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Why downsizing has its down side

Downsizing causes stress, disloyalty, reduced motivation and insecurity among staff who keep their jobs, according to new research on the "survivors". Staff are often angered that, as they see it, employers have broken their side of an implicit agreement to reward long service and hard work with job security and promotion.

"Although in many cases survivors' performance levels were raised as a consequence of downsizing, the other side of the coin is increased stress, insecurity and lack of trust, together with decreasing motivation," says Kusum Sahdev, who led the research for Cranfield University's School of Management. "Unless organisations manage this motivational paradox in a structured way, long-term benefits of downsizing are unlikely to emerge."

Loss of staff loyalty should be a major concern for corporations. According to responses by human resources managers, 60 per cent of staff felt a reduced sense of personal satisfaction after a programme of downsizing.

Managers who oversee staff reduction programmes suffer from divided loyalties. "Our survey showed that managers are part of the process of implementing downsizing, yet their own positions are threatened, and they receive little help," explains Ms Sahdev. "In this respect they are both executioner and victim."

Survivors have also been encouraged to review their priorities, with the effect of reducing their commitment to their employer. Many are concentrating more time and emotional energy on their family and personal lives, at the expense of their working environment. Some say they no longer volunteer for extra responsibilities.

Cranfield's report is not the first to question the impact of downsizing on efficiency. Earlier surveys in the United States and Britain pointed to financial measures-such as returns on assets, return on equity, sales on total assets, and the ratio of market to book-value equity-indicating that corporate performances actually decline as a result of downsizing.

A Harvard report three years ago invented the phrase "corporate anorexia" for the downsizing phenomenon, saying that "downsizing makes a company thinner-it does not necessarily make it healthier"

Paul Gosling