Does Downsizing Result in Sustained Improvements

Downsizing in itself will not necessarily produce efficiency, improve business processes, or automatically lead to increased customer satisfaction. The result is demoralization of the work force, loss of skilled and experienced workers, disruption of production schedules, and a increased probability of unionization or strikes. Rather than resort to massive layoffs when profits fall, more organizations should first identify the factors causing problems. The capitalist economic system existing in the U.S. relies upon the institutions of private property, the profit motive, competitive markets, free consumer choice, and minimal role of government. Thus, the organizations in the capitalist system have freedom to determine price, production, and distribution of goods. The primary reason for the existence of a business organization is the "profit motive". In the initial stages of industrialization, owners managed and controlled the organizations, but now the ownership and management of organizations is separated. However, since the beginning, organizations have been formed and managed to make money, with owners exerting pressure for profits. While profits continue as a motivating force, today's organizations are dynamic systems that constantly interact with the environment. Almost all organizations face different political, social, economic, regulatory, and technological constraints. In recent years organizations have been viewed as a nexus of different interest groups comprised of owners, managers, employees, and creditors. Each participant tries to maximize its own utility. Managers try to maximize their compensation, owners try to maximize their return on investment, and employees try to gain more wages and benefits. Organizations must try to satisfy these wants within the framework of survival and the continued prosperity of the organization. Because of these different factors, today's organizations cannot be guided by a single goal. However, the economic rationale for existence of organizations cannot be ignored. Shareholders continue to demand that their interest be the organization's primary responsibility. If a company fails to sustain profits, a common traditional response is to downsize the company in an effort to become "leaner and meaner," rather than make fundamental changes in its business practices. The downsizing tactic involves reducing costs by dismissing many workers. Ethics of Downsizing In the downsizing process, companies often replace life-long, dedicated workers by automated manufacturing and other operating systems. It is debatable whether it is ethical to fire a person who has been a productive employee for fifteen or twenty years. There is also a question whether ethics is even an issue in this decision. There is support for arguing that in order for a company to survive, it must be profitable. Further it has an obligation to protect employee jobs and to achieve this, downsizing may be necessary. Difference in Compensation It is also debatable to ask if ethics are involved when comparing the compensation of top managers with basic employees on lower management levels. For example, is it ethical to pay the president a $3 million salary while nonexempt employees earn minimum wages? This difference in compensation between upper-level management and lower-level employees results in an attitude of superiority. This superiority attitude creates a mindset which allows executives to easily justify downsizing. An effect of this attitude is the assumption that employees are not very bright and are hired only to do manual labor, not to think about improving their organization's performance. However, in a capitalistic economy, large differences in compensation occur. This is seen as a reward for hard work to climb the corporate ladder. Also top managers have more responsibility for the company's success. In China several years ago, the policy was that top managers should not be paid more than three times the lowest-paid employees. …