Corporate Downsizing

A company usually goes in for a corporate downsizing strategy due to declining profitability reasons. Downsizing is basically a technique of reorganizing a company's internal structuring so as to ensure reductions in a part of the company's work force. The company may let go of employees on its rolls. The strategy may be limited to a certain section of the company or may apply across hierarchy and roles. It is also often referred to as corporate right sizing.

The Need for Corporate Downsizing

Profitability
One of the reasons for retrenchment is an effort to keep the company's operations profitable, especially during testing business times. The recent economic recession of 2008-2009 saw the use of this strategy in both manufacturing and service oriented corporates. An economic downturn may result in lowering of demand, and this impacts existing manufacturing facilities and profitability. The pressure on the top and bottom line necessitates retrenchment.

Mergers and Acquisitions
If a merger is in the offing, reduction of expenditures may be required primarily to prevent duplication of efforts between the merging entities and to streamline efforts. It could also result in the closure of some plants and resultant layoffs if the effected employees are not entirely absorbed in the new post merger entity. Acquisitions or corporate buyouts could also be a contributory factor for reduction of expenditures. The focus in case of both mergers and acquisitions is the need to enhance both top and bottom lines and reduce costs.

Workforce Flab, Computerization and Outsourcing
Sometimes there is the proverbial case of too many employees and too few tasks. Optimum employee strength could also turn into flab due to economic or market-related downturns resulting in contracted demand levels and the resultant pressures to engage in downsizing. The advent of computers in the modern-day work place has not only resulted in greater efficiency but also a resultant reduction in work force size. One of the major reasons for retrenchment could be outsourcing. This is when jobs are moved out of the country into other nations which offer low cost operating environment.

Strategy and Ethics for Downsizing

Companies might resort to steps such as closing down plants, maintaining existing plants but cutting down on production, selling of units or entering into mergers with other companies and outsourcing.

As far as the ethics are concerned, state laws may require that the company provide adequate notice to the affected workers. The employees must be informed about their future prospects in the company. Severance packages that are as per law and which adequately secure the impacted employees futures till they find their next jobs too are a vital part of the retrenchment strategy.

Some companies also arrange for counseling sessions targeted at the identified employees to ease their leaving. Corporates could also consider training sessions with certifications for departing employees so as to equip them with additional skills needed to secure their next jobs as quickly as possible. Ultimately the guideline for retrenchment strategy is to ensure that those facing the pink slip are treated with due dignity and respect so as to ease what would be a painful transition.

With the dark clouds of recession receding, it does seem that downsizing strategy is a thing of the past with corporates lining up to hire more people.