What is Downsizing in Business

Javi Fondevila

Global organisations downsize for a whole raft of reasons, and not always disconnected from the demands of shareholders. But at the SME level it’s often a financial necessity for keeping the business or department afloat. That said, it also comes with a number of sometimes unforeseen downsides that can be exacerbated by a poorly planned downsizing strategy.

For example, whilst staff morale is always going to dip, it can be made far worse if the issue is not handled sensitively and fairly. It also sends out messages to customers and other associated companies that you need to be aware of.

In other words, will the downsizing be negatively perceived by the industry you’re in and will it affect your association with suppliers?

In the final instance, you’re looking to soften the blow for laid-off workers, not only for their sakes, but also to help maintain your company’s reputation as a good employer and a caring company.

All businesses are prone to problems that result in downsizing; don’t think that you are safe just because you are operating a Shopify or Prestashop e-commerce store.

Downsizing: Doing it Properly

There are both right and wrong ways to downsize a business. If it is something that your organization is considering doing, then it is important to follow a few key steps to protect your company’s reputation.

1. Be totally transparent

Be transparent to staff about the difficulties that the company is finding itself in, and make any plan to overcome them as easy, transparent, simple, clear, and fair as possible. Some companies fear that employees will panic and act irrationally if they know the true score, but there is no evidence whatsoever to support this.

Moreover, when companies don’t tell it like it is, or try to hold back information, employees begin speculating about what’s going on and start rumours going that often make things far worse.

If you aren’t transparent then employees will rightly believe that you are hiding important information.

2. Time your downsizing right

Timing is everything.

If you downsize as a knee-jerk reaction, even if it saves big money in the short term, you may be seen as a shallow employer and, even worse, you will actually be unable to respond when things upturn. Moreover, purely looking at costs without a sense of business values and an eye to the future will just define your company as a reactive, rather than proactive. one.

Remember, downsizing is actually a business plan, not just a cost-cutting exercise. It is something for the long, not short, term.

3. Plan your downsizing thoroughly

Once the situation is defined clearly and fairly, then so too should be the plan for recovery or action. Once people understand the need for cutbacks, it’s no good not having a follow up plan; otherwise it could be cynically interpreted as a management method of keeping people working harder and fearful of losing their jobs.

A structured plan is crucial to keeping people focused on the need for downsizing and will help towards their acceptance of it. The process should also try to make the downsizing a singular event, rather than several sequential events which will hinder the company’s ability to draw a line under the cuts and move forward.

4. Make sure there is enough time

Time is a valuable commodity, and never more than when people are being laid off. Allow enough time to develop and implement a transition plan. If it is unfairly swift or poorly executed, it can cause reputational damage and result in legal issues.

Even if you cannot offer generous redundancy packages, giving employees plenty of notice before their last day, perhaps offering excellent references and other help as appropriate, allows people to make their own plans effectively going forward.

It may also encourage quality employees to come back to you in the future.

5. Don’t make things personal

In the final instance, the redundancy selection criteria need to be fair and logical. Every employee (even those not being made redundant), will soon see through something which has its own agenda, or which favours certain individuals or groups.

Downsizing Needs to be Done Right

Nobody ever wants to do it, however, sometimes it just cannot be avoided.

If you do find yourself in a situation where it is necessary to scale down your operations, following the five above tips may help you be more successful in your endeavours.


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