Corporate downsizing can occur due to loss of focus or financial resources. Layoffs, furloughs, and early retirement packages are common ways to reduce corporate size and cut costs. However, downsizing can lead to fear and uncertainty among remaining employees.
Businesses have the ability to grow fast and furiously during expanding economic and market conditions. This pace can become less justified when a company becomes so large that it loses focus or financial resources no longer support the size of an organization. Corporate downsizing can be the result of these scenarios and can occur in different ways. Sometimes the industry mandates the standard type of downsizing, such as employees being laid off or given the opportunity to retire early. An unfortunate type of corporate downsizing involves layoffs.
When an organization undergoes corporate downsizing, it can see an almost immediate increase in revenue. This is because there are less operating costs required to manage a smaller team. There may still be a price to be paid later, when conditions improve, if a downsized entity is no longer competitive with industry rivals. This can be especially the case if a company downsizes for internal reasons rather than broader economic issues that spill over across the entire market sector. However, when a company decides to downsize, there are different ways to go about it.
Layoffs are a common way to reduce corporate size. A company may decide to reduce its workforce by a certain percentage and make cuts accordingly. Job cuts can be made across entire divisions or selected staff can be released based on individual roles.
The remaining employees can be expected to perform some of the tasks that were part of the job functions of the departed employees. Layoffs can inspire fear throughout the organization among the remaining employees facing uncertainty. Additionally, in a downsizing environment, a company may redirect non-core employees to more essential and appropriate roles in order to avoid further downsizing.
A corporate downsizing can also lead an organization to issue furloughs or temporarily lay off workers. This practice is common throughout the airline industry when the industry faces economic challenges such as unreasonably high fuel prices. If profits improve and a company is in a position to grow once more, new hires can be rehired.
Early retirement packages are another form of downsizing. Organizations that need to reduce staff can offer early retirement to employees who have worked with the entity for a certain number of years. Employees may choose to accept offers, which may include certain retirement benefits.
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