizing approach, industry-level
influences (competitors recent capacity expansions, product introductions, and
investments) were the main predictors of focused firm choices. The strength of this
approach lies in highlighting a relatively unexplored aspect of viewing downsizing as
a strategic choice made by the organization in response to firm level and industry
level influences, different from the ideological and theoretical perspectives taken by
other researchers.
Overall, the strength of the above discussed approaches lies in the fact that they
provide alternative windows to view downsizing and partially answer the question of
why organizations, despite inconclusive proof of the economic efficacy of
downsizing, continue to resort to such practices.
In summary, what appears to emerge from the above is that while the various
perspectives examined by researchers suggest that economic imperatives,
institutional compulsions, ideological beliefs or a rational perspectives might be some
of the diverse causes for downsizing, it is not necessary that these causes are
mutually exclusive. In fact, a typical downsizing decision 34may be dictated by a
mixture of more than one of the above compulsions depending on the context in
which the decision is being taken.

CONSEQUENCES OF DOWNSIZING
The majority of research on downsizing has been conducted to examine and
understand the consequences of downsizing on the individual employee as well as
on the organization as a whole. Effects on the individual employee have been
studied predominantly from a psychological and behavioral viewpoint with a focus on
the survivors (employees who remain in the organization after downsizing), victims

(employees who are actually asked to leave), and executioners or implementers

(managers who are involved in directly implementing the downsizing,
including asking people to leave).

The Structural Consequences of Downsizing

This paper examines the impact of downsizing strategy on dimensions and types of
organizational structure. Four downsizing strategies are developed to address
organization and environment decline. Understanding where and how these
strategies modify an organization's activities helps clarity how downsizing impacts
organization structure. Propositions are offered that show how downsizing can result
in both mechanistic and organic shifts in organization structure.
Mechanistic shifts are caused by downsizing strategies that increase the domain of
an organization and the structural processes used to support that domain. Organic
shifts are caused by downsizing strategies that decrease the domain of an
organization and the structural processes used to support that domain. The rationale
provided for these shifts offers a strategic explanation for decreases in administrative
intensity that lag decreases in organization size. Propositions about the impact of
downsizing on organizational structure are offered as a stimulus to further thought
and research.

Macroeconomic consequences of Downsizing

The recession in the 1980s followed by the worldwide decrease in transportation and
communication costs has triggered a process of downsizing. The macroeconomic
consequences of this process are only weakly understood. The model developed in
this paper associates downsizing with trade between countries with similar tastes,
which predominantly exchange very similar, substitutable products. Our two-region
model is characterized by the endogenous determination of product variety, firm size,
R&D intensity, economic growth, relative productivity, relative wages and welfare.
Downsizing enlarges profits, causing an increase in product varieties and a reduction
in firm size. Smaller firms allocate less labour to research activities, so that growth is
depressed and relative productivity of the region engaging in downsizing declines.
The welfare effects of downsizing are shown to be ambiguous and crucially
dependent on consumer's taste for variety and their intertemporal elasticity of
substitution.

Strategies for responsible

restructuring

Executive Overview
As organizations struggle to enhance their competitive positions, employment
downsizing continues as a preferred part of a restructuring strategy. Its objective is to
reduce operating costs as a way of increasing earnings and stock prices. A study of
S&P 500 firms from 19822000, however, casts serious doubt on the long-term
payoff of this approach. The purpose of this article is to suggest several alternative
approaches to restructuring. In contrast to employment downsizing, a strategy that
regards people as costs to be cut, a responsible restructuring strategy focuses on
people as assets to be
developed. This focus recognizes that people are the source of innovation and
renewal, especially in knowledge-based organizations, and that the development of
new markets, customers, and revenue streams depends on the wise use of a firms
human assets. The article presents company examples and research-based findings
that illustrate mistakes to avoid and affirmative steps to take when restructuring
responsibly.

The Economic Logic That Drives Downsizing

What makes downsizing such a compelling strategy to firms worldwide? The
economic rationale is straightforward. It begins with the premise that there really are
only two ways to make money in business: either you cut costs or you increase
revenues. Which are more predictable, future costs or future revenues? Anyone who
makes monthly mortgage payments knows that future costs are far more predictable
than future revenues. Payroll expenses represent fixed costs, so by cutting payroll,
other things remaining equal, one should reduce overall expenses. Reduced
expenses translate into increased earnings, and earnings drive stock prices. Higher
stock prices make investors and analysts happy. The key phrase is other things
remaining equal. As we shall see, other things often do not remain equal, and
therefore the anticipated benefits of employment downsizing do not always
materialize.

What Does Research on the Economic

Consequences of Employment Downsizing Tell Us?
In a series of studies that included data from 19821994, 19952000, and 19822000, my colleagues and examined financial and employment data from companies
in the Standard & Poors 500. The S&P 500 is one of the most widely used
benchmarks of the performance of U.S. equities. It represents leading companies in
leading industries and consists of 500 stocks chosen for their market size, liquidity,
and industry-group representation. Our purpose was to examine the relationships
between changes in employment and financial performance .We assigned
companies to one of seven mutually exclusive categories based upon their level of
change in employment and their level of change in plant and equipment (assets). We
then observed the firms financial performance (profitability and total return on
common stock) from one year before to two years after the employment change
events. We examined results for firms in each category on an independent as well as
on an industry-adjusted basis.7 In our most recent study, we observed a total of
6,418 occurrences of changes in employment for S&P 500 companies over the 18year period from 1982 through 2000. As in our earlier studies, we found no

significant, consistent evidence that employment downsizing led to improved

financial performance, as measured by return on assets or industry-adjusted return
on assets. Downsizing strategies, either employment downsizing or asset
downsizing, did not yield long-term payoffs that were significantly larger than those
generated by Stable Employersthose companies in which the complement of
employees did not fluctuate by more than 5 percent.

ISSUES IN INITIATING AND IMPLEMENTING

DOWNSIZG
A common theme that appears to emerge is the necessity for organizations to
realign their mental models and assumptions regarding their business models and
put in place strategies which would fit in the demands of the existing context so as to
facilitate organizational transformation for long-term sustainability. Keeping in mind
the above principles and given the fact that planned change, in order to be
successful, needs to be handled as a multi-stage activity, some important issues
need to be kept in mind while initiating and implementing a downsizing strategy.
Drawing from the theories and concepts discussed above, some suggestions in this
context are enumerated below:

Pre-downsizing Stage
Questioning the organizations existing theory of business in the context of current
realities, both within and outside the organization
Creating a culture of enquiry and open communication in the organization to
facilitate innovation and awareness regarding the changed realities
Collectively arriving at an appropriate set of strategies that will take the organization
forward.

Pre-implementation Stage
If downsizing is chosen as a strategy for change, then the necessary steps would
include:
Adopting a planned approach to the process of implementation. This would involve
:-understanding the implications of downsizing in terms of changes in organizational
structures, policies, roles, and relationships
_ identifying the changes in individual and organizational assumptions, mindsets,
and attitudes which would be needed in the changed scenario
_ ascertaining the new competencies which would be required in the changed
context.
Choosing appropriate implementers or change agents and training them to handle
the process effectively
Sharing the rationale for downsizing through continuous communication with
employees in various forums
Maintaining a continuous dialogue to incorporate innovative suggestions and
understand individual issues and assumptions
Communicating detailed procedures to the concerned stakeholders in a transparent
and timely manner.

Implementation Stage
Introducing new processes and structures that would facilitate stabilization of the
change
Helping individual employees to question old assumptions, develop new
competencies, and manage changed roles and relationships through
communication, mentoring, and training initiatives
Being sensitive to the needs of survivors, victims, and implementers. This would
include:
_ managing the negative emotions associated with the process
_ helping employees to deal with the trauma through one-on-one counseling and
extensive communication
_ being open to feedback and dialogue.
Ensuring procedural justice in implementation (e.g., using objective, performancebased criteria for manpower reduction rather than across-the-board reductions
based on age and tenure; matching claims to actions, etc.).
Providing organizational support to victims through training for new skills,
identification of new career opportunities, etc.

Post-implementation Stage
Renegotiating psychological contract with the survivors
Providing support and opportunity to employees for trying out new competencies
Facilitating a change in the mindset of employees such that they assume greater
responsibility in planning for their career and employability rather than depending on
the organization for ensuring their welfare
Monitoring and managing the consequences of downsizing at the individual and
organizational level
Developing a culture of continuous monitoring and questioning of the theory of
business whereby change becomes a systemic, on-going process rather than a oneoff intervention
Initiating a collective learning culture wherein
(a) mistakes are seen as learning opportunities, and
(b)the experiences and insights gained are used to manage current and future
realities.

IS THERE A SOLUTION?
Indian companies can benefit by rethinking the process of planning and
implementing downsizing in a systemic manner. Based on our global and
Indian experience in providing consulting support to companies that are

downsizing, we have identified eight steps that greatly impact the value
realization from downsizing.

Step 1: Envision your organization at the end of the downturn: Lets

say that the economy will rebound in two years time. At the end of the 6-12-18- 24
month period what would be your organization like in terms of size, customers,
capabilities and culture. Its important to envision each of the six months as a
prolonged down turn would mean that the organization may have to progressively
downsize(unless it comes up with an out of box idea that breaks the mould). Identify
the people whom you need at each stage considering the size, customers,
capabilities and culture. The people whom you definitely need at the end of the 24
months are your core team.

Step 2: Get your Core Team Onboard: Companies make the mistake of not
securing the core team before going ahead with downsizing. Hence in many
companies the employee who is supposed to be part of the core team does not know
that he/she is critical to the scheme of things and starts looking out for a job.
Capable people find jobs even in a down turn. When they leave, the organization
loses the muscle the vital organizational memory, core capabilities and importantly
technical and inspirational leadership. Speak to your core team. Share the business
case for downsizing and your vision and plan for bouncing back; enroll them to drive
the downsizing process in a humane manner. Make them part of your planning and
implementation team for revival and growth.

Step 3: Define Criteria for Downsizing: Across the board formulae based
downsizing is a recipe for disaster. Processes/ departments vary with respect to their
criticality to the business. Generally companies use nature of employment,
experience, value add to business, performance as criteria for deciding on who has
to go
Generally the reporting managers get it wrong in choosing who to retain and who to
let go. Its generally the classic case of separating the wheat from the chaff and
letting go the wheat. To prevent such wheat chaffing, we recommend a panel
consisting of two eminent external members, two assessment experts and two
internal senior managers to decide on the downsizing numbers. They should use
multiple criteria including feedback of internal and external customers.

Step 4: Clearly Communicate: Its important to be honest in times of a

downturn. It is critical to share that we are in difficult times, reducing people is one of
the options, and the entire process would be handled with respect and dignity. The
support that would be provided to people has to be emphasized. Leaders need to be
sensitive and develop a clear transition support plan.

Step 5: Design a separation scheme with career transition support:

Be generous based on the contribution of the individual. It will take at least 3-5
months for a person to find a reasonable job. Also provide the person with transition
support. This involves workshop based coaching or one to one coaching on the
changes brought upon individuals due to downsizing. Through this process the
person

is helped to identify their strengths and career direction and get skilled in self
marketing. Attitudes and behaviors that might be hindering personal effectiveness
are also identified and addressed though such processes. Onsite counselors/
telephonic support are variants. Do not sign up with a placement company and think
that you are meaning good to your employees. Placement companies have a clear
incentive in placing people. They tend to be aggressive in persuading a person to
take up the first job offer irrespective of whether it is the wrong job or the wrong
company.

Step 6: Prepare for the D Day: It is erroneous to assume that all Line
Managers can handle separation communication to downsized employees. Some of
them may be feeling guilty of asking people to go. Many of them may not anticipate
the fallouts and hence may not be prepared to handle employee reactions on being
told to go. Train Line and HR Managers. Wherever the Line Manager and HR need
support, have the Head of the department also in such a meeting. Give scripts to the
Line Managers on the business case and the rationale behind the decision. Such
separation meetings should not be for more than 10 minutes. No employee will be
happy with such a decision. The more the meeting prolongs, the greater will be the
dissatisfaction. Get a coach or a counselor to anchor with the employee immediately.
When you provide job search support, employees feel better about handling such a
situation.

Step 7: Communicate with Staying Employees: Be honest and business

like in your communication with staying employees. Share with them the business
case for downsizing and the support that is being provided to downsized employees.
Let them mourn. Do not discourage employees from connecting with
the down sized employees. Periodically inform the employees on how the coaching/
counseling support is helping the downsized employees.

Step 8: Rebuilding the Organization: Down turn brings all companies in an

Industry into a level playing field. If you are not the number 1-2 in your business, this
is a great opportunity to innovate and change the rules of the game. The best way to
do this is to ask challenge our assumptions about
a) What is our business (for example a company may classify itself as a auto
component company, the moment it defines itself as a engineering company, the
possibilities of what it can do expand)
b) Who are our customers (A toy maker may think that children are its customers,
what if it looks at people above 60 years as its customers, what if it starts exploring
how toys can address the loneliness of elderly people. How about toys that test your
spiritual knowledge and make it all so much fun)
c) What are our differentiators (Sit next to customers and observe their needs, how
they use our products/ services, understand what they do when they do not find our
product/ service up to the mark or useful. Instead of using a market research agency,
engage your employees to listen deeply to your internal and external customers,
suppliers, customers who use competitor products and services etc.)

Step 9: Engage and align your Staying Employees: Provide leadership

roles to the core team and get them to engage the entire employee force. A
compelling vision and clear direction for future and sharp individual and team goals

are critical for getting the best out of the employees. This is the best time to shape a
new culture and align the same to the new vision.

Step 10: Finally, create your company Alumni : Just imagine that two
years down the line you rebound. If you have maintained excellent relations with
your downsized employees, they will all join back with rich experiences of other
organizations. Its like sending some one for a sabbatical for two years. Some of
them will become your loyal customers.

Boeing Company
Introduction
Boeing is a huge multinational corporation that designs and builds military and
commercial aircraft. In 2001, due to already lagging commercial jet sales and then
the airliner-driven carnage on September 11th, Boeing cut over 20,000 jobs across
the spectrum of the company, from office staff to factory workers.
Faced with a downturn in the commercial aircraft business and reduced military
spending, The Boeing Company was forced to downsize approximately 55,000
people over a five-year period. The company's management, organized labor, the
local community, multiple levels of government, and community colleges collectively
worked together to develop Reemployment Centers to assist in the transition of their
specialized workforce into alternative forms of employment.

Successful Downsizing: The Case of the Boeing Reemployment

Program
The following is a description of how The Boeing Company successfully completed
this effort at downsizing:Downsizing is thought to be an effective human resources strategy to increase global
competitiveness. Labor costs, generally one of the largest costs for most
organizations can be reduced through downsizing. In many cases the downsizing
process includes outsourcing or subcontracting jobs previously performed within the
organization. Although organizations often consider downsizing necessary in order to
remain competitive, this strategy does not always result in increased organizational
profitability and performance. One recent survey conducted by the Society for
Human Resource Management reported that only 26% of firms reported productivity
improvements while 58% said that productivity was flat or had declined after
downsizing (The Washington Post, 1996). In addition, the study found that
approximately 54% of companies surveyed cut jobs in 1994 but only 25% expected
any further downsizing. Whatever the future course of downsizing, many companies
have utilized this business strategy to meet the demands and challenges of U.S. and
global competition.

Why Boeing Company Downsize?

One of the primary reason that downsizing occurs is that jobs are subcontracted out,
both domestically and internationally, to reduce corporate overhead. The Boeing
Company is no different than many other multinational enterprises. There are three
reasons that most companies subcontract jobs:The first is to lower the total costs of production. This is accomplished by relocating
jobs to lower cost wage regions, either domestically or internationally. The
subcontracting of jobs internationally not only lowers production costs, but also
assists in gaining market share which is the second reason that many companies
subcontract out component development. Sometimes firms are required by local
content requirements to produce components locally. Other countries require
production facilities in order to gain access to their market.
For example, China and The Boeing Company celebrated 25 years of working
together in June, 1996 (The Boeing News, 1996). Over the past few years, The
Boeing Company has invested heavily in developing all areas of the aviation industry
in China to the tune of $100 million U.S. dollars. This has been more than recouped
by the gain in market share through purchases from the Chinese-owned and
operated airlines. The most recent order alone from Air China was for $510 million
for three B747-400 planes. A total of 47 jet aircraft have been purchased by China,
making this a strong market for The Boeing Company.
For the same reason, General Motors is increasing its overseas presence in Asia. It
recently announced that its Opel unit could take over Peugot's position as the nonChinese partner in southern China's automotive industry (Cox, 1996). GM is also
awaiting approval from the Chinese government to build a plant in Guangzhou to
supply engines for a plant that GM is building in Thailand. This second Chinese plant
is in addition to the Shanghai plant which will begin producing Buick sedans in 1998.
The third major reason for subcontracting of jobs is also driven by the desire to
lower total production costs. Many countries will contribute to a company's
development costs in order to gain production plants and develop industries. In the
case of The Boeing Company and Japan, the development costs for the 777 jet
airliner were $5 billion. Japan contributed over $1 billion, or approximately 21% of
the total costs of development, in order to have production plants located in their
country. Given their skills of imitation and improvement, the government of Japan
considers this relationship with Boeing the basis of future industrial development that
will place Japan in the forefront of this Asian market. In addition to lower
development costs, Boeing received increased orders from Japan Airlines and All
Nippon Air.
The lowering of development costs and the gain of global market share are sound
reasons for subcontracting jobs internationally. However, there is always the danger
that The Boeing Company, and other multinationals following the same strategy, are
creating future competitors. Boeing is aware of the potential downside of this
strategy but their drive to compete in...
Boeing is said to be the world's largest aerospace and defense company which
operates in over 90 countries and claims the title of America's largest exporter. It has
three divisions: commercial airplanes (50.3% of revenue), integrated defense
systems (48.3%), and a small aircraft leasing subsidiary (1.2%). The most prominent
is the commercial airplane section which faces intense competition from its Airbus

line of planes.
Since Boeing is known to be the only remaining U.S manufacturer of large
commercial aircraft, they will be making military and special aircraft ten years from
now. But according to Alan MacPherson, professor and chair of the Department of
Geography in the College of Arts and Science its days of manufacturing large
passengers jets will probably have to come to an end.
After the incident of The World Trade Center and Pentagon on September 11. The
senior Boeing officials sensed that airplane manufacturer would suffer drastically on
this happening. Because of this event, the Boeing Commercial President and CEO
Alan Mulally consulted Chairman Philip M. Condit and made the decision on
September 18 to cut 20%( 20,000) to 30%( 30,000) of 96,000 people in Seattle area
employed by Boeings commercial airplane unit. This decision was hard to make by
the Boeings Company because such dealings and actions will affect the lives of the
people who work in their company.

The following are the evidence noted by Pritchard and MacPherson:

1. Boeing's sale or closure of approximately 10 million square feet of space devoted
to commercial and military aircraft production in the past decade
2. a 60 percent decline in Boeing's commercial aircraft production, with less than 50
aircraft in backlogs of four of its six commercial aircraft models, when most viable,
mature aircraft programs have backlogs in excess of 100
3. the lack of new aircraft programsBoeing's most recent aircraft is the 777,
designed in the early 1990s
4. Boeing's announcement on Dec. 20 that it would shelve its futuristic, high-speed,
sonic-cruiser design in favor of a cheaper alternative, its second cancellation of a
proposed commercial jetliner program
This strategy will probably be positive because aviation services and high-tech
military aircraft manufacturing have had higher profit margins than the commercial
side.
The effect of this strategy is losing the members or the employees of this company
who mainly do reviting and aircraft assembly. And now, they will be needing people
who have new sets of skills that will fit on a specific position.
I conclude that downsizing could be a hard decision for the company to be made
because the lives of the employees will be affected. On the other hand, it will be
helpful for the company to maintain their standing in the industry to be able to
compete to other companies.
As soon as hijacked passenger jets slammed into the World Trade Center towers
and the Pentagon on Sept. 11, senior Boeing officials sensed that airplane
manufacturing would suffer drastically. Calls from airline executives soon began
flooding into sales execs running Boeing's Commercial Airplane division here in
Seattle. "We started talking immediately after the attack,'' says one senior Boeing
official involved in the discussions to dramatically cut production. "We knew -- as
soon as the events were reported -- it was going to have a dramatic effect on our
business and our customers.''

That's why Boeing Commercial President and CEO Alan Mulally, in consultation with
Chairman Philip M. Condit in Chicago, made the decision on Sept. 18 to cut 20% to
30% of 96,600 people employed by Boeing's commercial airplane unit -- this
translates into 20,000 to 30,000 workers in the Seattle area. "We profoundly regret
that these actions will impact the lives of so many of our highly valued employees,''
Mulally said, in a statement issued late Tuesday. "However, it's critical that we take
these necessary steps now to size the business to support the difficult and uncertain
environment faced by our airline customers.''

DOING WELL BEFORE

Boeing's Commercial Airplane unit, which still generates 60% of the company's total
$51 billion in revenues, was already planning to pare the workforce in anticipation of
an airline slump, after restructuring factories, embracing lean manufacturing
principles, and cutting costs (for S&P's latest rating statement on Boeing, see the
Sept. 19 "Stock Picks & Pans). The hard work paid off in the first two quarters. For
the first time in nearly a decade, the division was producing 10% profit margins.
Execs were confident they could squeeze even more fat out of a what had been a
costly and inefficient airplane production system.
Even some Wall Street analysts were impressed that the airplane maker was finally
becoming a new kind of company -- one more focused on making profit and
generating gobs of cash. Senior execs had hoped to continue double-digit profit
margins even during the downturn that was expected in the commercial airplane
business.
But along with the rest of America, Boeing leaders never figured that a band of
terrorists would hijack four of their jets and slam them into the World Trade Center
towers, the Pentagon, and a field in Pennsylvania, killing more than 5,000 people.
The aftershocks have hit the airline industry and the financial markets hard. And the
world's largest airplane maker is now feeling the effects.
"It's certainly going to test us, test the airlines, and test our competitors as well,'' says
one Boeing executive. "It's the ultimate test of the industry's strength. It's horrible,
horrific, shocking, stunning, traumatic, and it breaks your heart. At the end of the day,
it's an incredible challenge in front of us. I don't know if there's one word that can
capture it.''

AN EFFECTIVE CURE?
Boeing has sharply cut its forecasts for aircraft deliveries and says the downturn
could run into 2003 as U.S. airlines reduce capacity. The company predicts that it
might deliver just 500 jets this year, down from an earlier forecast of 538. And Boeing
officials say they've slashed their projections for 2002 deliveries to the "low 400s,
compared to the 510 to 520 previously forecast.'' The company says the sharp
reduction in its forecast sales was in line with the 20% capacity reduction by U.S.
carriers and its assessment of global air traffic."We've gotten inquiries from a number
of airlines that do not want to take the balance of their airplanes this year,'' the senior
Boeing executive notes.

The job cutbacks will occur across the entire spectrum of the company, touching
engineers, office staff, and factory workers, executives say. But even the leader of
the International Machinists Union, which represents about 24,000 factory workers
and has often had tense relations with Boeing, says he could hardly blame the
company for its decision. Adds Mark Blondin, president of International Association
of Machinists Local 751: "The tragedy that has rocked the nation is now personally
touching our members here in Puget Sound. We understand this is the kind of
devastating event no one could foresee.''

Advantages & Disadvantages of Downsizing

The emotions of downsizing to a smaller home vary based on the individual and his
reasons for downsizing. A retired couple might downsize to have a more manageable
space after children have moved out, and they might look forward to a new home. An
individual who lost a job, on the other hand, might become depressed and angry at
the need to downsize. Regardless of the reasons, there are both advantages and
disadvantages to downsizing a home, which apply to any situation.

Less Space

One of the main disadvantages of downsizing is the lessened amount of

space. Having less space can mean getting rid of some furniture, or buying new
furniture to fit the house if older furniture is too large. It can also result in family
crowding, if a family downsizes while children are still in the house.

Leaving Behind Friends

Depending on the location of the move, downsizing can mean going to a new
town or a new state. Even if you're staying in the same city, you're still uprooting the
family and moving to a new neighborhood. Leaving behind friends and neighbors
who you've known for years is often emotionally challenging.

Stress

Moving is stressful, even when the move is good and necessary. You must
pack up all of your belongings, sell the old house if it was purchased or give
appropriate notice for a renter, and perhaps even buy a new house before the old
house is no longer available. This stress is a downfall of moving, but is unavoidable.

Extra Money

For a home that has gone up in value since it was purchased or that is either
paid off or mostly paid off, one potential advantage of downsizing is the extra money.

The sale of a larger home will often net more money than the new home requires,
meaning extra money in your pocket.

Lower Costs

A smaller home naturally has lower costs for regular household needs. For
example, heating and cooling are usually less expensive with a smaller house than a
larger house. Taxes may also be lower for smaller homes, though the amount of
lowered costs in taxes will vary depending on the state and the size of the lot, as well
as the size of the home.

CONCLUSION
The broad questions relating to downsizing (why, what, and how) have been studied
in fairly rigorous detail till date. Despite a theoretical understanding of the principles
underlying the process, the negative consequences associated with this exercise on
both organizations and individual employees continue unabated (Labib and
Applebaum, 1993). It is hypothesized that this could be the result of viewing
downsizing as a panacea for organizational problems rather than seeing it as a part
of an overall strategy for organizational renewal. These negative consequences
could be minimized by viewing it as a process of transformation not just through
incremental changes but also by reframing existing mental models, assumptions,
policies, and relationships to enhance the adaptive potential of the organization.
Downsizing is not just an activity. It demands leadership, a vision about handling the
present as well as a vision about handling the future. When you behave like a
responsible family head, care for each member, let go of people without malice and
engage everyone to navigate the difficult times, you have built true character. It is
one thing to design big posters on the company vision and values, an entirely
different game to demonstrate the same and come out triumphs during testing times.
This symposium considers the organizational downsizing phenomenon. Using
theoretical and case studies, we also benefit from a cross-national and cross-sector
focus..

BIBLIOGRAPHY
www.wiki-answers.com
www.jastor.com
www.ehow.com
www.city-data.com
www.institutionbuilders.com