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What is Downsizing?

Mary McMahon
By
Updated Jan 28, 2024
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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.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a WiseGeek researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

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Discussion Comments
By latte31 — On Oct 06, 2010

Sunshine31-I totally agree. I used to work for a staffing company and we got requests all of the time from other companies.

I also want to say that sometimes downsizing refers to reducing costs in our own personal life. For example, senior downsizing refers to when seniors may sell their home and move to a condo in order to reduce costs because they don’t need such a large house.

It could also refer to altering our lifestyle to reduce unnecessary expenses. This may be to reduce some of the luxuries in order to save money much like a company does. I know that a lot of empty nesters tend to do this because they want to simply their lives financially. This is the best example of a downsizing definition.

By sunshine31 — On Oct 06, 2010

Mutsy-I have heard of that too. A lot of companies are moving their operations overseas. I just wanted to add the HR downsizing happens all of the time.

In fact, when downsizing occurs this is usually the first department that gets cut because it is so easy to hire an outside company to perform basic HR functions like payroll, benefits administration, and recruiting.

It is easier to have an outside company handle these functions on an as needed basis instead of having an entire HR department in which you have to pay for all of the their salaries.

By mutsy — On Oct 06, 2010

Downsizing layoffs happen all the time. In difficult economic times or if the company is struggling financially they will institute effective downsizing in order to save money downsizing companies may eliminate jobs were outsourced jobs overseas to reduce costs.

For example, a friend of mine worked for the company DHL, she was an accounting supervisor and suffered a downsizing layoff because the entire accounting department was moved to Costa Rica.

The company downsize because it was cheaper to hire workers in Costa Rica then it was to continue hiring Americans. An average accountant in Costa Rica, for example, makes about $1,500 a month compared to about an average of $6,000 to $7,500 a month.

There are many American companies that have operations in Costa Rica because not only is the labor inexpensive, but the employees are very well educated and polished.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

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