Why Downsizing Looks Different These Days

For decades, the logic seemed unshakable. In good times, companies hired. In bad times, they fired. But that orderly logic has given way to a more chaotic reality: Two of every three U.S. companies now laying off employees are simultaneously hiring people.

Odd? Not according to an American Management Assn.'s study on downsizing, released on Sept. 27. Rather than lopping off heads to cut costs, managers increasingly are shrinking their companies for strategic reasons. "They're getting rid of everything that fails to give them competitive advantage, and they're [expanding] areas that add value," says Eric Rolfe Greenberg, the AMA's director of management studies.

The upshot: Nearly one in four companies reporting job cuts in the year ending June 30 had no net change in total headcounts. And the workforce actually rose at 13% of the downsizers, says the study of 713 U.S. corporations. That's one reason net job losses fell to 5.2%, from 8.4% the year before.

But if Greenberg's analysis is right, U.S. corporations are finally beginning to position themselves for future growth. American Airlines, for instance, has cut its workforce by nearly 5,000 since late 1992, but its information services unit has added about 2,200 in the same period.

Other companies also are shifting hiring from one unit to another to keep up with changes in their business. AT&T, for example, is aggressively hiring abroad. Ten years ago, it had only five dozen employees outside the U.S.; today, it boasts 54,000, including 20,000 managers. Yet, it has shed more than 72,000 employees since 1984, mainly in the U.S. "We've been essentially hiring people with computer science backgrounds and people who can help us enter new markets here and abroad," says an AT&T spokesman.

The AMA survey, indeed, indicates that restructuring often has little to do with econom- ic conditions. Fewer than half of the downsizing companies attributed cutbacks to business downturns, vs. 65.7% a year earlier. Instead, more companies cited such reasons as "improved staff utilization" and the "transfer of production or work." Translation: Companies are learning to do more with less by reorganizing work more efficiently. American Airlines has cut management personnel by 900 since late 1992--and boosted management productivity by 26%.

That's a major reason why, for the first time in the AMA survey, a majority of downsizing companies also are boosting profits. Some 50.6% of the companies that laid off employees from 1989 to 1994 had increases in operating income. The old saw has changed: Now, in good times, companies will fire. In bad times, they'll fire even more.

Before it's here, it's on the Bloomberg Terminal.