Downsizing is the planned elimination of large numbers of personnell with goal engancing the organizations competiveness. The primary reason organizations engage in downsizing is to promote future competiveness. Downsizing is met by 4 objectives:
1) Reducing costs-labor is a large part of a company's total costs, so downsizing helps
2) Replacing labor with technology-often the labor savings outweigh the cost of new technology
3) Mergers and acquisitions
4) Moving to more economical locations
There are definate negative effects of downsizing. Negative effects of downsizing was high among firms that engaged in high-involvment work practices like the use of teams and performance related pay incentives as a result, the more a company tries to compete through its HR, the more layoffs hurt productivity. Downsizing leads to a loss of talent, also many companies end of rehiring anyways. Downsizing often eliminates people who turn out to be irreplacable. In a survey 80% of firms that had downsizing later replaced some of the very people they had laid off. Motivation also drops because any hope of future promotions or any future with the company dies and many employees start looking for other employment opporunities.