downsizing in indian organisation case study on boeing company
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Project on
‘IMPACT OF DOWNSIZING IN INDIANORGANISATION’
Submitted to :- Submitted by :-
Mrs.Shanu Khatri Jyotsna Aggarwal
Date :- 2 Feb.,202 !!A. ""!. 2nd yr
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Acknowledgement
I would like to express my sincere gratitude to Mrs. Shanu Khatri for
providing this opportunity to work on this topic. She has always been
Supportive and encouraging.
I have really enjoyed to working on this project.
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CONTENTS
Index Page No.
Introduction
Study of downsizing
Why Do Organiation! Down!ie
!he "conomic #erspective
!he $rational #erspective
!he Ideological #erspective
!he Institutional #erspective
!he Strategic #erspective
Con!e"uence! o# Down!iing
!he Structural %onse&uences of 'ownsizing
Macroeconomic conse&uences of 'ownsizing
Strategie! #or re!$on!i%le re!tructuring
"xecutive (verview
!he "conomic )ogic !hat 'rives 'ownsizing
*hat 'oes +esearch on the "conomic %onse&uences of "mployment 'ownsizing !ell ,s
I!!ue! In Initiating And Im$lementing Down!iing
#re-downsizing Stage
#re-implementation Stage
Implementation Stage
#ost-implementation Stage
Solution o# Down!iing
&oeing Com$any
Introduction
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Successful 'ownsizing !he %ase of the /oeing +eemployment #rogram
Why &oeing Com$any Down!ie'
!he evidence noted by #ritchard and Mac#herson
Doing Well &e#ore
An e##ecti(e Cure
Ad(antage! ) Di!ad(antage! o# Down!iing
Conclu!ion
&i%liogra$hy
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Introduction*
%ompanies should take care that downsizing helps in shedding fat and not the
organizational muscle. 0urther1 downsizing should not be mistaken to be strategy2 it is a
tactic1 it is like giving oxygen to accompany in an intensive care unit. !he new size gives a
second chance to companies to survive and an opportunity to start afresh. 3owever done
improperly it can be a death sentence for the company. +esearch data on the impact of
downsizing on company revival is not encouraging. !his is because the manner in which
downsizing typically happens1 does not enable growth. $ ten year study of companies in ,S
and %anada showed that companies that downsized were relatively worse off than
companies that did not. !his was partly because companies do not seem to have got it right
on how to down size when in trouble so that they can 4+(* in future. Indian companies
can benefit by rethinking the process of planning and implementing downsizing in a systemic
manner. /ased on our global and Indian experience in providing consulting support to
companies that are downsizing1 we have identified eight steps that greatly impact the value
realization from downsizing.
Downsizing is currently one of the most popular strategies being used by organizations in an
effort to survive and compete in the current business scenario. It has been considered from
economic1 institutional1 strategic1 ideological1 and a rational perspectives1 suggestions for
successful downsizing strategies have repeatedly reinforced the importance of adopting a
planned1 long-term1 and people-oriented approach to implementation. !he bulk of empirical
research1 however1 appears to have focused on the conse&uences of downsizing both at the
individual and organizational level. 4iven that downsizing today has achieved the status of
an institutionalized norm1 the relevant &uestion is not so much whether or why organizations
should downsize1 but rather1 how best to implement the process in a way which will enable
organizations to accrue benefits and effectively manage the negative conse&uences of such
an exercise.
A review of literature reveals that a planned approach to the implementation process would
lead to sustained and long-term benefits to the organization. 'rawing from change
management theories as well as related theories in organizational learning1 theory of
business1 and business model innovations1 this paper has attempted to identify issues that
need to be addressed at each stage of downsizing in order to ensure effective
implementation. $t one level1 this would imply a need to &uestion the very rationale for
downsizing in terms of whether it really is the best alternative under the existing situation. $t
another level1 assuming that downsizing has been accepted to be the most viable option1
and given that any successful planned change would need to be handled as a multi-stageactivity1 this would include
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reframing of the existing mental models and assumptions about the business
extensive communication with employees at each stage
managing the needs and expectations of survivors1 victims1 and implementers
themselves planning for employability initiatives for employees
helping employees to renegotiate their existing psychological contract with the
organization.
!his would necessitate bringing about a change in the mindsets and attitudes of the people
involved in the exercise. Moreover1 a downsizing exercise would also need to be
implemented as a part of an overall corporate renewal package rather than as an isolated
strategy on its own. Suggestions for future research in this area1 especially in the Indian
context1 have been identified with a view to adding to the existing body of knowledge and
also facilitating greater understanding on the part of practitioners in handling a downsizing
exercise.
ST+D, O- DOWNSIIN/
In tandem with the rise in its popularity1 a substantial body of literature has also developed
exploring various aspects of downsizing. *hile some studies have attempted to understand
the theoretical imperatives which motivate organizations to downsize1 others have studied
the possible conse&uences that downsizing might have on the individual employee as well
as on the organization as a whole. $ few studies have also tried to examine the various ways
in which downsizing can best be implemented in order to yield the maximum benefits to the
organization. /roadly1 therefore1 the study of downsizing till date appears to have
encompassed three major issues
*hy do organizations downsize
*hat are the conse&uences of downsizing on the individual and the organization as
a whole *hat are the strategies that can be adopted for successful downsizing
0ea!on! #or Organiation! Down!ie
+esearchers have approached this &uestion from a variety of perspectives ranging from
economic imperatives and market constraints1 approaches based on organizational theories1
and ideological motivations to social compulsions. Kets de 5ries and /alazs 67889: feel that
downsizing is often a price paid by organizations for previous mismanagement and strategic
errors in reading the market by the top management. $ccording to ;elson and /urke 6788
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service sector coupled with global benchmarking with competitors in terms of overhead costs
are some of the market forces that have motivated organizations to resort to downsizing.
Some organizational benefits expected from downsizing may include increase in productivity1
improved &uality1 enhanced competitive advantage1 potential regeneration of success
6;elson and /urke1 788
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downsizing. 3owever1 his propositions might have been better strengthened by more
empirical bases rather then relying substantially on data from the popular press.
The Ideological Per!$ecti(e $dding ideological variables to the list of possible determinants of downsizing1 McKinley1
Mone and /arker 6788right1= in this
case1 getting smaller by reducing the workforce. %loning forces result from imitating
competitors and following their actions irrespective of whether their strategies have proved
beneficial or not. Since downsizing has become the order of the day1 imitating competitors in
this respect imparts some legitimacy to the manager. 0inally1 learning forces occur through
educational institutions and professional associations where the effectiveness of the
downsizing approach is further reinforced. !he concepts of constraining1 cloning1 and
learning forces are e&uivalent to the institutional theoretic concepts of coercive isomorphism1
mimetic isomorphism1 and normative isomorphism respectively1 which explain how
organizations strive for legitimacy.
The Strategic Per!$ecti(e
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'ewitt 6788
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The Structural Consequences of Downsizing
!his paper examines the impact of downsizing strategy on dimensions and types of
organizational structure. 0our downsizing strategies are developed to address organization
and environment decline. ,nderstanding where and how these strategies modify an
organizationFs activities helps clarity how downsizing impacts organization structure.
#ropositions are offered that show how downsizing can result in both mechanistic and
organic shifts in organization structure.
Mechanistic shifts are caused by downsizing strategies that increase the domain of an
organization and the structural processes used to support that domain. (rganic shifts are
caused by downsizing strategies that decrease the domain of an organization and the
structural processes used to support that domain. !he rationale provided for these shifts
offers a strategic explanation for decreases in administrative intensity that lag decreases in
organization size. #ropositions about the impact of downsizing on organizational structure
are offered as a stimulus to further thought and research.
2acroeconomic con!e"uence! o# Down!iing
!he recession in the 78
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reduce operating costs as a way of increasing earnings and stock prices. A study of
S& !"" firms from #$%'""", however, casts serious doubt on the long(term
payoff of this approach. )he purpose of this article is to suggest several alternative
approaches to restructuring. In contrast to employment downsizing, a strategy that
regards people as costs to be cut, a responsible restructuring strategy focuses on
people as assets to be
developed. )his focus recognizes that people are the source of innovation and
renewal, especially in knowledge(based organizations, and that the development of
new markets, customers, and revenue streams depends on the wise use of a firm*s
human assets. )he article presents company e+amples and research(based findings
that illustrate mistakes to avoid and affirmative steps to take when restructuring
responsibly.
The Economic 3ogic That Dri(e! Down!iing
*hat makes downsizing such a compelling strategy to firms worldwide !he economic
rationale is straightforward. It begins with the premise that there really are only two ways to
make money in business either you cut costs or you increase revenues. *hich are more
predictable1 future costs or future revenues $nyone who makes monthly mortgage
payments knows that future costs are far more predictable than future revenues. #ayroll
expenses represent fixed costs1 so by cutting payroll1 other things remaining e&ual1 one
should reduce overall expenses. +educed expenses translate into increased earnings1 and
earnings drive stock prices. 3igher stock prices make investors and analysts happy. !he key
phrase is Hother things remaining e&ual. $s we shall see1 other things often do not remain
e&ual1 and therefore the anticipated benefits of employment downsizing do not always
materialize.
What Doe! 0e!earch on the Economic
Con!e"uence! o# Em$loyment Down!iing Tell +!'
In a series of studies that included data from 78
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performance .*e assigned companies to one of seven mutually exclusive categories based
upon their level of change in employment and their level of change in plant and e&uipment
6assets:. *e then observed the firms= financial performance 6profitability and total return on
common stock: from one year before to two years after the employment change events. *e
examined results for firms in each category on an independent as well as on an industry-
adjusted basis.9 In our most recent study1 we observed a total of 1E7< occurrences of
changes in employment for SG# CBB companies over the 7
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Pre4im$lementation Stage
If downsizing is chosen as a strategy for change1 then the necessary steps would include
♦
$dopting a planned approach to the process of implementation. !his would involve*4understanding the implications of downsizing in terms of changes in organizational
structures1 policies1 roles1 and relationships identifying the changes in individual and organizational assumptions1 mindsets1
and attitudes which would be needed in the changed scenario ascertaining the new competencies which would be re&uired in the changed
context.♦ %hoosing appropriate implementers or change agents and training them to handle the
process effectively.
♦ Sharing the rationale for downsizing through continuous communication with employeesin various forums.
♦ Maintaining a continuous dialogue to incorporate innovative suggestions and understand
individual issues and assumptions.♦ %ommunicating detailed procedures to the concerned stakeholders in a transparent and
timely manner.
Im$lementation Stage
♦ Introducing new processes and structures that would facilitate stabilization of the
change.♦ 3elping individual employees to &uestion old assumptions1 develop new competencies1
and manage changed roles and relationships through communication1 mentoring1 and
training initiatives.♦ /eing sensitive to the needs of survivors1 victims1 and implementers. !his would include
managing the negative emotions associated with the process1
helping employees to deal with the trauma through one-on-one counseling and
extensive communication1 being open to feedback and dialogue.
♦ "nsuring procedural justice in implementation 6e.g.1 using objective1 performance-based
criteria for manpower reduction rather than across-the-board reductions based on age
and tenure2 matching claims to actions1 etc.:.♦ #roviding organizational support to victims through training for new skills1 identification of
new career opportunities1 etc.
Po!t4im$lementation Stage
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♦ +enegotiating psychological contract with the survivors.
♦ #roviding support and opportunity to employees for trying out new competencies1
♦ 0acilitating a change in the mindset of employees such that they assume greater
responsibility in planning for their career and employability rather than depending on the
organization for ensuring their welfare1♦ Monitoring and managing the conse&uences of downsizing at the individual and
organizational level1♦ 'eveloping a culture of continuous monitoring and &uestioning of the >theory of business=
whereby change becomes a systemic1 on-going process rather than a one-off
intervention1♦ Initiating a collective learning culture wherein
mistakes are seen as learning opportunities1 and
the experiences and insights gained are used to manage current and futurerealities.
SO3+TION O- DOWNSIIN/
Indian com$anie! can %ene#it %y rethinking the $roce!! o# $lanning and
im$lementing down!iing in a !y!temic manner. &a!ed on our glo%al and
Indian ex$erience in $ro(iding con!ulting !u$$ort to com$anie! that are
down!iing5 we ha(e identi#ied eight !te$! that greatly im$act the (alue
realiation #rom down!iing.
Ste$ 6* En(i!ion your organiation at the end o# the downturn* )et=s
say that the economy will rebound in two years time. $t the end of the -7?-7
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employee who is supposed to be part of the core team does not know that he@she is critical
to the scheme of things and starts looking out for a job. %apable people find jobs even in a
down turn. *hen they leave1 the organization loses the muscle J the vital organizational
memory1 core capabilities and importantly technical and inspirational leadership. Speak to
your core team. Share the business case for downsizing and your vision and plan for
bouncing back2 enroll them to drive the downsizing process in a humane manner. Make
them part of your planning and implementation team for revival and growth.
Ste$ 8* De#ine Criteria #or Down!iing* $cross the board formulae based
downsizing is a recipe for disaster. #rocesses@ departments vary with respect to their
criticality to the business. 4enerally companies use nature of employment1 experience1 value
add to business1 performance as criteria for deciding on who has to go. 4enerally the
reporting managers get it wrong in choosing who to retain and who to let go. It=s generally
the classic case of separating the wheat from the chaff and letting go the wheat. !o prevent
such wheat chaffing1 we recommend a panel consisting of two eminent external members1
two assessment experts and two internal senior managers to decide on the downsizing
numbers. !hey should use multiple criteria including feedback of internal and external
customers.
Ste$ 9* Clearly Communicate* It=s important to be honest in times of a downturn. Itis critical to share that we are in difficult times1 reducing people is one of the options1 and the
entire process would be handled with respect and dignity. !he support that would be
provided to people has to be emphasized. )eaders need to be sensitive and develop a clear
transition support plan.
Ste$ :* De!ign a !e$aration !cheme with career tran!ition !u$$ort*
/e generous based on the contribution of the individual. It will take at least D-C months for a
person to find a reasonable job. $lso provide the person with transition support. !his
involves workshop based coaching or one to one coaching on the changes brought upon
individuals due to downsizing. !hrough this process the person is helped to identify their
strengths and career direction and get skilled in self marketing. $ttitudes and behaviors= that
might be hindering personal effectiveness are also identified and addressed though such
processes. (nsite counselors@ telephonic support are variants. 'o not sign up with a
placement company and think that you are meaning good to your employees. #lacement
companies have a clear incentive in placing people. !hey tend to be aggressive in
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persuading a person to take up the first job offer irrespective of whether it is the wrong job or
the wrong company.
Ste$ ;* Pre$are #or the D Day* It is erroneous to assume that all )ine Managers
can handle separation communication to downsized employees. Some of them may be
feeling guilty of asking people to go. Many of them may not anticipate the fallouts and hence
may not be prepared to handle employee reactions on being told to go. !rain )ine and 3+
Managers. *herever the )ine Manager and 3+ need support1 have the 3ead of the
department also in such a meeting. 4ive scripts to the )ine Managers on the business case
and the rationale behind the decision. Such separation meetings should not be for more than
7B minutes. ;o employee will be happy with such a decision. !he more the meeting
prolongs1 the greater will be the dissatisfaction. 4et a coach or a counselor to anchor withthe employee immediately. *hen you provide job search support1 employees feel better
about handling such a situation.
Ste$
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employees to listen deeply to your internal and external customers1 suppliers1 customers
who use competitor products and services etc.:
Ste$ >* Engage and align your Staying Em$loyee!* #rovide leadership
roles to the core team and get them to engage the entire employee force. $ compelling
vision and clear direction for future and sharp individual and team goals are critical for
getting the best out of the employees. !his is the best time to shape a new culture and align
the same to the new vision.
Ste$ 6?* -inally5 create your com$any Alumni* Nust imagine that two years
down the line you rebound. If you have maintained excellent relations with your downsized
employees1 they will all join back with rich experiences of other organizations. It=s likesending some one for a sabbatical for two years. Some of them will become your loyal
customers.
&oeing Com$any
Introduction
/oeing is a huge multinational corporation that designs and builds military and commercialaircraft. In ?BB71 due to already lagging commercial jet sales and then the airliner-driven
carnage on September 77th1 /oeing cut over ?B1BBB jobs across the spectrum of the
company1 from office staff to factory workers.
0aced with a downturn in the commercial aircraft business and reduced military spending1
!he /oeing %ompany was forced to downsize approximately CC1BBB people over a five-year
period. !he companyFs management1 organized labor1 the local community1 multiple levels of
government1 and community colleges collectively worked together to develop +eemployment
%enters to assist in the transition of their specialized workforce into alternative forms ofemployment.
Succe!!#ul Down!iing* The Ca!e o# the &oeing
0eem$loyment Program
!he following is a description of how !he /oeing %ompany successfully completed this effort
at downsizing-
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'ownsizing is thought to be an effective human resources strategy to increase global
competitiveness. )abor costs1 generally one of the largest costs for most organizations can
be reduced through downsizing. In many cases the downsizing process includes outsourcing
or subcontracting jobs previously performed within the organization. $lthough organizations
often consider downsizing necessary in order to remain competitive1 this strategy does not
always result in increased organizational profitability and performance. (ne recent survey
conducted by the Society for 3uman +esource Management reported that only ?O of firms
reported productivity improvements while C
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0or the same reason1 4eneral Motors is increasing its overseas presence in $sia. It recently
announced that its (pel unit could take over #eugotFs position as the non-%hinese partner in
southern %hinaFs automotive industry 6%ox1 788:. 4M is also awaiting approval from the
%hinese government to build a plant in 4uangzhou to supply engines for a plant that 4M is
building in !hailand. !his second %hinese plant is in addition to the Shanghai plant which will
begin producing /uick sedans in 788
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%hairman #hilip M. %ondit and made the decision on September 7< to cut ?BO6 ?B1BBB: to
DBO6 DB1BBB: of 81BBB people in Seattle area employed by /oeing=s commercial airplane
unit. !his decision was hard to make by the /oeing=s %ompany because such dealings and
actions will affect the lives of the people who work in their company.
The #ollowing are the e(idence noted %y Pritchard
and 2acPher!on
7: /oeingFs sale or closure of approximately 7B million s&uare feet of space devoted to
commercial and military aircraft production in the past decade.
?: $ B percent decline in /oeingFs commercial aircraft production1 with less than CB aircraft
in backlogs of four of its six commercial aircraft models1 when most viable1 mature
aircraft programs have backlogs in excess of 7BBD: !he lack of new aircraft programsL/oeingFs most recent aircraft is the 9991 designed in
the early 788BsE: /oeingFs announcement on 'ec. ?B that it would shelve its futuristic1 high-speed1 sonic-
cruiser design in favor of a cheaper alternative1 its second cancellation of a proposed
commercial jetliner program
!his strategy will probably be positive because aviation services and high-tech military
aircraft manufacturing have had higher profit margins than the commercial side.
!he effect of this strategy is losing the members or the employees of this company who
mainly do riveting and aircraft assembly. $nd now1 they will be needing people who have
new sets of skills that will fit on a specific position.
I conclude that downsizing could be a hard decision for the company to be made
because the lives of the employees will be affected. (n the other hand1 it will be helpfulfor the company to maintain their standing in the industry to be able to compete to other
companies.
$s soon as hijacked passenger jets slammed into the *orld !rade %enter towers and the
#entagon on Sept. 771 senior /oeing officials sensed that airplane manufacturing would
suffer drastically. %alls from airline executives soon began flooding into sales execs running
/oeingFs %ommercial $irplane division here in Seattle. Q*e started talking immediately after
the attack1FF says one senior /oeing official involved in the discussions to dramatically cut
production. Q*e knew -- as soon as the events were reported -- it was going to have adramatic effect on our business and our customers.FF
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!hatFs why /oeing %ommercial #resident and %"( $lan Mulally1 in consultation with
%hairman #hilip M. %ondit in %hicago1 made the decision on Sept. 7< to cut ?BO to DBO of
81BB people employed by /oeingFs commercial airplane unit -- this translates into ?B1BBB
to DB1BBB workers in the Seattle area. Q*e profoundly regret that these actions will impact
the lives of so many of our highly valued employees1FF Mulally said1 in a statement issued late
!uesday. Q3owever1 itFs critical that we take these necessary steps now to size the business
to support the difficult and uncertain environment faced by our airline customers.FF
DOIN/ WE33 &E-O0E
/oeingFs %ommercial $irplane unit1 which still generates BO of the companyFs total PC7
billion in revenues1 was already planning to pare the workforce in anticipation of an airline
slump1 after restructuring factories1 embracing lean manufacturing principles1 and cutting
costs 6for SG#Fs latest rating statement on /oeing1 see the Sept. 78 @Stock Pick! ) Pan!B.
!he hard work paid off in the first two &uarters. 0or the first time in nearly a decade1 the
division was producing 7BO profit margins. "xecs were confident they could s&ueeze even
more fat out of a what had been a costly and inefficient airplane production system.
"ven some *all Street analysts were impressed that the airplane maker was finally
becoming a new kind of company -- one more focused on making profit and generating gobs
of cash. Senior execs had hoped to continue double-digit profit margins even during the
downturn that was expected in the commercial airplane business.
/ut along with the rest of $merica1 /oeing leaders never figured that a band of terrorists
would hijack four of their jets and slam them into the *orld !rade %enter towers1 the
#entagon1 and a field in #ennsylvania1 killing more than C1BBB people. !he aftershocks have
hit the airline industry and the financial markets hard. $nd the worldFs largest airplane maker
is now feeling the effects.
QItFs certainly going to test us1 test the airlines1 and test our competitors as well1FF says one
/oeing executive. QItFs the ultimate test of the industryFs strength. ItFs horrible1 horrific1
shocking1 stunning1 traumatic1 and it breaks your heart. $t the end of the day1 itFs an
incredible challenge in front of us. I donFt know if thereFs one word that can capture it.FF
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AN E--ECTIE C+0E -O0 DOWNSIIN/
/oeing has sharply cut its forecasts for aircraft deliveries and says the downturn could runinto ?BBD as ,.S. airlines reduce capacity. !he company predicts that it might deliver just
CBB jets this year1 down from an earlier forecast of CD
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house if older furniture is too large. It can also result in family crowding1 if a family downsizes
while children are still in the house.
3ea(ing &ehind -riend!
• 'epending on the location of the move1 downsizing can mean going to a new town or
a new state. "ven if youFre staying in the same city1 youFre still uprooting the family and
moving to a new neighborhood. )eaving behind friends and neighbors who youFve known for
years is often emotionally challenging.
Stre!!
• Moving is stressful1 even when the move is good and necessary. Rou must pack up
all of your belongings1 sell the old house if it was purchased or give appropriate notice for a
renter1 and perhaps even buy a new house before the old house is no longer available. !his
stress is a downfall of moving1 but is unavoidable.
Extra 2oney
• 0or a home that has gone up in value since it was purchased or that is either paid off
or mostly paid off1 one potential advantage of downsizing is the extra money. !he sale of a
larger home will often net more money than the new home re&uires1 meaning extra money in
your pocket.
3ower Co!t!
• $ smaller home naturally has lower costs for regular household needs. 0or example1
heating and cooling are usually less expensive with a smaller house than a larger house.
!axes may also be lower for smaller homes1 though the amount of lowered costs in taxes will
vary depending on the state and the size of the lot1 as well as the size of the home.
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CONC3+SION
!he broad &uestions relating to downsizing 6why1 what1 and how: have been studied in fairly
rigorous detail till date. 'espite a theoretical understanding of the principles underlying the
process1 the negative conse&uences associated with this exercise on both organizations and
individual employees continue unabated 6)abib and $pplebaum1 788D:. It is hypothesized
that this could be the result of viewing downsizing as a panacea for organizational problems
rather than seeing it as a part of an overall strategy for organizational renewal. !hese
negative conse&uences could be minimized by viewing it as a process of transformation not
just through incremental changes but also by reframing existing mental models1
assumptions1 policies1 and relationships to enhance the adaptive potential of the
organization.
'ownsizing is not just an activity. It demands leadership1 a vision about handling the present
as well as a vision about handling the future. *hen you behave like a responsible family
head1 care for each member1 let go of people without malice and engage everyone to
navigate the difficult times1 you have built true character. It is one thing to design big posters
on the company vision and values1 an entirely different game to demonstrate the same and
come out triumphs during testing times.
!his symposium considers the organizational downsizing phenomenon. ,sing theoretical
and case studies1 we also benefit from a cross-national and cross-sector focus..
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