The Strategic Downside of Downsizing
Organizations lose critical knowledge they didn't know they had
Seymour Siegel, Ph.D.
|Application: The knowledge that terminated employees take with them may erode competitive advantage. |
As companies try to cope with the economic downturn by cutting jobs and encouraging retirement, they often trade one problem for another. How do you cut people without losing critical knowledge - not only now, in the hopefully better times in the future? Cutting jobs may, or may not, be a good economic decision in difficult times. But it is more than an economic or human resource issue. It is a strategic one.
Essential Elements of Strategy:
The essential elements of strategy include
1. Positioning the organization in the external world,
2. Making choices about industries in which to participate and the products and services to offer,
3. Obtaining and allocating resources to achieve the chosen position, and
4. Providing value to the customer.
If this is executed well, it should create value for the other stakeholders, including shareholders. From the 1960's through the 80's this meant a focus on an industrial structure perspective, including Michael Porter's Five Forces model of low-cost producer versus differentiation and the idea of managing a portfolio of businesses. Then, in the late 80's, the popular perspective changed to a focus on a resource-based view of the firm.
A strong argument can be made that in the 21st century the strategic emphasis must change again. All discussions of strategy formulation agree that concentration on internal forces alone is inadequate, if not dangerous, to the construction of an effective, winning, competitive strategy. The reality of competition is that it now includes globalization, digitalization and the Internet, the need to manage a combination of virtual and traditional organizations, and an emphasis on continuous change and evolving...