Handling Downsizings Right

Operational Excellence & Lean Six Sigma Abbott Laboratories downsized 700 manufacturing jobs in Lake County, Ill., to save $200 million a year. Purdue Pharma halved its staff last year, in response to decreased sales. Cardinal Health has closed its parenteral plant in Puerto Rico, as part of a $300-$350 million restructuring plan. Pfizer has reduced its overall number of manufacturing plants from 93 to 73, and plans additional cuts this year. Merck has made a number of job cuts, nearly half of them in manufacturing. Companies cut jobs to fix short-term cash-flow issues and reorganize long-term financial priorities. This was the case at our St. Louis site, where the decision was driven by decreased sales and the need to conserve cash. But research is conflicted as to whether the short-term benefits of paring down or shutting down really pay in the long term, or whether they are outweighed by damage to morale and productivity. This article will take a look at both sides of the issue, providing some basic data for people in any plant threatened with downsizing. Statistics show that companies do have financial justifications for downsizing. In one study, 75% of downsized organizations reported increased profitability, and 37%, increased share value, within two years of their cuts. In another, 77% of managers believed that downsizing led to increased productivity [1, 2]. However, new research contradicts those findings, showing that corporate gains from downsizing may not be fully realized throughout the organization. In a study taken over an 18-year period, there was consistent and significant evidence that downsizings do not necessarily lead to better financial performance as measured by return on assets (ROA). The researchers point out that “employment downsizing may not generate the benefits sought by management” [3]. Additionally, research has shown that firms that dismissed more than 10%