When you downsize a company, you are decreasing an enterprise’s generational knowledge, creativity, workplace culture, trust, and in turn, production, performance, and profitability.
Often implemented as a fast response to the potential for or the presence of short-term failures, downsizing seems to be a go-to strategy for increasing profit and performance. However, reality demonstrates a concrete divider between the perceived results and those that exist.
The Reality of Downsizing
Referring to the planned elimination of positions or jobs, most commonly in the form of layoffs, the process is typically expected to create economic and organizational benefits. Economic benefits include an “increase in value for their stakeholders” (i.e., the company’s stock). In contrast, organizational benefits involve “lower overhead, less bureaucracy, faster decision making, smoother communications, greater entrepreneurship, and increased productivity” (Cascio, 1993).
Interestingly enough, however, despite these grand hopes and elaborate strides to react to short-term losses, the lack of communication and consideration in downsizing ventures often results in adverse outcomes for participating enterprises.
Findings and Consequences
* Delayed Layoffs Perform Better: Research demonstrates that firms that could, in fact, “absorb more pain and delay downsizing employees and assets did much better two years later” (Cascio et al., 2020).
* Financial Inefficiency: Layoffs often result in the smallest payoff; 4 out of 5 times, managers who were previously dismissed are rehired, and companies incur significant costs hiring consultants to replace removed staff functions.
* Cultural Impact: Studies show that employee productivity often deteriorates after layoffs. Surviving employees frequently become narrow-minded, self-absorbed, and risk-averse—an outcome known as "survivor syndrome."
A Humane Entrepreneurship Approach
It is recommended that firms avoid downsizing as a “quick fix for profitability.” If one must downsize, the recommendation is for the company to not only execute layoffs but also look to downsize assets when faced with deteriorating results.
As Humane Entrepreneurs, we must spread the mission of human-centered business ventures, execution, and maintenance. Downsizing must no longer be seen as a one-time, quick-fix solution. Instead, by creating a real and authentic company culture that centers around the human, downsizing can be seen as part of a process of continuous improvement.