Business and organizations have experienced tremendous change and upheaval in the last hundred years or so. Academics have identified at least three major changes and upheaval that have currently shaped the modern day business climate.
The Essentials of Downsizing
First, there was the agricultural economy. When man started settling down instead of hunting, he started domesticating animals and establishing farms. Wealth and success then, depended on who had vast tracks of land converted into farms and depended on who had the most number of domesticated animals.
Second, there was the industrial economy. When populations increased, so did the demand not only for food but also for many of life’s essentials; clothing, houses, utensils and so on. Individual craftsmen and workers can no longer supply the vast need the population created, so factories sprung up and so we had what was termed as the mass economy. Wealth and success depended on who had the most employees and the biggest factories.
Third, we have the information economy. The quantum leap in the gathering, processing and sharing of information made the first and second economies practically obsolete in the area of wealth and success assessment. The wealthy and successful are no longer the vast landholders or the owners of gigantic factories; but the wealthy and successful are those who have used information to their advantage.
Most business and organizations today are on the threshold. They are part industrial and part information. And to compete in a very challenging business environ, business and organizations have to find ways and means to stay competitive. To stay competitive business and organization have to downsize and it is a necessity not a choice.
In the strict sense, downsizing has to do with elimination of staff positions, making the business or organization smaller by elimination. But elimination in itself is not the ultimate reason for downsizing. Downsizing is both eliminating and adding by outsourcing. One eliminates this position but one also out sources the same position in a different setting; that is the way to stay competitive but maintaining the business or organization by means of a modern day formula of economy of scale.
The business or company that has an excellent strategic plan will have to integrate downsizing into its strategy. It is an absolute necessity. Contrary to the belief that downsizing produces unemployment, downsizing will still produce employment but no longer in the conventional way we understand employment. Downsizing produces outsourcing and outsourcing will still produce employment in a different kind of setting.
The Benefits of Downsizing
Downsizing is a necessity but the question is: What are the benefits of downsizing? How can it have benefits when you have made your business or organization smaller by firing your employees? The benefits can be understood well as we probe into how downsizing and its counterpart outsourcing affect how we work and how we do business.
Business and organizations are held together by cost behavior. If your cost of operations is bigger than what your revenue figures are, then your business or organization may just collapse. The cost of operations have risen many times over: oil prices have risen and with it many items in the cost of operations, employees demand salary increases, governments demand more taxes, the list can go on. Then there is the constant demand of speed and quality of goods and services in the ever-animated market arena. In order to survive, business and organizations have nowhere to go but downsize.
The benefits of downsizing are numerous. Downsizing actually makes business and organizations speedier. Decision-making becomes faster and there is less time spent on meetings and consensus. The time from manufacturing to actual delivery that may take many days or weeks can be accomplished in just a day or two, thanks to the outsourcing partner that was created due to the downsizing. Downsizing also makes business and organizations more innovative. In a frantic marketplace downsizing allows management time for innovation and time to have intimate commerce with its customers and clients. The outsource partner does the job of efficiency, quality and timely delivery.
Speed and innovation are not the only benefits of downsizing. Downsizing allows business and organization more flexibility. It can respond quickly whenever a gap in the market is identified and it can shorten a product life cycle when trends do not continue as expected by management.
Downsizing most of all, allows business and organization to strengthen its core strength and competencies. When the outsource partner does most of the task, management can then review, reinforce and reevaluate its strengths and weaknesses. One cannot see a chink in the armor if one is too busy chasing after deadlines and delivery dates. And in the modern business arena, a lack or surplus of your core strength and competence may well spell disaster or success.
The Short Term Effects of Downsizing
The short-term effect of downsizing is something that is immediately experienced by business and organization. There may be fewer people now, a smaller office or factory; less cars in the parking area, there might even be a sudden peace and quiet. These are the short-term external effects.
However, underneath the sudden change of the business or organizational environment comes a different kind of outcome. People in the organization now have more time for what many call the thinking process. Management can now see things in a clearer and different perspective due to the fact that many tasks have been given over to the outsource partner.
Management can also notice a sudden change in cost behavior. If calculations are accurate, the business or organization will now be experiencing a lowering of its operating costs and an increase in the bottom line as well as an increase in its cash flow. Other factors might be a sudden change in values and percentages; the sales per employee might suddenly increase and the cost per employee might suddenly decrease.
But corollary to all of these, there will also be a sudden change in priorities. Since the counterpart of downsizing is outsourcing, the outsource partner now become a priority in lieu of the employees who have been terminated due to the downsizing. There will now be monitoring of the outsource partner in all aspects: product quality, timely delivery schedules, delivery channels and a host of things.
These things have to be taken into account in the strategic plan. Although it does not affect the core strategic plan of: what to become in the future, the different set-up and relationship with the outsource partner does affect how the business or organization moves well into the future.
The Long Term Effects of Downsizing
The long-term effects of downsizing are things that business and organization must never ignore. A thorough understanding of the long-term effects of downsizing can help management steer the business and organization through the maze of our ever-changing business environment.
Since downsizing results in outsourcing, the long-term effect of downsizing has more to do with the outsource aspect than with the company organizational aspect. Some probable long-term effects of downsizing, which might become pitfalls, are the following:
The outsource partner will know your secrets in the long term and may have you by the throat.
This is a legitimate long-term effect of downsizing. So part of the strategic plan is to prepare way ahead before this unfortunate event will happen. Business and organizations should include as part of the strategic plan, an advance search of more and better outsource partner on a continuous basis.
The outsource partner will learn your business and expand and be your direct competitor.
While this may be possible, part of the strategic plan should be stringent outsource partner selection, real investment in the partnership, clear plans and goals with the outsource partner.
The outsource partner may not become loyal in the long haul and breaks off to outsource for your competitor.
This is another possibility, but again part of the strategic plan is to enhance the outsource partners profit and loss orientation. Business and organizations must prove to the outsource partner that they have more to lose than gain if they break off and run after your competitor.
Strategic planning does work in face of downsizing but one has to beware. The world of business is affected by relationships. If a business or organization has good relations with its outsource partner both operationally and financially, chances are they will be in for the long haul and be together moving to the future.