Downsize for fun and pleasure (but not profit)

We lost an irreplaceable graphic artist a few weeks ago. And I mean irreplaceable literally. 

His customer didn't replace the position, which means...Well, we don't know what it means because we don't know how this group is going to pick up the lost artists' slack. 

It got me thinking a bit about handling costs in these tough times while also improving the aspects of business, like customer service or creating new websites. It didn't take for long until downsizing came up. 

Unlike layoffs, downsizing doesn't stem from an overt business need. The company may decide to restructure, hopefully raising the stock price or the dividends. (In our case, the customer probably placed the money straight into research.) But downsizing does not seem to be tied to any short-term business cycle. 

Layoffs, on the other hand, are tied to downturns in the economy, which means they can be viewed as temporary. (Unless, of course, the layoffs stem from a downturn in an industry.)

In a strict sense, layoffs mostly target manufacturing and other blue collar industries. Downsizing, on the other hand,  goes after the white collar worker. Thus, the short-term impact of downsizing can be positive. Stocks could go up. Profits per employee may rise. The research department could see a budget blip.  

The reasons companies give for downsizing can be very different than layoffs, which seek to right a sinking ship. Companies need to control employee costs is a common refrain. But they'd also like to streamline (pdf) -- decision making, communication, product development, etc. The good years brought too much chaff, and the company would like to cut some of it without damaging the wheat. 

This is much harder to do than expected. Countless studies have investigated the consequences of downsizing and found myriad problems. Skills are lost; so is corporate memory. Learning can be stunted or research and development (two things that make a firm productive). I am complaining about one position -- although it's happened several times during the past year. But the airlines are case against going overboard downsizing. This means cutting back flights (that you've already booked) or saving money by hiring fewer ground staff, increasing the problems with lines and lost luggage. 

Airlines are not the only problems. A June 2000 study (pdf) by Peter Cappelli found that most companies who downsize learn to regret it in the future. 

In terms of the effects of downsizing on establishment performance, the analyses here are distinct from prior studies in their focus on establishments and particularly in their ability to distinguish establishments that were in trouble before their job cuts. The results are broadly consistent with the common-sense view that job cuts make more sense when establishments experience excess capacity than when they do not. Even in such situations, however, the benefits of improvements in sales per employee must overcome increases in labor costs per employee. Downsizing, defined as job cuts when operating at or above capacity, appears to hurt sales per employee. In the context of this model, it is clearer why downsizing may hurt performance, because it is difficult to cut without doing damage to organizational capabilities when there is no slack to cut. In most cases, labor costs per employee move in the opposite direction from changes in sales per employee: When job cuts make sales per employee rise, so do labor costs per employee, and when the former fall, so do the latter. This relationship may mitigate some of the gains from cutting employees as well as the losses and lead to an overall moderating effect in relations with performance outcomes.