Downsizing Doesn’t Necessarily Pay Off

Downsizing Doesn’t Necessarily Pay Off

Laying off employees alone will not fix a business that’s in financial trouble. That’s the conclusion of a series of studies of large corporations over nearly two decades, published in Perspectives on Work, a publication of the Industrial Relations Research Association.

Studies concluded that mass layoffs have not helped employers achieve financial results that are measurably better than results of employers that have retained valuable employees. The report’s author was Wayne F. Cascio, professor of management and international business in the Graduate School of Business, University of Colorado, Denver.

Cascio made these key points in his report: Cascio reported that “we found no significant, consistent evidence that employment downsizing led to improved financial performance as measured by return on assets or by industry-adjusted return on assets”. He concluded, “…we found that it was just not possible for firms to ‘save’ or ‘shrink’ their way to prosperity. It was only by growing their businesses… that firms outperformed Stable Employers as well as others in their own industries.”

    • The vast majority of executives see employees as costs to be cut. However, downsizing the workforce is not a corporate cure-all. Downsizing can often weaken an organization.
    • Most employers focus on “What’s the minimum number of people we need to run this place?” But there is another approach — taken by “responsible restructurers” — that focuses on “How can we take the people we already have, and use them more effectively?”
    • Downsizers see their employees as costs to be cut, as commodities no different from paper clips or light bulbs.
    • Responsible restructurers see employees as sources of innovation and renewal, as “the potential to grow their businesses.”
    • Downsizing isn’t always wrong. “The key is to use layoffs as part of a broader business plan to penetrate new markets, attract new customers, and generate new revenue streams.”


No-Layoff Policy Pays

Fortune’s“100 Best Companies to Work For” lists show that stock portfolios of firms on the “Best 100” list outperform the market benchmarks by between 185 and 343 percent over a three-year period. The majority of firms on the list strive to provide employment security. In one year, for example, 80 of the 100 employers on the list avoided layoffs and 47 of them had official policies against layoffs.

Source: Wayne F. Cascio in Perspectives at Work

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