Cutting costs is the priority of every business owner. The ultimate goal is to get the maximum amount of benefits with the lowest possible expense. Due to this, one main objective is to maximize the resources you already have in order to save on costs.
Companies face tough competition while trying to survive in the market. To face these many challenges and overcome financial crises, companies may be forced to downsize to reduce their payroll headcount. However, there is more than one way in which an organization can reduce its number of employees. For example, a layoff. In this kind of downsizing, the terminations of employees are temporary. They may be rehired after a period of time.
Downsizing can be considered a last resort to overcome a financial crisis. An organization tries to strategize every other way to survive a financial crisis. When they cannot overcome this through other methods, they may be forced to downsize.
Pros of Downsizing:
Pros of downsizing include:
Organizing:
Downsizing makes it possible to scale down a business. An advantage of this is that reducing your business’s size makes it easier to organize and manage. During periods of growth, companies tend to add personnel and equipment that serve immediate business purposes. It is natural that a company’s business model or customer base will shift during the organization’s evolution. Downsizing is your chance to bring your company size down to something that can serve your customers more efficiently while still remaining profitable.
Innovation & Approach:
When people have limited resources to work with, they must develop innovative approaches to produce with the same level of efficiency. This may take some time, but after downsizing, the remaining employees must figure out new ways to meet their deadlines through careful planning and strategizing.
Financial Savings:
The main reason that compels a company to downsize and layoff is a financial crisis. A single employee’s expenditures may include salary, medical allowance, transportation, and other fringe benefits. The money that is saved through the termination of nonessential employees should be spent on the development and training of the remaining employees.
Evaluation:
Downsizing makes evaluation possible. Evaluation is crucial for a business to grow and improve continuously. Evaluation is an inevitable process to progress in your business venture. An organization must periodically recheck itself to search for gaps and the means to fill them to increase productivity. As downsizing reduces the number of employees, evaluating each aspect of your business becomes more practical.
Cons of Downsizing:
There are several issues that a company may face when it decides to downsize. Some of the cons of downsizing are as follows:
Decreased Productivity:
When a company sheds a number of employees, it also reduces the amount of product that will be produced, which may decrease revenue. If a company does not choose an outstanding set of workers for its reserve pool, it may face a deficit in terms of work and productivity. The company not only downsizes its number of employees but it also losses the collective skill set of every employee who gets terminated. Each employee who served the company contributed their time, energy, and professional skills to make the business successful. This is why every employee is crucial, and the loss of even one skilled worker can cause negative repercussions for a company.
Loss of Experience:
Senior employees invest more of their time and energy towards the growth of a company. They know all the pros and cons of their job and how to thrive under pressure and unwanted circumstances. When these employees are lost through downsizing, the company also loses loyal, experienced, and faithful employees on whom the company used to depend. Due to the absence of these veteran employees, the workflow may be poorly affected. This may take some time to correct.
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