What is Downsizing?
Downsizing often refers to the process of minimising the size of workforce by removing the employment of employees. It is also often referred as a layoff. Downsizing is most common in a recessionary situation where downsizing helps companies to cut costs. Some major companies also layoff a percentage of low performers each year in order to maintain a competitive and efficient workforce.
Employees are mostly asked to exit are often compensated by paying a fixed amount of money or a few months salary. Downsizing not just affects the employees who had to exited the company, but also the remaining employees who are in fear themselves to be in a similar situation after some time.
How Does The Downsizing Impact the Role of Human Resource Management?
Human resource management, or HRM, has majorly evolved from a largely administrative and operational role to the one that plays an important part in strategic planning. Nowhere is this shift are more evident than in the trend toward downsizing that began in the 1980s according to the "Ivey Business Journal." This expanded role, in which workforce strategies align with the short, medium and long term objectives of organization, that contributes to the organization's ability in order to respond to changing conditions.
Reasons for Downsizing Companies:
Downsizing is done in order to restructure and revamp the whole setup, to increase company value and eliminate excess costs and create unemployment as well.
Also, downsizing happens when the company will be vying to find the suitable candidate in order to increase their productivity.
When an employer wants to streamline or even restructure a company to increase the profitability or even maximize efficiency.
Another most prominent factor is when the two companies, whenever the management changes the way their process operates. This operation would not require all the manpower. That’s when the companies would think about downsizing.
Why do companies downsize?
It is because of when the performance goes below to the target for a certain period of time. This could be due to the market trends or when the competitor’s prices are pretty less than theirs.
Besides, when products are sold or services are rendered and have not modified as per the customer changing needs, then the performances go down.
1. Reducing costs:
As it is often known that payroll is considered as the liability on the balance sheet, So he only thing that the company could cut the costs is to keep their hands on the payroll payment management. It’s not only the payroll but the benefits that goes along with it.
Also Read: What is rightsizing?
2. Increase productivity:
Companies often know that while remaining constant with the productivity that they can increase the productivity of individuals.
It can be also advantageous while the cost reduction factor is also considered. Sometimes, the individuals can be replaced with the sophisticated equipment to increase the productivity.
3. Increase value:
Through this process, there are some signals sent out to the shareholders and investors that changes are inevitable to increase the profitability.
This could also help investors in increasing the shareholding, thereby their value also gets increase.
4. Sharpen focus:
Sometimes the companies would be interested in focusing their attention on some of the aspects by outsourcing some of their functions which are mostly time consuming. This indirectly reduces its cost.
Types of Downsizing:
There are many ways that the downsizing process goes about. But the foremost aspect is that the employees should leave the company with dignity. Let us see the various types of downsizing.
1. Reducing the workforce:
This is the most common method followed wherein employees are laid off bringing in early retirement and thereby transferring individuals to critical positions.
The aim here is to reduce the unnecessary positions and thereby the headcount.
The employer should be professional in handling this situation which can be done by calling the meeting with team members.
But before embarking towards this downsizing strategy, the employer needs to reorganize the company to know where or which section needs to be downsizing.
Some examples includes freezing of the hiring process, retrenchments, early retirement packages, natural attrition, and layoffs.
2. Redesigning work:
The purpose of this redesigning focuses mainly on eliminating the unnecessary work that means vacant positions.
The positions that lies vacant are duly eliminated and thereby the duties are then transferred to another function through redesigning. Sometimes the redesigning work functions also works well during mergers.
Some of the Examples are a job redesigning, abolition of functions, reducing work hours, de-layering and merging of units.
3. Approaching the system:
Making changes to system in an organization is making cultural changes so that it would also ultimately bring in order to reduce the costs.
This have the positive impact of increasing the productivity which the employees generally appreciate. The results are mostly long term rather than the short term.
Not focusing on the job losses or company gaining, the emphasis is mostly on the customer’s service that probably leads to profitability. This approach is much more effective during the major crisis and financial difficulty.
Benefits of Downsizing Employees:
1. Losing a staff:
As reducing the manpower is the major criteria that most of the times, some of the functions are merging into eliminate redundancy.
When there are merging of the functions, there is a need to let go some of the employees. There could be no other option other than letting the staff go to meet the final financial crunch.
2. Losing credibility:
Companies that has many links with the vendors and other customers would probably see that vendors has become more hesitant in continuing businesses with them as downsizing the business is often considered as a sign of bad financial phase.
Creditors would also be even thinking twice whether to proceed. Though the company may not actually be downsizing due to financials, the overall picture on that credibility takes a hit.
3. Affects the bottom line:
As downsizing is mainly reducing the overall burden on financial, it indirectly affects the bottom line.
Like let's take for instance, if there is a reduction of manpower, then it would also directly hit the production or services as it would also be reduced when compared to the previous one.
Though it may seem that it will efficiently increase, but it may not be so.
4. Fewer opportunities:
As downsizing is supposedly said to be reducing positions, those who are heading back the organizations cannot look forward to opportunities for growth within the framework.
Hence, it would not be an ideal place for those people who wish to see a growth in their career as the options are limited or nil.
5. Negative public perception:
Most of time, business who don’t declare their downsizing reasons create a negative impact on their image in the eyes of the public.
They seem to others as unprofitable or failing business thereby decreasing clients due to some misconceptions & misconceptions can be avoided by being vocal of the reasons for downsizing.