As the economy becomes worse and a business is unable to meet its own expenses or it becomes less profitable, most businesses result in laying off some workers in order to make profits and remain competitive against rivals in the industry. This process is referred to as downsizing. While these events are detrimental to the employees who lose their jobs, it’s advantageous to the business since the business is able to recover or remain competitive.
Downsizing reduces expenses. The expenses are usually reduced due to the reduced payrolls as a result of the employees who have been laid off and the overall reduction of the employees’ overheads. Other than laying off employees, some businesses result entice the high earning senior employees to retire offering them a huge retirement package in order to replace them with other less experienced employees who will demand lower salaries. In other businesses, the downsizing involves closing some locations or subsidiaries which are not making enough returns and sell the related assets leading to a reduction on the maintenance fees involved.
Downsizing in a business also changes the culture of employees in a positive manner. Although employees often lose morale during the downsizing period as no one is sure to retain the job, if the company renews its focus on the employees, this leads to increased satisfaction and appreciation leading to increased loyalty and team work towards gaining the business goals. As time passes, the employees’ gains new appreciation for having a job in a business that laid off some employees and thus increasing teamwork and productivity among the employees who remain.
During the downsizing period, the business management is also able to remove the less capable employees among the staff. The management assesses the productivity of each and every employee and those employees with least return to the business are laid off during this period. The business remains with the productive people. Downsizing also helps in transferring of employees to the different departments depending on how suitable and able they are able to operate in those new areas.
Downsizing also gives the management an opportunity to evaluate areas which give maximum returns to the business and give more focus to such areas while cutting down the less profitable areas. If the company has been foregoing its core values and mission, downsizing gives the business an opportunity of re-evaluating its priorities. Some business companies also have their share prices rise as a result of downsizing