Downsizing refers to permanently reducing a company's workforce through layoffs and restructuring. There are several reasons for downsizing, primarily to increase efficiency and profits by cutting costs. Common methods include replacing human workers with machines, outsourcing jobs, or shutting down entire divisions. While downsizing aims to make companies "leaner and meaner", it also has disadvantages like losing skilled workers and hurting employee morale. Managing layoffs well through support services can help minimize the negative impact.

1. DOWNSIZING
Downsizing, also known as restructuring, rightsizing, reengineering, or reorganizing refers to a permanent
reduction of workforce through layoffs and other means, and comes with changes that affect the workforce,
such as changes in job descriptions, department consolidations, office closures, and the like.
There are several reasons to engage in downsizing. The primary reason is to make the daily operations of a
business more efficient. For example, a company may be able to replace assembly line employees with machines
which will be quicker and less prone to error. In addition, downsizing increases profits by reducing the overall
overhead of a business. In other instances, a company may decide to shut down an entire division; a car
company, for example, might decide to stop making sedans altogether, thus cutting an entire department.
Downsizing as a strategic option started in the 1980s and its unpopularity notwithstanding, continues largely
unabated and is even growing. Many of the largest corporations such as General Motors, AT&T, Delta Airlines,
Eastman Kodak, IBM, and Sears, Roebuck and Company have all downsized.
The benefits of downsizing are that it allows companies to cut costs and improve efficiency, contributing to a
“leaner and meaner” organization. But, like anything else, the process has to be closely managed in order to reap
these benefits.
COST SAVINGS
The most apparent benefit of downsizing for organizations is that it helps cut costs.
Downsizing is usually a direct reaction to poor economic conditions. Companies respond to reduced sales,
either due to recession or by competitors gaining market share, by eliminating jobs wherein they reduce their
payroll outflow and maintain or achieve specific levels of profitability.
Downsizing, however, need not depend on poor economic conditions alone. Mergers and acquisitions lead to
duplication of support staff. Changes in technology lead to obsolesce of product or service lines. All these things
create excess workforce with no work, and downsizing allows organizations to respond to such changes and
protect profitability.
IMPROVED EFFICIENCY
A major advantage of downsizing is that it cuts flab and improves all round efficiency. The jobs that contribute
least to an organization's profits and those which affect the core operations least usually become the first targets
for downsizing.
The ways by which downsizing contributes to efficiency include:
The need to reduce the workforce forces the organization to undertake an honest appraisal to separate
performers from non-performers, and to eliminate non-performers.
The loss of personnel forces a re-look at the job descriptions of retained employees, allowing for greater
responsibilities, job enrichment, and enhanced performance standards for employees, usually with pay for
performance deals.
The relative scarcity of personnel compared to the past forces the remaining workforce to direct their efforts
towards core organization activities, eliminating redundant and unnecessary tasks.
The reduction of workforce helps eliminate corporate bureaucracy and hierarchy, and contributes to the
organization restructuring itself as a flat organization with improved communications and responsiveness.

2. LABOUR MOBILITY
An indirect benefit of downsizing is that it forces the workforce to keep abreast of the latest skills and
technology and encourages mobility that benefits the economy. Downsizing forces a shift of workers from
moribund and obsolete industries to emerging and growing industries that require workers. Skilled but displaced
workers usually find new jobs in such emerging sectors relatively easily, and failure to find new jobs requires the
laid off workers to enhance their skill set or take up a new career in more demand to become employable.
DISADVANTAGES
For all the advantages downsizing brings about, it does come with some major disadvantages.
1. Downsizing leads to loss of skilled and reliable workers. The difficulty in finding new suitable workers makes
the company ill-equipped and ill-prepared to take advantages of new opportunities and sudden
turnarounds.
2. Regardless of the merits of the lay-off, downsizing results in disruption of interpersonal relationships at
work, both formal and informal that have taken root over the years.
3. When downsizing workers primarily due to them no longer being necessary to the organization rather than
due to their actual performance, the workers may feel like victims of injustice. The workers who remain feel
insecure and disoriented when facing the new realities.
The success of downsizing depends on adopting the correct methodology and a strong leadership to manage the
aftermath. Absence of strong leadership causes employee confusion and the inability to adjust to new
demanding roles, which can lead to a loss of the benefits associated with downsizing.
In 2012, when Citigroup let go of 100 employees across India, many functional heads received an unusual brief.
They were asked to scout for jobs for those who had been terminated. Counsellors were also roped in to soften
the blow and professional services firms were hired to make the career transition of the terminated employees -
some of them star performers - smooth. Job cuts are inevitable. But the cold, insensitive and sheepish way of
handing out pink slips is slowly being replaced with responsible and supportive approaches. Citi provides services
of global outplacement firms to employees displaced during any review. It helps such employees with coaching
on job search skills, interview techniques, placement support and even basic application letter-writing skills. The
bank foots the bill. HR gurus say how a company parts ways with employees will have a significant bearing on
the morale of the remaining workforce and also on the company's ability to attract talent in the future.
Managing layoffs well is important for the sustainability of the 'employer brand'.
CRITICISM
A major criticism levied against downsizing is that organizations layoff permanent employees and outsource
their jobs, or take in temporary workers at low wages with little benefits. This loss of permanent jobs creates
negative economic repercussions, leading to greater unemployment, lesser income levels, and forcing
governments to spend more on helping displaced workers. Some economists however suggest that the
increasing operating efficiencies of organizations using such practices leads to more profits, and consequently
more growth, allowing them to hire higher skilled and high wage employees.