What Is Organizational Downsizing? Understanding the Benefits and Strategies to Get Started
Unexpected economic conditions can lead to rough times. Whether your business has been impacted by a disease outbreak, a natural disaster, or other stressors, the burden it can have on your organization’s efficiency can be debilitating. How can you adapt to such changes and keep your doors open during such crises?
Downsizing may be a solution. While the fear and uncertainty associated with downsizing may inspire you to avoid considering it altogether, it’s important to understand that downsizing encompasses many different strategies beyond layoffs. There are a wide variety of strategies you can use to downsize your organization without dramatically impacting the livelihoods of your employees.
This article will explain the basics of this concept, discuss some downsizing strategies that may help your business, and provide tips to mitigate any risks associated with doing so.
The Basics of Company Downsizing
In scenarios like the ones mentioned above, it may become necessary for a business to look into company downsizing. Also known as “organizational downsizing,” this is a change in the structure of an organization to reduce costs and improve efficiency and productivity.
There are some major benefits to company downsizing:
- Improving efficiency: Adopting leaner practices allows your business to make more strategic use of its resources. This means that your organization will be able to accomplish more with less.
- Eliminating waste: Inefficient processes result in wasted time and resources. This is particularly true when redundant processes or positions can be identified.
- Getting rid of unneeded assets: Selling unneeded items, particularly bulky office equipment or furniture, can be a great way to generate some additional income while creating extra space. Both of these benefits can give an organization some much-needed flexibility.
For employees, the term “downsizing” can have alarming implications — but the concept of downsizing is not limited to layoffs. Though it can encompass a workforce reduction, downsizing typically only involves layoffs in the direst of circumstances. Indeed, the scope of downsizing can vary dramatically, depending on the extent to which costs or logistics must be reduced and simplified.
Downsizing Strategies to Consider
There are many strategies that organizational leaders can implement to downsize a company, ranging from minor adjustments to company-wide overhauls. Depending on the severity of an organization’s production or financial problems, leaders may opt for different approaches to downsizing.
For Minor Adjustments
If minor circumstances will impact a business’s ability to maintain profitability, leadership may opt for small-scale downsizing approaches. These are designed to reduce expenditures and typically last for a temporary period of time — generally not exceeding several months. Some of these strategies include:
- Temporarily Shutting Your Doors: Ranging from a few days to a few months, it may be effective to shutter operations for a predetermined length of time. This can cut short-term expenses and give leadership time to assess the viability of further, long-term downsizing methods that may prevent future problems. This is a common tactic for seasonal businesses.
- Short-term Reduced Pay or Hours: While not ideal for maintaining employee morale during transition periods, leaders may also opt to reduce the amount they pay their workforce. This can include cutting the number of hours employees work each week, eliminating overtime hours and pay, or outright reducing employee salaries on a temporary basis.
- Hiring Freeze: Another downsizing strategy is to enact a hiring freeze, which has become a popular approach to cost-cutting. This involves pausing the onboarding of any new employees, typically for a predetermined length of time, to avoid overburdening a business’s finances or give leadership time to consider organizational restructuring. This is a common downsizing tactic in times of uncertainty, such as during disease outbreaks or after natural disasters.
- Implementing a Remote Work Policy: There are many costs associated with keeping a facility running. Depending on the nature of your business, as well as the nature of individual employees’ work, it may be feasible to implement a remote work policy, as many industries have opted to do. This involves allowing employees to clock in remotely to complete work-related tasks from home. This can reduce costs and may be implemented on a temporary or permanent basis.
For Major Adjustments
If the cost adjustments discussed above are not extensive enough to address an organization’s, you may need to adopt some more extensive downsizing strategies. These can have a bigger impact on improving your efficiency and reducing costs, but they generally involve a greater transition and impact employees more extensively.
- Moving Your Company to Smaller Premises: As part of downsizing, you may find that your organization needs less space. Renting a new office space can help in this situation. Renting smaller premises, which often come with lower rent and utility costs, can be a great step toward reducing expenses without taking a hit to your company’s productivity or efficiency.
- Lending Employees to Other Employers: If you are currently overstaffed, but don’t want to lay off employees, it may be possible to enter an agreement with another employer — preferably not a competitor to your business — to “lend” them your employees on a temporary basis. As the other employer will be responsible for the wages of loaned employees during this time, this can reduce expenses.
- Longer Salary or Hour Reductions: For a more long-term cost adjustment, it may become necessary to cut salaries or hours for an extended period, from half a year to a couple of years. While not an ideal outcome for employees, this is obviously preferable to being laid off.
- Voluntary Furloughs and Exit Incentives: A furlough is a period of time in which employees cease work and receive either reduced or no pay. Exit incentives are benefits designed to entice employees to retire early. Voluntary furloughs and exit incentives enable employers to cut payroll expenses on a temporary or permanent basis, respectively. These are better ways to maintain employee morale during transition periods than more permanent (and involuntary) alternatives.
- Layoffs: In certain circumstances, it may be necessary to eliminate redundant or unnecessary positions in your company. Laying off these employees can reduce costs and improve long-term financial sustainability.
How to Prepare for Organizational Downsizing
Once you’ve identified the strategies you’d like to implement in your company's downsizing efforts, and considered how they might impact all stakeholders, it’s time to create a transition plan. With your organization’s objectives in mind, and working in tandem with your human resources team, create a detailed plan for what your employees can expect in each phase.
While preparing for these changes, there are some key tips to keep in mind that will ease the transition and maintain employee morale:
- Be Transparent About Your Reasons and Methods: To earn the buy-in of all stakeholders, you must be honest and transparent about your reasons for downsizing, as well as the benefits and drawbacks of the specific strategies you opt to use. This is also vital to maintaining your company’s reputation. Transparency is key to winning the trust of your workforce and ensuring a smooth transition.
- Establish New Roles and Responsibilities When Needed: Changes to the structure of your company will often lead to new tasks and duties. As employees take on new responsibilities, it’s important to be clear about the precise expectations each employee will have in carrying these out. This may involve training sessions, meetings, company-wide memos — anything necessary to clear up any possible confusion due to downsizing-related changes.
- Carefully Manage Office Space: In times of transition, a lack of organization can quickly lead to chaos. Being mindful of your physical space and leveraging business storage solutions can dramatically improve efficiency when implementing company downsizing strategies. SmartStop Self Storage offers climate-controlled storage for equipment, furniture, vehicles, and more.
Anticipate Post-Downsizing Adjustments: When your organization achieves growth after downsizing, there may come a point at which it is beneficial to cease downsizing measures, rehire any laid-off employees, and resume operations as they were. Being clear about the terms of any downsizing changes and keeping in contact with laid-off employees are great ways to stay prepared for this period. Offering rehiring bonuses to these employees and focusing on retaining high-performing employees will help ensure long-term sustainability.