Downsizing 2022 style.

 You can find it here: Boston Business Journal: Downsizing.2022 style</p>

In case you are blocked by the firewall, here is what I wrote:

It is never a good time to get laid-off, the shock of being fired is traumatic. It is probably not assuaged by knowing that 10,000 others are being laid off at the same time, though it may be comforting to know that you are being forced into a labor market with a 3.5% unemployment rate as opposed to the 6%  rate of the early 1990's when downsizing became the managerial fad of the day. For those laid off by firms in the high technology industries (Amazon, Facebook (META), Microsoft.  It is also good to know that there is great demand for high technology workers in low technology firms as they adjust to the new realities of an on-line economy

In the 1990's when the first waves of downsizing occurred, it was clear that not many firms enjoyed the long term cost reductions that motivated lay-off in the first place – one estimate (Wyatt Company, now Watson-Wyatt) suggested that about 25% of downsizing forms benefitted. This because firms went about it by across the board cuts which are less effective than targeted cuts and by failing to consult employees which led to a failure to understand where the flab in the company ended and where bone and muscle began.

With such a low success rate, firms should consider alternatives before choosing layoffs: reduce or eliminate bonuses; in these post-pandemic days, reduce facilities costs by moving to at home work; and temporarily cut hours and cut wages and allow permanent downsizing to occur over time through attrition. This is much less disruptive to the firm which might otherwise suffer loss of important tacit knowledge, as seemed to happen in the disastrous, chaotic Twitter reorganization after the Musk takeover.

In undertaking downsizing, I think some firms may have learned the lessons proposed by organizational scholars, Wayne Cascio and Kim Cameron, for successful downsizing that they discovered after the downsizing events of the 1990's.  There were two major findings:

$                                  Downsizing should be undertaken in the service of a strategic shift; units compatible with the new strategy should be reinforced, units lacking such compatibility should be downsized.

$                                  Top management should share the pain by taking significant salary reductions for the year(s) layoffs were occurring. 

When we look at the downsizing decisions of the major technology companies, we find that the first lesson has been incorporated – at least in what the CEO’s say to their employees and the public.

At Microsoft, CEO, Satya Nadlia, announced the layoff of 10,000 employees (about 5% of the workforce). She explicitly said “we will continue to invest in strategic areas for the future, meaning we are allocating both our capital and talent to areas of secular growth and long term competitiveness for the company while divesting in other areas.” She did not explain which areas would grow and which would shrink.

At Facebook, CEO, Mark Zuckerberg, announced a layoff of 13% of the employees (about 11,000 employees). Again he is explicit: “We’ve shifted more of our resources onto a smaller number of high priority growth areas - like our AI discovery engine, our ads and business platforms, and our long term for the metaverse.”                                                                    

At Amazon, CEO, Andy Jassy, announced a layoff of 18,000 people (about 1% of the workforce). . He was much less explicit about a new strategic direction, but he did say where the cuts would be focused: initially in the Devices and Books businesses (with a voluntary buyout program in Human Resources; voluntary buyout programs are the worst way of downsizing; the most effective employees are those most likely to take the buyout) followed by a second required round in Stores and Human Resources (PTX).

None of these downsizing companies announced that members of the top management team would share the pain by taking salary reductions.

Goldman-Sachs seems to have partially learned both lessons. Although it did not announce areas which it would reinforce, it did target its cuts in the investment management and global markets divisions.  The CEO, David Solomon ,shared the pain by taking a pay cut from about $37 million to $25 million. In addition, they minimized the number of layoffs by cutting bonuses to junior employees from $95,000 to about $12,500.

So 30 years on from the coining of the term downsizing, some firms have learned from the efforts of management researchers. They have improved how they carry out downsizing, but they have not learned the bigger lesson: it is better not to downsize at all.