What is Corporate Downsizing?

Corporate downsizing is the process of reorganizing a company structure in a manner that brings about layoffs of a portion of the company’s work force. The actual downsizing may be an attempt to keep the company profitable when demand for the business’s products or services declines, the elimination of a division or subsidiary that is considered outmoded and not in line with new company goals, or the result of a merger with another company. In any event, the workforce reduction will mean the loss of jobs for employees ranging from executives to hourly workers.

One of the more common reasons for corporate downsizing is a decrease in the demand for a company’s goods and services. This decrease may be due to competitors gaining a larger share of the available consumer market, or economic downturns that cause consumers to focus more on necessities and less on any luxury items. In both situations, the lack of demand means that the corporation can no longer continue to operate with the same level of expenses and remain solvent. Thus, the company is likely to limit or shut down some portion of the manufacturing facilities in order to adjust to market demands. This usually means that hourly employees and managers will be laid off for an undetermined amount of time or let go completely.

When corporate downsizing is due to corporate mergers, there is usually the need to streamline the operations of the company in order to prevent duplication of effort. Often, a merger will mean that at least some of the executives are likely to be laid off or let go as various upper level operations are combined. A merger can also often lead to closing some physical plants and other facilities where both entities formerly operated. In turn, this means a reduction on the number of line employees, shift managers, and plant directors as two or more operations are restructured to operate out of one facility.

While corporate downsizing is usually viewed as a negative situation, that is not always the case. Severance packages sometimes take some of the sting of a layoff out of the picture. Many companies who go through a downsizing process make efforts to fund job retraining programs for their former employees, while others actively seek to identify other employers who would be interested in hiring some of the laid-off work force. People who have been laid off due to corporate downsizing sometimes use the event as a springboard into an entirely new career or line of work, one that ultimately proves to be more personally fulfilling as well as more lucrative.