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Corporate Downsizing Becomes Global Phenomenon Next Round Will Be Aimed At Long-Term Financial Viability Rather Than ‘Quick Fixes’

Tue., April 11, 1995

The whole world is being downsized.

A survey of top corporate executives in the world’s leading industrial nations shows that 94 percent of them have put their companies through some form of reorganization or downsizing in the past two years, and 66 percent predict the pace of change will continue or accelerate in the years ahead.

Nearly 2,000 corporate leaders in Canada, France, Germany, Japan, Great Britain and the United States were interviewed by Watson Wyatt Worldwide, the international consulting firm. Fewer than half of them said they achieved the cost-cutting goals involved in downsizing, and even fewer met operating objectives, such as improved productivity and customer satisfaction.

Despite that rate of success, only 7 percent of the executives surveyed said they thought corporate restructurings would decrease in the future. Thirty-two percent said they thought it would increase, driven by customer demands and increased competition.

Watson Wyatt consultant David MacCoy said the survey showed that “reorganizations are no longer isolated events that companies go through and put behind them.” He predicted that the next round of corporate restructuring would be aimed at long-term operational improvements rather than quick financial fixes.

A country-by-country breakdown of the percentage of companies that reduced the size of their work force in the past two years showed that Great Britain, with 76 percent, had the highest ratio, followed by the United States, with 72 percent; Canada, 71 percent; Germany, 66 percent; France, 61 percent; and Japan, 40 percent.

In the United States, according to the survey, 54 percent of the executives said their companies had achieved their costcutting goals, but only 25 percent said the cuts had helped increase their firm’s share of the market or improve customer satisfaction.

This experience was not unique to the United States, according to Watson Wyatt. Japanese and Canadian companies reported similar outcomes.

A majority of U.S. executives - 68 percent - said they thought restructuring had had a negative impact on employee workloads. But the vast majority - 94 percent - listed increased productivity as one of the more important goals of restructuring and downsizing.

With the exception of Japan, where legal and cultural barriers may limit the scope of such actions, executives in all the other countries predicted an upswing in the number of temporary workers and subcontractors used by businesses in their countries.

In the United States, 62 percent of the executives predicted more temps and subcontractors would be used in the next five years. In Great Britain, 68 percent predicted such an increase; in Canada, 64 percent; in Germany, 59 percent; and in France, 46 percent.

In an age of affirmative action, where older workers have gained protections against discrimination on the job, corporate executives in the United States said that on average they believed a worker’s productivity began to decline at age 56. The German executives surveyed put that age at 45, on average, and executives in the other nations surveyed placed the age where productivity begins to slip somewhere in the mid-40s.

The survey also shows there is a perception gap - call it a credibility gap, if you will - between the way chief executives see the world and the view from below in the same company when it comes to the impact of downsizing on employee morale.

While 54 percent of the corporate executives said the effect of restructuring on employee loyalty had been positive, the survey showed only 30 percent of the lower-ranking respondents felt that way.

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