Downsizing: Costs and Assigned Government Executive
Industry downsizing has been a major part of the corporate world, even government agencies are downsizing.GovernmentExecutive.com “covers the business of the federal government and its huge departments and agencies – dozens of which dwarf the largest institutions in the private sector” on its website.
Read the assigned Government Executive article and answer the following questions: Which industries have substantially reduced fixed cost commitments? Do you believe this reduction in costs has substantially impaired the ability of these industries to meet the needs of their customers?
It appears that both privite and public sectors are reducing fixed cost. According to Ciccotello and Green, the technology, auto, and government industries have substantially reduced fixed costs. The specific examples referenced in the article, Industry’s Downsizing Lessons, were IBM, Honda, and the DoD; in some cases the downsizing has been beneficial and in others it has been detrimental. DoD has taken the lead in the current round of federal downsizing, instituting several initiatives to reduce permanent staff positions, rely more on temporary help and outsource production.
Honda made large cuts in its permanent engineering staff in response to the more volatile sales environment for automobiles since the mid-1980s. These cuts left Honda unable to keep pace with its competitors in the design of new automobiles. The results have been the loss of market share and profit for Honda, which now faces the difficult task of trying to catch up. The consequence of cutting fixed costs too far could be even more dangerous for a government enterprise like DoD. The computer industry is rapidly changing technology is causing companies to reassess large, fixed-cost commitments.
As a result, evidence of decreasing operating leverage in this industry abounds. Many large computer firms have made dramatic cuts in permanent staff. Standard and Poor’s reports that IBM had more than 370,000 full-time employees in 1990 and fewer than 270,000 in 1994. At the same time, computer firms have greatly increased outsourcing of products and leasing of equipment. Both of these trends reduce the requirement for large in-house expenditures on personnel, plant and equipment. Outsourcing and leasing make the enterprise more nimble, more able to quickly adapt to a rapidly changing sales environment.