What is Downsizing?

Downsizing is a commonly used euphemism which refers to reducing the overall size and operating costs of a company, most directly through a reduction in the total number of employees. When the market is tight, downsizing is extremely common, as companies fight to survive in a hostile climate while competing with other companies in the same sector. For employees, downsizing can be very unnerving and upsetting.

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.

In some cases, it becomes apparent that a business has too many employees. This may be because there has been a decline in demand for the company's services, or because a company is running more smoothly and efficiently than it once was. Many offices are heavily bloated with support staff and redundant departments, and these businesses may refer to downsizing as “trimming the fat.”

Numerous terms accompany downsizing. Employees may be terminated, fired, laid off, made redundant, or released. A business may be optimized, rightsized, or experiencing a reduction in workforce. Some of these terms have different legal meanings depending on where one is in the world; a layoff, for example, may refer to a mass temporary release of employees who will brought back in once business picks up, while a redundant employee is one who is asked to leave permanently.

Numerous consulting firms offer assistance with downsizing, often with the use of specialists who visit a business to evaluate it. Since profit is an important bottom line for companies, downsizing measures should be expected by employees, especially when they observe a troubled market or they are working for a struggling company.

For employees, the process can be stressful, because they may feel uncertain about whether or not they will continue to employed. Sometimes, downsizing is very abrupt, with a huge batch of employees being released from employment on the same day, while in other cases it may be a more drawn out and nervewracking process in which employees are slowly let go. Employers should remember that downsizing is very upsetting and stressful, and they should take steps to make it run smoothly while assuring valued employees that their jobs are secure.