Thursday, October 23, 1997

Downsizing: Much of it in vain.

By JOHN CUNNIFF / AP Business Analyst

NEW YORK (AP) - The largest recent academic study of employee downsizing, the corporate management strategy that has caused turmoil in the lives of workers and communities, has found a disturbing result:

Large companies with major personnel downsizings are generally no more profitable than others in their industry. And they're less profitable than many large companies that have remained stable employers.

In view of the strategy's goal of higher profits, the findings come as a shock. By some estimates, three of four American families have been affected by the downsizing phenomenon, which may be continuing.

Given the findings, the authors conclude that "managers must be very cautious in implementing a strategy that can impose such traumatic costs on employees."

While the advice might be disastrously late for communities whose workers lost jobs, it conceivably could impact plans for more layoffs, such as announced recently by Eastman Kodak, Whirlpool and Citicorp.

This isn't the first time that personnel downsizing has been questioned, but this is the most extensive study, involving 12 years of layoffs and hirings among firms in the Standard & Poor's 500-stock index.

The results are reported in the current issue of "The Academy of Management Journal," a peer-reviewed publication published every other month for a membership of 10,000 in 60 countries.

The authors -- Wayne F. Cascio, Clifford E. Young and James R. Morris-- are on the faculty of the University of Colorado at Denver, and have expertise in management, marketing and finance, respectively.

While the authors didn't refer to it, an earlier study in the same publication suggested that big business has a pronounced weakness for changing management styles, and doing so en masse and almost fadishly.

Conglomeration in the 1970s, for example, led to mass divestitures and a return to core businesses in the 1980s and 1990s. Job enrichment, Quality Circles, re-engineering and matrix management came and went.

All such styles, the study said, claim to have universal application, incredible potency and virtual flawlessness. It found all such claims to be exaggerations, demonstrated by experience and facts.

Columbia University professor Eric Abrahamson, author of that study, suggested that changing management styles were usually not very damaging, but he excepted downsizing, whose effects he said could be "catastrophic."

The Cascio-Young-Morris study did find some positive results, but mainly among asset downsizers as contrasted with mainly employee downsizers.

Asset downsizers, those who shed plants and equipment, showed a gain in assets from less than 11 percent in the cutback year to 14 percent two years later. And their cumulative return for stockholders was almost double their industry's average.

Employee downsizers also showed gains in stock prices, not surprising in view of Wall Street's reasoning that lower labor costs equate to higher profits. But they still failed to match the gains of stable employers.

In short, donwsizers did succeed in pleasing Wall Street, but at a great human cost.