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The global economic downturn has forced many companies to make deep cuts to their work forces. Numerous retailers like Mervyn’s and Circuit City Stores Inc. closed locations, filed for bankruptcy or shut down altogether. Even companies like Yahoo!, Google, American Express and Motorola have had to cut their work forces.
The dramatic downturn in the economy left many organizations in a quandary. Several years ago, the major issue was winning the so-called war for talent: how to attract and retain the best and brightest. So companies implemented rigorous selection mechanisms, internal promotion ladders, extensive training and development, flexible work scheduling and group incentive schemes, all in hopes of developing a work force that would confer a sustainable competitive advantage. But then the recession turned that thinking upside down. Many organizations have been scrambling to figure out how best to restructure and cut costs without jeopardizing the valuable human capital that they had built.
To help such companies, we have developed a framework that integrates the seemingly paradoxical practices of talent management and downsizing. The framework looks at two important variables: the type of downsizing (reactive versus proactive) and the company’s approach to managing employees (control oriented versus commitment oriented). By first understanding an organization’s position with respect to those two dimensions, managers can devise an optimal strategy for downsizing.
Two Important Dimensions
Of course, downsizing is not a new phenomenon. In fact, over the past two decades it has become a widespread tool for cutting costs and achieving operating efficiencies. Yet past research has shown that downsizing does not guarantee any performance returns.1 Instead, layoffs often result in employees’ broken trust, increased burnout and decreased morale.2 Hence, companies need to understand how to manage the process of work force reduction to attain its benefits while avoiding its ancillary costs.
The Leading Question
When crisis forces down-sizing, is there a best way to do it?
- Downsizing initiatives must align with talent management strategy.
- Is the downsizing reactive or proactive? Is your organization control oriented or commitment oriented?
- Sometimes core and support workers are managed differently.
There are two basic types of downsizing: reactive and proactive.
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