What are the Advantages and Disadvantages of Impromptu Business Downsizing?
Downsizing refers to reducing business size and overhead costs to increase productivity, competitiveness, and efficacy. Sometimes external factors such as a decline in the economy or new technology invention can lead to a company downsize, leading to fewer staff members to operate the business (Cascio, 2010). An impromptu downsizing exercise can trigger positive outcomes such as cost reduction, management control, and better technology utilization. However, lost production, public relations, decreased employee morale, and legal issues are some of the negative impacts of business downsizing.
First, downsizing curtails expenses. The costs are usually minimal due to the reduced payrolls resulting from the reduction of employee overheads and the staff who have been laid off. Some companies also dismiss managers to minimize the layers of the hierarchy in the organization. Thus, the company saves on the salaries expenses and uses the funds to improve the firm’s operations and growth. Secondly, according to Lämsä & Takala (2000), only a few management professionals who can feasibly handle the business operations are retained in a flat hierarchy. Therefore, the owner gets more control of the management team, thus creates more chances for the employer to interact with staff at all levels. Finally, during downsizing, most companies tend to jump in to use technology to pass information and better manage their operations (Lämsä & Takala, 2000). This exercise increases productivity and also curtails on expenses. Plus, it keeps business up to date with developing trends in the industry.
Despite the merits a business obtains, an impromptu downsizing can negatively impact the organization and the workers that remain after the layoffs. Lost production is one of the challenges that face the organization. Ideally, a downsize aims at eradicating jobs that cost the business more than the input value. The employees who are laid off mainly are sales producers, service, support, and manufacturing. Usually, the remaining workers operate the critical jobs left behind by the dismissed employees. The increased workloads may overwhelm the survivors, leading to low product manufacturing, hence losing a portion of initially produced products. Another disadvantage is terrible public relations. Society usually views layoffs as vicious to people who have responsibilities and family to support (Cascio, 2010). An impromptu downsize can trigger a backlash from clients, media, and members of the community.
Another disadvantage is the reduced employee morale. When laid-off workers leave, the survivors are left with huge responsibilities without salary increment, which lowers their morale (Iverson & Zatzick, 2011). They also worry about another possible layoff and unjust downsizing process, therefore losing respect and trust they had for their employers. Finally, even when a business has a legitimate reason for the impromptu downsize, it might face a potential legal suit if any laid-off workers claim they were unfairly treated or dismissed.
In conclusion, an impromptu downsizing exercise has both positive and negative impacts on the business. Although employers focus on curtailing the expenses to increase an organization’s productivity and competitiveness, the owner must take the initiative to prepare the workforce in advance of the downsizing. By treating the laid-off workers fairly and compassionately, the survivors are more likely to remain loyal to the company.