Downsizing is the process of terminating multiple employees of the company at the same time. It is the temporary layoff or suspension of employees. The company uses this practice to save money from the company in poor economic conditions. It actually depends upon the decision of the management of the company, downsizing could be for a temporary period or it may be decided on a permanent basis. Generally, employees got rehired after a period of restructuring period of the company. Restructuring phases which require layoff are branch closings, departmental consolidation and other ways of cutting pay expenses. In these phases, employees are not fired, they become part-time or temporary workers of the company.
The other way to cut down the expenses are job sharing, cut back benefits provided to employees, shorten the work week, etc. These methods will not require to lay off of some employees, though all employees will face the circumstances coordinately and conducive environment can be created in an organization.
Reasons to downsizing: The possible reasons for downsizing are as follows:
- The downsizing is done mainly in the economic crises of the company to reduce the cost and increase profitability.
- The downsizing of a company can be done during the merger between two companies or the acquisition of a company by another company. if the company is planning for merger or acquisition of certain company it can downsize it to be viewed as a more viable venture to be acquired.
- The company could downsize the workforce, in case of cutting down the product or service.
- Downsizing of a company is also implemented when an employer wants to streamline it in the market.
Impact of downsizing on employer-employee relations
- Increase Efficiency: The practice of downsizing provides the greatest advantage of converting the company in more lean and productive enterprise, it increases the efficiency of the company because inefficient employees will be laid off, so employees tried to make more efforts to be retained with an organization.
- Increases Morale: when a company reduces its cost incurred on employee benefit, it actually discourages employees. They have to put more efforts at less cost, thus an employer has to encourage employees for better performance and protect them by ensuring success. The decision of downsizing is also critical; the inefficient employees are required to be laid off. It will increase the morale of efficient as well as inefficient employees to perform better.
- High teamwork: The management of the company must follow an open channel of communication. It will improve the management of the company and also improve the willingness of employees to work with the employer and resolve the issues or faced by the overall organization. The small size of the company will encourage them to focus on teamwork, training and incentives of employees moreover it will motivate employees and increase productivity.
- Increase employee loyalty: Downsizing is a very significant decision for an organization to which can provide a positive experience to the overall organization. It is not necessary for an employer to lay off the staff, the cost can be reduced by decreasing the shift timing and job sharing practices. It will encourage all employees and all will feel their importance in an organization and try to improve their performance in the difficult times.
Conducive environment: The better understanding among all the members of an organization. The healthy and positive way out of problematic situations faced by the company with high co-ordination and co-operation will create a conducive environment in an organization and strengthen the relationship of employer and employees. everyone wants to perform better and contributes to the overall aims and goals of an organization.