Downsizing improves an organization’s productivity, efficiency, and competitiveness. However, the workload remains the same.
Reasons
The main reasons for downsizing a business are to lower costs and increase the company’s productivity. Other reasons include restructuring the organization and eliminating redundant or no longer necessary positions to run the business. Even a merger of two organizations to enhance the productivity and efficiency of the brands can trigger downsizing as a certain amount of workforce would be required after the merger of two organizations into one. Therefore, the employees with excellent performance and whose skills would be needed for the company later do not fall victim to downsizing.
Several situations lead to the downsizing of an organization.
Situations Leading to Downsizing
- Low Performance: When a company’s product price is not competitive in the market and when it fails to modify its product or service according to customers’ demand, its overall performance suffers. The company can also lose a competitive edge in the market if it does not stay up with the times and focus on marketing in the modern age and advancing technology.
- Reduction in Cost: As employees’ salaries are mentioned as a liability on the balance sheet, they can easily cut costs by reducing manpower and putting pressure on the existing employees. Anytime a business experiences a downturn, decisions must be made about ways to save costs, and the number one cost in every company is salary and benefits. Therefore, layoffs often occur to reduce costs.
- Desire to Increase Value: Downsizing grabs the attention of shareholders towards the company and gives a message to the investors that the company is ready to increase its profitability in the existing situation as a major portion of the cost has been cut. In this manner, investors start taking an interest in the company’s shares, hence increasing their value.
Types of Downsizing
A priority is that the employees of the company should leave with dignity. However, there are several types of downsizing an organization can go for.
- Reduction in the Workforce. This is the most favorable strategy an employer chooses in the earlier stages of downsizing. The employer tries to attract the workforce to resign or retire. Certain departments offer early retirement packages so employees can leave with dignity.
- Redesigning Work. In this form of downsizing, vacant positions are removed by redesigning the organization’s layers and functions. It also includes redesigning jobs and functions, where a layer is removed by changing the job responsibilities of the existing employees.
- Approaching the System. This includes changing the organization’s culture, where some activities are removed to increase productivity. This measure is usually taken during major crises, and the employees usually appreciate this approach.
Benefits of Downsizing
If done right, downsizing proves to be the most beneficial activity for managers. It saves the business, lowers operational costs, brings transparency, strengthens relationships between employees and managers, promotes teamwork, re-evaluates the whole business, and brings the business into a manageable condition.
Disadvantages of Downsizing
Every action has a drawback. Despite all the benefits, downsizing may damage the organization’s credibility, reduce staff, increase workloads, lower the bottom line, negatively affect public perception, and destroy the organization’s image. Public demand is usually affected by how an organization treats its employees; downsizing might reduce the company’s public demand.
The public and employees of an organization do not usually appreciate downsizing, which can create job security issues for existing employees. However, it can attract investors to an organization and enhance efficiency and productivity.
In conclusion, downsizing presents itself as a double-edged sword for any organization. The advantages are numerous, including lower operational expenses, improved productivity, and the opportunity to reorganize the business into a more efficient and transparent organization. These advantages can lead to strengthened relationships between employees and managers, foster teamwork, and ultimately save the business from potential downfall. However, we cannot overlook the disadvantages. Downsizing may tarnish the organization’s reputation, increase the workload on remaining employees, spread negativity, and potentially harm the company’s public image and demand. While it may secure short-term financial stability by attracting investors and enhancing productivity, the long-term impacts on employee morale and public perception can be detrimental. Therefore, downsizing must be approached with caution, balancing the immediate financial benefits against the potential long-term consequences on the company’s culture and public image.
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