One set of thorny issues with the process concerns the impact of downsizing on the local community. Downsizing, especially focused layoffs by large corporations (leading, for example, to the closure of an entire facility), can have devastating impacts on a local community. As extreme examples, there are cases of rural communities that simply disappear after a local mine or sawmill closes.
Obviously, these considerations must be weighed in management decisions about where and how to cut. And this is more than a question of ethical behavior. A company that devastates a community can “get away with it” in terms of that community’s ability to fight back. But the company can substantially damage its reputation, particularly to the extent that the company has explicitly emphasized positive community relations as a matter of corporate policy. If it is necessary to reduce the size, what can be done? Simply put, a business that is downsizing in a way that will materially harm a local community should consider doing whatever it can to help that community, just as it considers what it should do to help its downsized former employees. Facilities can be redistributed. Workers at a facility may wish to “buy” the facility and manage it themselves. It may be possible to help attract a replacement employer. Recycling can be subsidized. These costly attempts to mitigate the impact of a downsizing decision are more than conscience money for a company, and more than a way for the corporation’s top management to get a better night’s sleep, though they certainly are. Corporations have reputations as employers and corporate citizens, and while it’s difficult to put “community goodwill” on your balance sheet, it is an asset that pays returns and requires investment to maintain.
Layoffs are among the most important and anxiety-producing things a manager has to deal with. They have profound implications not only for the employees involved, the manager, and the organizational unit involved, but also for the broader community within which the company is located. The jury is still out on the long-term economic and social consequences of downsizing, used by companies to cut costs, increase productivity and improve flexibility in a competitive global economy. Unfortunately, there is a dearth of solid research evidence to guide managers in making decisions about whether and how to downsize. This paucity does not reflect a lack of effort and interest, we hasten to add, but the inherent difficulties in finding good controlled data.
Downsizing seems to work best as part of a well-thought-out plan to restructure, redesign, reposition, and generally rethink what the organization does and why. To engage in downsizing is to admit past mismanagement or acknowledge that something in the environment, the organization’s strategy, its technology, has changed. Management needs to be clear in their own minds, and probably with employees as well, what they are on. And it must be clear what permanent structural changes are going to be made to avoid past problems or cope with new circumstances.
A structural change that often accompanies downsizing is outsourcing. The company decides that there are certain tasks, which in the past have been performed primarily by its regular employees, that outsiders would do better, faster, or more cheaply. Those who used to do the work are reduced. This combination of downsizing and outsourcing is sometimes done in completely inefficient ways: work previously done by interns is outsourced to more expensive independent contractors, who turn out to be the same workers who were just laid off, now rehired as consultants, which could raise eyebrows not only within the organization but also outside (including tax and regulatory authorities). But outsourcing can have real financial benefits and can play a constructive, if somewhat dangerous, role in a downsizing campaign.