Economics/Business

Downsizing in a company/Objectives/implementation/pros and cons

The downsizing is a management tool that emerged in the late 1970s, with the aim of promoting the reduction of costs on companies to thus make them more competitive. When he arrived in Brazil, ten years later, downsizing was improved and focused on promoting a deep restructuring in organizations. Downsizing in a company

This article will clarify the concept of downsizing, point out the advantages and disadvantages of its application and also list ways to implement this tool in your company. In the end, we hope that the content will help restructure organizations to achieve more and better results. 

what is downsizing

Do you know that idea that “less is more”? This maxim is related to the concept of downsizing and has a direct focus on the HR department and employees. Furthermore, it consists of reducing and often eliminating all unnecessary or obsolete processes or people/positions in the company. 

They are the ones who end up freezing routines and causing a negative impact on decision-making and making internal processes less agile. In this sense, downsizing promotes the restructuring of the company, using a set of administrative techniques that seek to:

  • reduce costs;
  • eliminate unnecessary processes;
  • increase production efficiency. 

The concept is even easier to understand when we look at the term downsizing. In the English translation, the word means reduction, reduction, flattening. 

As a result, the application of the technique brings less bureaucracy, fewer steps and better performance, in addition to more results, quality in deliveries and more focus on customer needs. Downsizing in a company

We can compare downsizing with moving to a smaller apartment. First, we reduce the furniture, discarding what is not used. Afterwards, we cleaned and organized the new house. In the last step, we buy furniture that fits in the small space.

For this reason, many HR managers often say that downsizing cuts down now, in the present, to seek the company’s expansion in the future. 

Downsizing Objectives

Broadly speaking, the objective of downsizing is to streamline the company, reducing costs and retaining talent to ensure high performance and, consequently, achieve results. In addition, the technique seeks:

  • cost reduction;
  • suppress bureaucratic routines;
  • eliminate unnecessary hierarchies and positions;
  • make internal communication more transparent and faster;
  • speed up decision making;
  • provide quick responses to competitors’ actions;
  • focus on the real needs of customers and the market;
  • act with less time for analysis and greater assertiveness;
  • increased synergy between teams;
  • improving the company’s image and productivity in general.

How to implement downsizing

Initially, to implement any change in the company , it is essential that the leaders know and understand the internal and external context of the business. Downsizing is no different. 

In order to be successful in the process of reducing costs, people or processes and, thus, increasing the organization’s productive efficiency, the implementation must be well carried out and assertive. Now, look at a set of best practices that can be followed so that the downsizing process only results in benefits. Downsizing in a company

people are the biggest capital

Never forget this condition: it is the employees who guarantee the success and growth of companies. Amazingly, many managers are not sensitive to this issue. 

Thus, in crisis situations, they do not think about valuing or investing in employees. Therefore, when implementing cuts, try to retain talents and professionals who present high performance in the company. 

Plan your actions well

Before applying cuts, plan each move and step of downsizing. Also, assess which costs need to be reduced or eliminated and which processes are in disuse or need to be optimized. 

Analyze the cause of low organizational results

Try to investigate the reasons behind bad results. Could they be linked to inadequate customer support, inferior quality of products and services in the face of competition? Or are they consequences of an economic crisis?

Understanding the company’s scenario is essential before applying methods that can have repercussions in cuts. 

Motivate employees who remain on the team

Be sure to encourage and motivate those professionals who went through the downsizing process but were not directly impacted by it. Support teams so they understand the decisions made and stay aligned with management during the change period. 

Put in place an action plan

Establish new processes in the company, review and improve the organizational culture. Make your team “wear the shirt” of the business and update market procedures, products and services. Downsizing in a company

Think long term actions

Even during the downsizing implementation, think of actions to be applied later, such as new recruiting processes to attract talent in line with the organization’s new moment. 

Invest in expansion and modernization

Don’t be afraid to look for ways to expand and modernize the company. Remember that cuts in the present represent growth in the future. 

Bet on organizational restructuring

Sometimes, all an organization needs is to restructure and assume a new business posture, especially in light of economic instabilities. Therefore, believe in downsizing as a viable and necessary alternative to simplify and optimize processes. 

Here are other practical tips for implementing downsizing efficiently and safely:

  • analyze the company’s operating and production costs, listing them in degree of importance;
  • replace or eliminate costs that are not significant to the overall business processes and objectives;
  • simplify the organizational structure, reducing the number of positions and hierarchical levels where possible;
  • cut jobs and jobs that do not contribute enough to the effective development of the business;
  • bring team leaders together to make internal decision-making processes horizontal;
  • distribute responsibilities among as many employees as possible to integrate processes and teams;
  • adopt work productivity metrics and performance reviews to monitor employee performance. Thus, the company helps them reach their maximum potential;
  • if possible, outsource services that are not directly related to the core activities of the business, such as accounting, janitorial, security, among others;
  • invest in technology to streamline internal processes that can be managed more easily and cost-effectively. Downsizing in a company

Advantages and disadvantages

At the beginning of the content, you read that downsizing is the reduction, including people. In a simplistic way, there is a misunderstanding that the technique is negative for applying cuts.

Like any method, downsizing has its advantages and disadvantages. For this reason, companies need to carefully study the scenario to apply it. 

Benefits

The correct application of the downsizing technique has positive consequences for the company, such as:

  • increase in the company’s added value;
  • increased operational efficiency;
  • reduction of the company’s operating costs and expenses;
  • greater agility to make decisions;
  • more efficient performance reviews;
  • optimization of the production chain;
  • scale operations;
  • focus on real customer needs;
  • transparency in internal and external communication;
  • reassessment and revitalization of processes.

Disadvantages

On the other hand, when poorly planned or executed, downsizing can cause problems for the organization. Among the negative consequences are: Downsizing in a company

  • decreased profits;
  • loss of qualified and specialized human capital, especially when there are hasty dismissals;
  • demotivation of the remaining employees, due to potential dismissals that downsizing can promote;
  • initial drop in internal productivity with the reduction of staff;
  • drop in the quality of products and services provided, especially when essential business processes are outsourced;
  • spending on severance pay for dismissed employees;
  • damage to the organization’s image, if the leaders do not manifest themselves clearly and objectively about the entire process of cutting in the internal bureaucracies. 

Tips for taking care of the organizational climate after downsizing

Even in view of the advantages, the application of downsizing in the company can affect the organizational climate . The reason is the possible mass dismissals and the extinction of functions, positions or hierarchical levels. The consequence of this usually destabilizes the employees’ emotions. 

Thus, for this transition in search of “less is more” proposed by downsizing, it is essential to keep the organizational climate high. Otherwise, managers may have problems. But how to take care of the professional environment and minimize the impacts caused by cuts and changes?

Above all, bet on the transparency of all processes. Clear and noise-free communication can be the best way for downsizing to achieve its goals, without hurting or frustrating expectations.

At the same time, be sure to seek strategies for the constant maintenance of professionals’ motivation. At this point, the Human Resources department has a fundamental and decisive role. 

Then plan and develop internal campaigns to introduce teams to each step of the downsizing. In addition, show the real benefits that will be achieved, not only for the company, but also for employees. Downsizing in a company

The most important thing is to guarantee well-being in the professional environment. And, for that, it is important that the organization does not measure efforts. In this way, employees will perceive that the changes will be positive and it will be easier to deal with them and the challenges imposed. 

As you’ve seen throughout this article, the downsizing technique is a complex management tool. For this reason, it should not be applied with the simplistic objective of just reducing costs.

Also, downsizing requires careful planning from start to finish. Its implementation demands strategy, analysis and follow-up. When managers take this precaution, the impacts can be significant.

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