Business Systemics LO5824

Rol Fessenden (76234.3636@compuserve.com)
23 Feb 96 23:59:25 EST

Business Systemics LO5806

Early comments on downsizing claimed that downsizing was merely a strategy
to drive up stock prices. If so, it didn't work. Wayne Cascio and James
Morris of University of Colorado at Denver report after a seven year study
that for 25 large corporations stock price rose less than 5% over 3 years
while their non down-sized competitors' stock prices rose 34%. The
message: if you're an investor, avoid downsizing companies. Also, if
you're a CEO intent on driving up stock prices, find a better mechanism
because this one doesn't work.

Another study (both quoted in "Money", March, p. 11) of 1000 large and
medium firms showed that those that invest in training after layoffs had a
great chance of experiencing increases in profit and productivity. 79%
boosted long term profits, 70% boosted productivity. Training works.

Robert Reich has offered an interesting 'systemic' leveraging opportunity.
Pointing out that Republicans want to give corporations a $26 B tax break,
he suggested the tax break be focused on those companies that invested
more than 2% of payroll in training. He suggested that it might result in
higher federal revenues in the long run.

In summary, downsizing alone does not raise stock prices, and it does not
increase profitability. Combined with training it can impact profits and
productivity.

--
 Rol Fessenden
 LL Bean
 76234.3636@compuserve.com
 

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