Global economics environment
Iwould choose to keep all workers but cut wages for all employees,instead of laying off some. Shanotoka, Nambili & Yazdanifard(2015) say that before laying off workers, the management shouldconsider the cost that the company will incur in the long run.Training new workforce to match the level of those who will have beenlaid off may prove to be more costly than retaining them and dulycutting their pay. At the same time, a company risks suffering lowmorale from the workers who will remain, given that they will becompelled to work more to cover up for the reduced manpower.Similarly, Shatonhoka et al. (2015) asserts that forced layoffsrarely achieve the key organizational objectives such as costreduction, as they negatively affect production and profitability. Bylaying off some workers, a company automatically reduced theproduction capacity and may end up creating unintentionalorganizational costs. Moreover, over time, companies have shiftedfrom the traditional layoff strategy, as per the findings of a studyconducted by Shatonhoka et al.
Shatonhokaet al. (2015) assert that research has established that mostAmericans would prefer to take a little pay cut than see some oftheir colleagues being laid off. Most managers also prefer havingtheir companies reduce the pay of the workers, rather than lay someoff (Shatonhoka et al, 2015). This is a demonstration of a new formof organizational culture that is being adapted by many companiesacross the country. The farewell of the employees is being taken intoequal consideration as that of the company. Laying off workers duringhard economic times is a demonstration that the management of thatparticular company does not take to heart the well-being of theemployees, and this would lead to a reduced organizational morale(Gettler, 2014). Finally, according to, the stock market may respondpositively to organizations that have initiate massiverestructurings, but in the long term, companies that initiate forcedlayoffs end up performing poorly on the balance sheets.
Mainly applied in firms, economics of scope are tactical reductionin the production costs, which are due to increase in productionvolumes (Wicker, Breuer, Lamprecht,& Fischer, 2014). This is mainly initiated by companieswhich look to be the major producers of a certain product in themarket. Additionally, there are two types of economies of scale,which are internal and external economies of scale. The former takesplace when an organization decides to reduce the costs by increasingthe amount of production. The latter occurs when all businesses in acertain production industry increases from expansion. This scenariocan happen through the reduction of production materials, emergingtechnologies or reduced cost of labor. For instance, Honda canproduce both bicycles and cars at a lower average cost than it wouldcost it to produce cars or bicycles alone. The reason is because bothproducts share same manufacturing space, storage facilities and otherlogistics.
Botheconomies of scale and economies of scope are economic concepts thatare used to help organizations cut costs. However, while economies ofscale focuses on the cost advantage, which is due to high level ofgoods production, economies of scope concentrates on the average costof producing a variety of goods (Wicker et al., 2014). Similarly, theeconomies of scope holds that the average total cost of production isreduced when a variety of products is manufactured by the samecompany. The economies of scope also focuses on a company’s corecompetencies, unlike the economies of scale. For instance, HP is aleading producer of computers. When the company wants to increase itsmanufacturing capacity to produce other electronics such as camerasand phones, it remodels the production line to enable this expansion.This helps it to do away with costs that would have been incurred bybuilding a new production plant. At the same time, economies of scaleoffers HP a cost advantage when there is an increased output ofelectronics.
Gettler, L. (2014). It pays to keepstaff out of the firing line. ManagementToday, (Jan/Feb 2014),18.
Shatonhoka, E. N., &Yazdanifard, R. (2015). International Journal of Economics andManagement Sciences. ManageSci, 4,2.
Wicker, P., Breuer, C., Lamprecht,M., & Fischer, A. (2014). Does club size matter? An examinationof economies of scale, economies of scope, and organizationalproblems. Journalof Sport Management, 28(3),266-280.