Downsizing or cutting jobs is the permanent reduction in a company’s workforce by removing unproductive employees or departments in an organization. Downsizing is a common practice followed by companies when economic slowdown and businesses facing losses or shutdown occur. Cutting jobs is the easiest way to cut costs and downsizing a complete store or branch or division can help in the corporate reorganization.
During times of stress or financial or economic crisis or drastic fall in revenues, downsizing is implemented to have leaner and effective businesses. Downsizing is not a positive thing for the employees definitely but also for the company, it leads to a long negative impact in front of its various stakeholders. Downsizing cannot be skipped by companies and one should be prepared to lay off employees to cut the costs when the organization is in deep trouble.
Employees should also be quite prepared mentally when they get to know that the company’s sales are falling or there is a huge drop in revenue and even stay updated with the economic news of a financial slowdown in the state or country.
Removing any part of the business cycle or a complete division to create a more efficient business is a legal practice. Getting off the organizational structure that does not add any value to the final production and management stage is known as a lean enterprise.
Downsizing can also be implemented to align the company’s skills and talent with the larger market. An example is of a company that removes all employees who are above 45+ because they lack the competency and skillset to understand the technology side of their jobs leading them to have obsolete skills that are not useful for the company in its future course of action.
However, there have been some worse effects of downsizing like losing talented employees, reduced customer satisfaction, and lowered financial health leading to the bankruptcy of the company in the long run.