Downsizing and restructuring in the 1990s
Downsizing and restructuring in the 1990s marked a significant period of change in American industry, driven by rapid technological advancement and increased global competition. In this era, companies sought to enhance efficiency and restore their competitive edge by streamlining operations, often leading to significant layoffs and the automation of core functions. This transformation resulted in a shift away from traditional hierarchical structures toward a more decentralized workplace, where job security diminished and benefits were cut. While some viewed these changes as necessary for adapting to a new economic landscape, critics highlighted the negative consequences, including declining employee morale, loyalty, and cooperation, as well as a sense of betrayal among workers facing job losses. Many employees experienced downward mobility, particularly white-collar professionals, while production workers dealt with falling wages and longer hours. Although some economic analyses suggested that downsizing could foster a healthier work environment and lower costs, the psychological impact on remaining employees often led to decreased productivity. This complex landscape illustrates the multifaceted effects of downsizing and restructuring on both businesses and their workforce during a transformative decade.
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Subject Terms
Downsizing and restructuring in the 1990s
Dramatic reductions by companies of existing business models in order to increase efficiency and profitability
Downsizing describes a business decision in which a company undergoes reorganization either by permanently reducing the workforce or by dismissing employees in a short period of time because of a slump in demand. Restructuring refers to reorganization by a company in an attempt to achieve high levels of operating efficiency, which can result in nonessential business functions being consolidated, sold, or closed down.
The last two decades of the twentieth century represented years of economic transformation for American industry. The rapid development of technology brought about new means for product development, design, and distribution techniques. These strategies reflected the growth of a decentralized workplace, characterized by a relaxation of a strict hierarchy that became flattened over a period of time. When the administration of President Ronald Reagan began the movement to deregulate various telecommunication industries, there was an increase in competition from foreign markets. In the 1980’s, employees were usually laid off as a way to cut initial costs, and the companies would rehire them once the economy improved.
By the early 1990’s, however, workers who were laid off began to suffer earnings losses. Job security worsened, benefits were lowered, and skill levels decreased. Companies became increasingly competitive, but many of them lost the ability to compete in the new economy, resulting in losses in market shares and profits. In order to restore their competitive edge in the global marketplace, businesses resorted to lowering costs by reinventing their production processes with the introduction of technology to streamline efficiency and meet consumer needs. In order to provide better levels of service, core functions were changed to involve more automation, thus leading to the elimination of jobs or reduction of the employee pool. Often, the changes included the elimination of obsolete jobs, replacing them with those more compatible with the new operations of the business. In addition, the workplace often shed excess bureaucracy by cutting managerial or professional staff.
Impact
Critics stated that there were several consequences when a company decided to downsize, or as some described, to get “lean and mean.” There was the problem of downward mobility for white-collar professionals after losing their managerial positions. Another impact was that employee morale, loyalty, and cooperation diminished, causing more conflict in the workplace. Also, employees perceived the company’s downsizing strategy as uncoordinated or done in piecemeal fashion. The wage squeeze ensued, and production workers began to suffer from declining hourly earnings. Falling wages meant that many households had to work longer hours.
Politicians and unions pointed to the greed of corporate America and businesses’ insensitivity to workers. Employees often felt a sense of betrayal, that companies failed to provide for their needs. The psychological impact meant that productivity suffered. Other economic analyses contend that downsizing or restructuring is healthy in a work environment, helping the company to take more risks. The benefits include lower costs and increased global competitiveness. When companies made the initial announcement that they were downsizing, stock prices would soar for a short period of time, and it was not unusual for executive management to be compensated with stock options.
Bibliography
Baumol, William J., Alan S. Binder, and Edward N. Wolff. Downsizing in America: Reality, Causes, and Consequences. New York: Russell Sage Foundation, 2003. Three economists study the implications of downsizing on the workplace in the United States. They address issues such as the extent of downsizing and factors triggering changes in firm size.
Caropreso, Frank, ed. Restructuring and Managing Change. New York: Conference Board, 1990. Essays written by various chief executive officers explain the causes and consequences of restructuring.
Carter, Tony. The Aftermath of Reengineering: Downsizing and Corporate Performance. New York: Haworth Press, 1999. Provides advice and techniques for companies that are undergoing the restructuring process. Chapters include topics such as organizing layoffs, dealing with low morale, internal changes, redefining the critical business plans, and identifying market strategies in a global business climate.
Doeringer, Peter B. Turbulence in the American Workplace. New York: Oxford University Press, 1991. Provides an account of how turmoil in the U.S. economy in the 1970’s and 1980’s changed the marketplace.
Smith, Vicki. Crossing the Great Divide: Worker Risk and Opportunity in the New Economy. Ithaca, N.Y.: Cornell University Press, 2001. Smith uses four case studies from the 1990’s to analyze the effects of downsizing on white- and blue-collar workers.