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Article Excerpt
Introduction
Organizational decimation, or downsizing, has been a pervasive managerial practice for the past three decades. If a firm finds itself in financial difficulties, the widely accepted corporate panacea has been to cut personnel. While strong empirical evidence suggests that reduction-in-force (RIF) activities rarely return the anticipated economic and organizational gains (Cascio, Young, and Morris, 1997), there is increased understanding and awareness that downsized companies are forced to deal with the human and societal after-effects, also known as secondary effects, in a post-downsizing phase (Gandolfi, 2007). Research shows that the human consequences of layoffs are costly and devastating for individuals, their families, and entire communities (Macky, 2004). While workforce reductions cannot always be completely avoided, downsizing-related layoffs must be a managerial tool of absolute last rather than first resort (Gandolfi, 2006).
During an economic downturn, a company must carefully consider its options and assess the feasibility and applicability of cost-reduction alternatives prior to adopting RIF-related layoffs. While a large body of research presenting and discussing the alternatives to downsizing has emerged (Littler, 1998; Mirabal and DeYoung, 2005), there is still a lack of conceptual understanding of downsizing-related layoffs as part of an organization's cost-reduction stages (Gandolfi, 2008). It is vital for a firm to factor in the concept of cost-reduction and recognize the specific cost-reduction stage that characterizes the firms' current business position and environment. Ideally, a company should be in a position to determine the expected duration and severity of the business downturn as accurately as possible. To perform that task successfully, the executives need to know the cost-cutting phase that the firm is currently in (Vernon, 2003). A firm's cost-reduction stage refers to the timeframe the organization requires to be able to reduce operational expenditures (George, 2004). In reality, however, accurately forecasting a business downturn can be extremely difficult. Thus, firms have a natural tendency to react to rather than anticipate economic declines (Gandolfi, 2006).
The primary objective of this paper is to present a methodology enabling firms to minimize, defer, or avoid the adoption of RIF, layoffs, and downsizing-related activities. The research introduces and showcases a conceptual framework presenting the cost-reduction stages of a firm coupled with a brief introduction of contemporary human resources (HR) practices that some firms have adopted. Fundamentally, the paper builds upon Vernon's (2003), George's (2004), and Gandolfi's (2008) work of three cost-reduction stages: short-range, mid-range, and long-range phases. Technically speaking, the article constitutes a review and extension of previously published work. The underlying conceptual framework of the cost-reduction stages is depicted in Figure 1.
Cost-reduction Stages
The conceptual framework shown in Figure 1 encompasses three timeframe-related phases commanding several internal cost adjustments that have produced a variety of stage-related HR practices. It is important to note that the HR practices are cumulative. In other words, the practices in each stage are not unique to the actual phase, but applicable in subsequent phases in a cumulative fashion.
First stage: Short-range cost adjustments
The first stage of the cost-reduction framework represents short-range cost adjustments in response to a short, temporary decline in business activities (Vernon, 2003). These business slowdowns are expected to last less than six months (Gandolfi, 2008). Most likely, the firm resorts to minor, moderate cost-reduction measures in this stage. These preliminary adjustments should enable the firm to shun RIF-related layoffs and involuntary cutbacks and return to normal business activity within four to six months (Gandolfi,...
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