Industry downsizing became a major part of the corporate world in the 1990?s. Given current economic conditions, government agencies are now downsizing. There is some concern that excessive cuts in some government programs, especially defense spending, will have an important effect on the country's ability to respond to military crises. GovEx.com, which maintains a ?management concepts? website, puts out a weekly email newsletter. The website also includes an article (accessible at http://www.govexec.com/reinvent/downsize/0795mgmt.htm) entitled ?Industry's Downsizing Lessons,? dated July 1, 1997, from Government Executive Magazine, that emphasizes the effects of the reduction in operating leverage (reduction in fixed costs). Read the article and answer the following questions: A. 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? B. The article also mentions an auto company which downsized and suffered negative consequences. If possible find out why this company suffered a downfall. C. The public utility industry is listed as an industry with high fixed costs. The article notes that this industry has not had to undergo downsizing. Is this statement still true? (Note: how about Enron? How about the California Electricity Outages in 2001?) D. The article lists the four lessons of operating leverage. The lessons revolve around the costs (or benefits) associated with downsizing. Review one (or two) of these lessons, and comment on the lesson(s). E. Briefly discuss the articles' concern that excessive cutting of fixed costs (best described as the cost of preparedness) has (or could) substantially impair the country's ability to respond to "problems" in several different parts of the world at the same time. Does the group think that cuts in defense department spending are "riskier" than cuts in the private sector? Why?
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