How effective downsizing strategies can enhance company performance

How effective downsizing strategies can enhance company performance

Employee downsizing has become a common phenomenon in recent years. Every business functions in a dynamic environment and a type of downsizing is a reasonable response to this event.

Downsizing is the practice of management lowering the number of the workforce in order to enhance the productivity and effectiveness of the company.

Why downsize?

There are a variety of reasons for choosing downsizing as a growth strategy including cost reduction, profit and productivity enhancement, technological advancement, merging, management changes, getting rid of workforce deadwood and so on.

HR has to choose the right downsizing strategy for its company which has three different forms -

Workforce reduction - a short-term strategy for reducing staff numbers through attrition, early retirement, voluntary severance payments, and layoffs or termination.

Work redesign - a medium-term plan focuses on the workflow and determines whether or not specific functions, products, or services should be altered to reduce company expenses and streamline processes.

Systematic change - a long-term plan. By observing the organisation's overall progress and modifying the culture, attitude, and values of the employees, the organisation's costs and quality can be reduced.

Changing notions to ‘right-sizing’

To meet organisational goals, simply reducing the number of employees is insufficient. As a result, several businesses began to focus more on workplace ‘right-sizing’ or ‘restructuring.’

There are three different forms of restructuring. Portfolio restructuring is an attempt by an organisation to restructure various jobs while financial restructuring is reorganising the company's finances such as decreasing cash flow and growing debt levels.

Organisational restructuring refers to the reorganisation of an organisation as a whole such as restructuring the internal administrative structure.

Both sides of the coin

The downsizing process has beneficial effects on organisational performance in the short or long run including greater remuneration and recognition, increase commitment, more task-oriented for remaining employees, etc.

However, there are some negative impacts including job protection and loss of trust, increased workloads and pressure on remaining employees, lower morale, loss of experienced and knowledgeable employees, and client relationship with the company may suffer.

Ideal practice

HR Manager has to make the attempt to establish a link between downsizing and organisational performance which will help them to have a better knowledge of the organisational situation.

The ideal practice of downsizing should include being open and honest about the organisation's current situation and its potential impact on the employees, showing compassion and respect to those who have been laid off, ensuring that decision-making procedures are perceived as just and fair, allowing employees to choose how they want their exit handled on the day of their discharge, providing new hires with a cause to join and survivors with a reason to stay, examining the impact of downsizing on all HR systems carefully.

According to research, many organisations that shrink end up with worse productivity than when they started. There are a few options to think about as downsizing alternatives such as doing cross-training, planning for succession, and creating revenue-increasing and value-added opportunities.

An example from Bangladesh’s perspective 

During the pandemic situation in the last 2 years, many companies in the banking and other industries have followed the downsizing process to operate and survive. A private bank retrenched around 100 employees back in 2020 and cut a portion of the salary of the surviving employees to enhance overall organisational performance creating quite a buzz.

An example from a global perspective

Due to bad political conditions, Air Canada had to make some strategic decisions such as purchasing their Competition-Canadian Airlines, divestiture and downsizing, introducing multiple brands, increasing international market share, etc.

They downsized around 10 per cent of employees to cut the cost and use a turnaround strategy to sustain the industry. Through their effective and efficient downsizing and turnaround strategies, they achieved competitive advantage and superior profitability later.

Benefits are clear

Overall, research suggests that downsizing can be beneficial to a company if appropriately managed. HR professionals must be well-versed in successful downsizing strategies as well as how to manage the downsizing process.

Experts suggest some strategies for downsizing. Organisational downsizing should be done in a proper manner that is connected with HRM principles in order to avoid affecting overall organisational performance.

Besides, top management should play an active and visible role in establishing the downsizing approach. Both those who lose their jobs and survivors should be given special treatment. The organization also has to build a strong and flexible employee relationship so that survivor doesn’t feel insecure about the job.

Downsizing is an inescapable option in many circumstances but we have to keep in mind that downsizing should not be the first, but rather the last option.

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