Downsizing

Downsizing, layoffs, and rightsizing are forms of organizational restructuring. Organizational restructuring refers to planned changes in organizational structure that affect the use of people. Organizational restructuring often results in workforce reductions that may be accomplished through mechanisms such as attrition, early retirements, voluntary severance agreements, or layoffs. The term layoffs is used sometimes as if it were synonymous with downsizing, but downsizing is a broad term that can include any number of combinations of reductions in a firm's use of assets—financial (stock or cash), physical (plants and other infrastructure), human, or informational (databases). Layoffs are the same as employment downsizing.

Employment downsizing, in turn, is not the same thing as organizational decline. Downsizing is an intentional, proactive management strategy, whereas decline is an environmental or organizational phenomenon that occurs involuntarily and results in erosion of an organization's resource base. As an example, the advent of digital photography, disposable cameras, and other imaging products signaled a steep decline in the demand for the kind of instant photographic cameras and films that Polaroid had pioneered in the 1940s. On October 12, 2001, Polaroid was forced to declare bankruptcy.

Organizational rightsizing refers to the broad process of aligning a company's staffing levels to the needs of the business, whether it is expanding or contracting. At W. L. Gore and Associates, a contributions-based model is used to ensure that the organization is the right size for its business conditions. Gore employees (called associates) work in teams. Team members rank each other using a peer-to-peer contribution-ranking system. The system is based on associates knowing what their coworkers are working on (their commitments), how important this work is to the success of the business (impact of commitments), and what results are being achieved (effectiveness at completing commitments).

Associates who are ranked higher than their counterparts are perceived to be contributing more to the [Page 164]company's success than those ranked lower. All associates are ranked by their teammates and leaders at least once a year, and the resulting lists place everyone in rank order based on contribution from highest to lowest. The ultimate goal is to develop a contribution-based, rank-order list that is accurate and fair to all parties.

The primary purpose of the contributions-based model is to set pay levels each year. However, it also is used for staffing purposes on an ongoing basis to rightsize the organization. Gore believes that the overall health of the organization will be maintained and improved as associates with high contribution potential are added and those with unacceptably low contribution potential are removed. The process may accelerate in times of major business growth or decline.

The term resizing is closely related to the term rightsizing. Resizing is the repositioning of an organization's employee ranks to achieve a company's strategic objectives. It does not necessarily suggest massive job cuts. It is primarily strategic in nature, and it is part of an ongoing organizational transformation (as opposed to a one-time-only event). Resizing contributes to executives' intentions to cut costs, focus resources, and implement strategic shifts to capitalize on the ever-changing global marketplace. It typically involves layoffs, divestitures of underperforming assets, and closings of certain operations. Examples include the elimination of jobs at CNN following its merger with AOL Time Warner, United Airlines' closing of money-losing stations, and Vivendi's divestiture of a liquor business that was outside its area of managerial expertise.

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