Downsizing is the process of permanently reducing a company’s workforce by eliminating ineffective employees or departments. Downsizing is a widespread corporate activity that is often linked to economic downturns and struggling firms. Downsizing an entire store, branch, or division often frees properties for sale during corporate reorganizations.
Reasons behind a Company’s Downsizing
- To remain afloat or retain profitability, a company can be forced to downsize.
- If a company’s market is experiencing a recession due to technical or other issues, cutting costs could be necessary.
- Downsizing can also happen as a result of a merger between two companies or as one company buys another. Alternatively, if a merger or acquisition has not yet taken place, a corporation could downsize to appear as a more viable candidate.
- Downsizing will also happen when a corporation tries to “streamline” itself by organizational restructuring to improve productivity and performance.
- If a rival has cut costs by growing its employees, an organization may feel compelled to follow suit to remain competitive.