In the recent recession, many companies slashed jobs, some by more than 20 percent. When a corporation slashes their workforce by more than 20 percent, this is called extreme downsizing. But companies that have made these deep job cuts may suffer in the longer term.
There are arguments for both sides of the issue. Some say it is necessary to actually preserve the jobs already there so they would have a business that would be sustainable moving forward. Trimming labor costs can boost the bottom line, and help a company survive. However, this is only a short term solution.
In the long term, they suffer relative to competitors in the same industry facing the same sets of economic conditions. They may lag the industry as long as nine years after a recession. Companies may end up cutting out some of the very things that made them successful in the first place, such as research and development. More importantly, these cuts could have a deep impact on the morale of the existing employees. With many rumors and other such damaging words floating around, employees won't be focused on the job. Not only that, but having so little workers can also lead to burnout and eventually the departure of top performing employees. Vital employees might be let go in the first place. When the economy does come around, the organization has to replace these workers and incur greater expenses.
So what are the solutions to this? Sometimes cutting jobs are necessary, but huge and frequent slashing could really hurt the long term sustainability of a company. One solution is to redeploy workers into different departments, though the retraining of employees is a slow process. Pay reduction may work, but it is also very painful to go through. Work sharing, where working hours and wages are cut across the board until the organization's finances return to normal levels, is a fast process, and not as painful as a pay reduction. Whatever a company chooses, a downturn is a painful time, and someone in the organization is going to feel the effects. But what management needs to do is look ahead to the long term functioning of the organization.