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What's Wrong With Downsizing,
Privatization, and Outsourcing?

Nine little workers
Tired of working late
One got a better job,,
Now there are eight.
tippytoe.gif (1492 bytes)
It makes sense to "trim the fat", "get more bang for the buck", and "concentrate on core competencies", doesn't it? Why, then, are there so many books and articles saying that downsizing, privatization and outsourcing are bad things? I think the reason is because they are often poorly managed, done for the wrong reason, and with no thought for the human cost.

[Why is it done?][What are the human costs?][Other Considerations]

Why Downsize, Privatize, and Outsource?

  • Since salaries and benefits are two major operating expenses, a business that lays off people and/or contracts their jobs out to a supplier of cheap labor will have more ready money available.
  • If competition is doing it, there will be pressure to compete. Often there are "downsizing stampedes" in an industry.
  • It looks good on stockholders' reports. Often share prices will rise after a major downsizing, because the company is perceived as "doing something."
  • Politically, it looks good. Taxpayers love to hear politicians say "We're trimming the fat." and assume the politicians know what they are doing.

What Are The Human Costs?

  • Downsized employees usually do not get new jobs at their old salaries, in fact, the older an employee is the longer he may have to wait to get any job at all. Companies who have downsized usually end up replacing people in those positions, but at lower salaries -- in other words, they have replaced older, more experienced employees with younger employees who do are willing to work for less. The companies and the CEOs profit, while the gap between rich and poor in America widens.
  • Those who have been downsized may never recover emotionally or financially. Studies have also shown  that employees who are retained also suffer: they have more health and emotional problems, and many of them lose motivation and loyalty. Workers who saw the organization as a family feel lost without their familiar networks. There was more fraud among workers who survived downsizing, and increased distrust of management.
  • Those employees who have been left behind usually end up working longer hours. For a while they may work harder because they are scared of being laid off, but sooner or later they may wish they had been. Some may even try to sabotage the company.

Some Other Considerations

  • Large companies often hire outside consultants to assist them. Do you think these consultants are going to tell the businesses that they just need to work on their management skills? They are more likely to look for a problem, and then tell you how to solve it. If they are particularly good in one area, they may ignore another. ("If the only tool a man has is a hammer, everything he sees looks like a nail.") "Put the blame on the consultant " is a popular management game.
  • What happens when a corporation or government agency outsources a vital part of its operations and the vendor fails to perform? What is the "low bid" suddenly gets changed? With the people who used to do the job gone, the only option is to pay more money or look for another contractor.
  • If your vendor has more assets than you do, what is going to keep him from trying to influence the way you do things? How do you keep him accountable?
  • How can you contract something out and still save money? Where will the vendor be cutting costs? Most likely, in salaries.
  • How much will it cost to oversee the outsourced work?
  • If your organization deals with records that are confidential, how much can you trust the contractor? How secure is the information. If you are a government agency, and these are public records, will letting a private company handle them mean that this information will be available to other businesses through the vendor?
  • Involuntary downsizing is usually accompanied by some of the best and brightest employees jumping ship, even if their job is not in danger. One of these young men told me "There is no future here anymore - they are bringing in people from outside to fill the jobs that used to be open to promotion, and they are hiring expensive consultants to tell them what to do." Other people may stay only because they have almost reached retirement, while others choose early retirement.
  • Downsizing works on the principle that there is deadwood in the organization and downsizing will get rid of it. Ha! In the first place, if your management had any smarts at all, they should have figured out who wasn't pulling their oar a long time ago. Secondly, the reason the deadwood was there in the first place was because the deadwood possessed survival features like affability, relations with management, or good hair. Those who decide who is going to be downsized probably know very little about what anyone does. Does your boss's boss know what you do?
  • Downsized companies won't immediately miss researchers, developers, or planners, but will need them in the long run.
  • What Can You Do?WB01339_.gif (896 bytes)
  • .Revised 09/12/99
    for CIS 212
    .Cuyamaca College

    General Information:
    [What's Wrong With Downsizing, and Privatization?]
    [What Can You Do To Protect Your Job?]
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