Corporate HR fads
Alert reader and fellow Don Marquis fan, Dum Luks sent me this op-ed piece from the English edition of the Japanese paperAsahi Shimbun:
`There is no clear evidence that downsizing actually does any good, at least not in the United States.'
In recent years, Japan's kinder and gentler managers borrowed a critical lesson from their more ruthless American counterparts: They learned to downsize. They got serious about trimming their work forces, that in turn boosted profits, and that finally brought the fragile recovery Japan is now experiencing.
It's a nice story, but there is a big problem with it: There is no clear evidence that downsizing actually does any good, at least not in the United States. What? How could that be? Everyone knows that downsizing reduces costs, and cutting costs raises profits. But that is precisely the point.
Everyone is so convinced that downsizing enhances corporate performance that no one bothers to check the evidence, ...
I have been doing some research on the topic recently, and I discovered to my astonishment that the evidence from the United States suggests that downsizing has not improved corporate performance-whether defined in terms of profits, productivity, or stock price-and many studies indicate that it impairs performance.
After all, downsizing may save a company on labor costs, but it also entails substantial costs: The immediate cost of paying off downsized workers, for example, plus the longer-term cost of losing valuable personnel and undermining employee morale.
In one of the most authoritative studies, prominent economists William Baumol, Alan Blinder and Edward Wolff [in the book Downsizing in America] find that downsizing does not improve productivity, lowers stock performance and raises profits-but only by depressing wages. Other studies contend that downsizing does not even increase profits, and one study suggests that layoffs actually decrease profits in subsequent periods.
So if downsizing doesn't help, then why have so many American companies rushed to do it? Several scholars have taken up this puzzle, and they conclude that American managers are so beholden to the myth that downsizing is effective that they do not even bother to check whether it happens to be true. They also contend that managers view downsizing as a social norm, so they do it to preserve or enhance their firm's reputation.
