Downsizing Wave Has Reached a Point of Diminishing Returns

OK, so Digital Equipment Corp. just announced plans to ax 7,000 jobs. And, sure, Nabisco Holdings Corp. said in late June that it will shed 4,200 positions.

But the end of downsizing is at hand. Or at least it should be.

So says UCLA management professor David Lewin, who notes that the undeniable upswing in demand for products and services means that companies will have to start courting new employees again.

Among big employers actively signing on workers "at pretty stiff paces," he said, are IBM Corp., General Motors Corp. and Hughes Electronics Corp., based in El Segundo. In some industries--notably aerospace, construction, retailing and health care--companies are vying for an insufficient pool of qualified labor.

"I think we are going to see a very substantial amount of increased hiring," Lewin said.

Traumatic and ugly as the trend has been, downsizing at least served a few purposes: reducing labor costs, raising profit margins and making companies more competitive. With some key exceptions, Digital among them, most firms by now have succeeded in getting themselves on track. But even profitable corporations continue to play the downsizing card. To them, Lewin says: Enough already.

Here's why. As thousands of workers have been sacrificed to the cost-cutting gods--helping to line the pockets of countless shareholders--those who remain have been forced to work harder. In other words, workers went away but not the work.

Research has shown that companies often did not even reap the financial benefits that managers anticipated from mass layoffs and that the survivors, meanwhile, suffered long-term ill effects.

Granted, companies became lean and nimble, but excessive chopping in many cases led to the corporate equivalent of anorexia. In peak periods, companies have been forced to out-source work, often, ironically, for a premium to their own laid-off employees--you know, the ones with the training and expertise to do the job. Downsizing, meet "dumbsizing."

Government data don't begin to capture this expansion of work, Lewin notes, but ample anecdotal evidence suggests that we're working longer hours at the office, in our homes and even in our cars.

After a few years of this torrid pace, workers have just about hit their limit.

"Are we reaching the point where we're maxing out on our employees?" Lewin said. "I think we are."

A not-so-subtle shift in media coverage reflects the changing mind-set. After presidential candidate Patrick J. Buchanan lambasted AT&T; for slashing 40,000 jobs--and turned downsizing into a powerful political theme--corporate news releases suddenly took on a new tone. In their merger announcement, California's Pacific Telesis Group, the parent of Pacific Bell, and Texas' SBC Communications trumpeted the potential for actual job growth.

And on the cover of June's Personnel Journal, a trade magazine for human resources professionals: "Save Jobs . . . Strategies to Stop the Layoffs."

Spotlighted in that report were several companies that have averted layoffs by managing their work forces creatively.

When the 1994 baseball strike threatened to bench Pinnacle Brands Inc., a Dallas trading-card company, executives urged staffers to save their jobs by devising money-saving or moneymaking ideas. The first suggestion came from a custodian, who urged elimination of a $50,000-a-year expense--sodas and bottled waters in conference rooms and executive offices. A public relations manager arranged for Pinnacle to distribute pins for the 1996 Olympics--bringing in nearly $20 million in sales.

Chevron Corp., the San Francisco-based oil giant, encourages job-hopping among its units to balance staffing. It trains workers to bring them up to speed in new skills.

Harman International Industries Inc. in Northridge, a maker of audio and video products, pushes employees to grow through education and job training. Harman also operates an in-house job bank for shifting workers to new projects should their jobs become "surplus."

Two companies were praised for developing a worker swap that helped both even out seasonal production vagaries. Another company temporarily cut every worker's pay and trimmed work schedules to save jobs.

Such innovations have, of course, been the exception. Moreover, layoffs are likely to remain a fact of corporate life for years to come. The best that workers can hope for is a rational, compassionate approach.

But Lewin sees hope in a method of employee compensation that is catching on: the granting of stock options to all workers, not just executives. Widespread options, he said, hold promise for companies trying to keep a lid on costs.

"It gives the employees self-interest in the firm's being more careful about how many people are added," he said.

Has your company used an innovative approach to firing or hiring? Tell us about it. Write to Martha Groves, Corporate Currents, Los Angeles Times, 130 S. Broadway, Los Angeles, CA 90012. Or send e-mail to

Copyright © 2019, Los Angeles Times
EDITION: California | U.S. & World