Downsizing is something that no leader ever wants to face, but it’s becoming an increasingly common occurrence in the business world.

While the current global employment market is relatively strong, with low unemployment rates and high job growth in developed economies, this could change in the near future as more businesses struggle to adapt to the changing economy and the rapid changes and uncertainty that it brings.

Indeed, tens of thousands of employees have found themselves being laid off this year alone as large companies including Amazon, Lyft, 3M, Salesforce, Deloitte, and more have been forced to trim layoff staff.

If you’re thinking about downsizing your own company, you need to be prepared to face many challenges. Public relations, internal communications, IT security, and managing the morale of your staff are just a few things that will need to be overcome.

While the reasons behind your own downsizing might be a legitimate, appropriate course of action for your business, there’s no denying that it will be a difficult experience for your people—and as such, you need to proceed with care.

In this article, we’ll discuss some of the best practices for managing downsizing your business and protecting its long-term health.


What is downsizing?

Downsizing refers to the deliberate and strategic process of reducing the workforce within an organization. This typically involves eliminating jobs or positions, either permanently or temporarily, with the primary goal of achieving cost savings, increasing efficiency, or adapting to changing business conditions.

Downsizing can take various forms, including layoffs, voluntary retirements, early retirement programs, or attrition. Some of the reasons that an organization may decide to downsize include:

  • To reduce labor costs and increase profitability during times of economic struggle.
  • To streamline operations for improved efficiency and competitiveness.
  • To adapt to automation, digitization, or other technological changes.
  • To eliminate duplicate positions and functions when two companies merge.
  • To respond to changing market forces, which may require resource reallocation.

HR departments play a crucial role in managing the downsizing process, which often includes providing support for affected employees, ensuring legal compliance with labor laws and regulations, and assisting in the development of a strategic plan for the organization’s future.


When should organizations downsize?

There’s no hard-and-fast rule governing when organizations should downsize. It’s a strategic option that needs to be considered under specific circumstances and with careful planning. The majority of downsizing efforts happen during periods of uncertainty, such as when industries are in decline or when a recession is taking place.

During economic downturns, people generally have less money to spend. As a result, many businesses face reduced demand for their goods and services so, in order to survive, they cut costs. One of the easiest ways to do this is by reducing the number of employees a business has. This allows the business to remain operational with a reduced workforce while it overcomes the challenges of the day.

Businesses may also choose to downsize in other situations, such as:

  • When revenues have been declining consistently.
  • When roles have been automated by technology.
  • When a merger has duplicated some roles.
  • When growth has taken place too quickly and the organization is overstaffed.
  • When specific departments or business units are consistently underperforming.


5 tips for downsizing

Although downsizing is never easy, with these five tips you can minimize the disruption and negative impacts that it can have on your business.

1. Plan strategically

Before initiating downsizing, create a well-thought-out plan that outlines your goals and objectives. Define clear criteria for selecting positions to be eliminated, such as redundant roles or low-performing teams. This will help ensure that the downsizing process aligns with your organization’s long-term vision and mission.

2. Build trust

Downsizing can be an extremely stressful time for your employees, even for those whose jobs are safe. It’s important that you’re empathetic and make yourself available to all employees and listen to those who want to talk. Allow and encourage questions, be open to meeting people one-on-one, and offer support to those facing termination.

3. Retain key talent

Identify and retain your high-potential and key employees. These individuals are vital for the organization’s future success. Consider offering incentives, like additional training or career development opportunities, to motivate them to stay and help lead the company through the transition.

4. Streamline operations

Downsizing isn’t just about reducing headcount; it’s an opportunity to streamline operations and optimize processes. Reevaluate workflows, eliminate redundant tasks and explore outsourcing or automation options to enhance efficiency and productivity.

5. Evaluate outcomes

After downsizing, regularly assess the impact of the changes on your organization’s performance and employee morale. Adjust as necessary and monitor the overall health of the organization. Downsizing should be a catalyst for positive change, driving your organization towards a leaner, more agile, and sustainable future.


Above all, be transparent

The most important thing to do when considering and implementing a downsizing initiative is to be transparent. Downsizing has a huge impact on people’s lives and livelihoods, and you should treat your employees with courtesy, professionalism, and respect during the process.

It goes without saying that good communication is key. Make affected employees aware that their roles are being eliminated as early as possible and maintain consistent, clear communication with them throughout the process.

This allows you to give employees as much notice as possible, giving them the time they need to absorb what’s going on and find a new role. If you communicate badly during the process, you’re likely to harm morale among unaffected employees, potentially harming productivity and retention in the long term.