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What Are the Different Methods of Corporate Downsizing?

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  • Written By: Geri Terzo
  • Edited By: PJP Schroeder
  • Last Modified Date: 19 March 2014
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    Conjecture Corporation
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Companies have the ability to grow fast and furiously during expanding economic and market conditions. This pace might become less justified when a company becomes so big that it loses its focus or financial resources no longer support the size of an organization. Corporate downsizing can be the result of these scenarios, and it could unfold in different ways. Sometimes, the industry dictates the standard type of downsizing, such as employees being furloughed or given an opportunity to retire early. An unfortunate type of corporate downsizing involves layoffs.

When an organization undergoes a corporate downsizing, it may see a near-immediate rise in income. This is due to the fact that there are less operational costs required to manage a smaller staff. There may still be a price to pay later when conditions improve if a downsized entity is no longer competitive with industry rivals. This may especially be the case if a company downsizes for internal reasons as opposed to broader economic problems that ripple throughout a market sector. Nonetheless, when a company decides to downsize, there are different ways to go about it.

Layoffs are a common form of corporate downsizing. A company may decide to reduce its workforce by a given percentage and make cuts accordingly. Job cuts could be made across entire divisions, or select personnel may be released based on individual roles.

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Remaining employees may be expected to perform some of the tasks that were part of the job functions of the departing staff members. Layoffs might inspire fear throughout an organization among remaining employees who face uncertainty. Also, in an environment of corporate downsizing, a company may redirect employees from nonessential to more core and appropriate roles to prevent further staff reductions.

A corporate downsizing may also lead an organization to issue furloughs, or to temporarily lay off workers. This practice is common throughout the airline industry when the sector is facing economic challenges, such as unreasonably high fuel prices. In the event that profits improve and a company is in a position to grow once again, furloughed employees may be rehired.

Early retirement packages are another form of corporate downsizing. Organizations that need to reduce staff could offer early retirement to employees who have worked with the entity for a certain number of years. Employees retain the choice of whether to accept the offers, which could include certain retirement benefits.

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