How to survive downsizing.

• Author: Baker, Wayne E.

BLOODLETTING and downsizing have a lot in common. The 18th-century practice of phlebotomy as a cure for fevers was as popular as it was ineffective. Today, downsizing continues to be the fashionable treatment, despite evidence that it is about as effective as bloodletting for curing competitive ills.

Evidence from studies by the American Management Association (AMA), Society of Human Resource Management, academic researchers, and management consultants reveals that downsizing generally fails to improve performance, productivity, or profits. Two-thirds of downsized companies have not realized productivity gains, according to AMA research, and most executives who cut back on personnel report unanticipated negative side effects.

Yet, the practice continues unabated. The AMA reports that more companies plan to cut jobs in 1995 than in any year before. Three out of four firms that downsize in one year plan to repeat the treatment during the next. In America, downsizing is expected to continue past the turn of the century, and the downsizing "cure" has begun to hit Europe, Japan, and even Russia.

Sometimes, downsizing occurs because it is a proper treatment, a response to the natural ebb and flow of the economy. When markets shrink, businesses and industries must consolidate and streamline (though smart ones read trends and move into better markets). Technological change and globalization can add pressure to downsize.

Such natural economic forces always have existed and often led to layoffs, but they alone can not explain the magnitude and scope of the trend. Rather, corporate America is caught in a powerful social movement that compels executives to eliminate jobs even when cuts are not justified and to repeat the downsizing treatment even when it causes more damage. The AMA reports that fewer than half of the companies it studied said they downsized in response to current or anticipated business problems.

The roots of this movement lie in corporate reactions to the growing threat of hostile takeovers in the 1970s and 1980s. Under attack by raiders, businesses searched for quick and easy ways to cut costs. They discovered that layoffs of workers and managers could boost short-term profits, make the company appear more efficient, and stave off takeover attempts. This was a novel and innovative use of layoffs, especially as the practice penetrated managerial ranks. Once considered an admission of business decline or defeat, layoffs started to be viewed in a new light--as a legitimate multi-purpose tool to preserve and advance corporate interests. Current names for layoffs--downsizing and the euphemism "rightsizing"--indicate its new-found legitimacy.

The shift in perception of layoffs as a last resort, used only in times of economic desperation, to a first resort, utilized in good times and bad, planted the seed of the social movement. It grew in a process sociologists call "mimetic isomorphism," meaning that organizations come to resemble each other because they observe and copy what each other does. Over time, companies tend to use the same procedures, tactics, policies, and strategies.

The common tendency to imitate is heightened in an environment of uncertainty. Rapid technological change, shifting markets, new competitors, revamped...