Social Effects Of Downsizing Human Resources

A set of thorny process issues concerns the impact of downsizing on the local community. Downsizing, especially focused layoffs by large corporations (that lead, say, to the closure of an entire facility), can have devastating impacts on a local community. As extreme examples, there are cases of rural community’s simply disappearing after a local lumber mill or mine is closed.

These considerations obviously have to be weighed in management’s decisions about where and how to cut. And this is more than a matter of ethical behavior. A firm that devastates one community may “get away with it” in terms of that community’s ability to strike back. But the firm can substantially harm its reputation, particularly insofar as the firm has explicitly emphasized positive community relations as a matter of corporate policy. If downsizing is necessary, what can be done? Roughly put, a firm that is downsizing in a way that will materially harm a local community should give due consideration to doing what it can to help that community, just as it considers what it should do to help its downsized ex-employees. Facilities may be redeployed. Workers at a facility may wish to “buyout” the facility and run it themselves. It may be possible to help attract a replacement employer. Re-training can be subsidized. Such costly attempts to attenuate the impact of a downsizing decision are more than just conscience money for a firm, and more than just a way for top management of the corporation to be able to sleep better at night, although they are certainly that. Corporations carry reputations as employers and as corporate citizens, and while it is hard to put “community goodwill” on your balance sheet, it is an asset that pays returns and that requires investment to maintain.

Layoffs are among the most important and anxiety-producing things that a manager must confront. They have profound implications not only for the employees involved, the manager, and the organizational unit implicated, but also for the broader community within which the enterprise is located. The jury is still out on the long-term economic and social consequences of downsizing, used by firms to lower costs, increase productivity, and enhance flexibility in the competitive world economy. Unfortunately, there is a shortage of solid research evidence to guide managers in making decisions about whether and how to downsize. This shortage doesn’t reflect lack of effort and interest, we hasten to add, but instead the inherent difficulties in finding good controlled data.

Downsizing seems to work best as part of a well-thought-out plan for restructuring, re-engineering, repositioning, and generally rethinking what the organization does and why. To engage in downsizing is either an admission of previous mismanagement or an acknowledgment that something-in the environment, the organization’s strategy, its technology-has changed. Management should be clear in its own mind, and probably also with employees, on which it is. And it should be clear about what permanent, structural changes are going to be made to avoid previous problems or meet new circumstances.

One structural change that often accompanies downsizing is outsourcing. The firm decides that there are certain tasks, which in the past have been done primarily by its regular employees, that would be done better, faster, or more cheaply by outsiders. Those who used to do the work are downsized. This coupling of downsizing and outsourcing is sometimes done in a completely ineffective fashion: Work previously done by insiders is outsourced to more expensive independent contractors, who happen to be the very same workers who were just laid off, now hired back as consultants, potentially raising eyebrows not only inside the organization but outside as well (including tax and regulatory authorities). But outsourcing can have real economic benefits, and it can play a constructive, if somewhat dangerous, role in a downsizing campaign.