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Whenever any organization lays off a significant workforce, it means it has downsized. When considering the repercussion of downsizing, it turns out to be both positive and negative for the organization as well as the employees. Corporate downsizing is not a rare phenomenon in the present day environment. Most of the companies downsize in order to rise above the market competition. Downsizing is sometimes referred to as “smartsizing” when companies try to reduce the labour cost by laying-off a large number of people.

We have examples of Eastman Kodak to shed off its floundering pharmaceutical business and starting up a new one because it was not able to manage the existing workforce. DuPont cut down on its employees some few years back in order to bring improvements in its business processes. Let us see what effect does downsizing have:

Positive effects on the organisaton:

· Reduction in the labour cost: Helps a company to cope up with the economic pressure. Also at the same time may give increased profits to a company with less but more productive workforce.

· Enhanced Corporate Image: when a organization lays-off, organization restructures in terms of human resources, products and services. If the profits increase, the company occupies a competitive position in the market place and hence a better corporate image.

Negative Effects on the organization:

• Decrease in the employee morale: The employees who have been retained by the same organization, may suffer a loss in their self-esteem and the level of motivation. This ultimately will result in lower productivity and hence poor organizational health.

• Excessive Pressure to perform: When there are fewer number of employees, the organization puts pressure on them to achieve the same targets as set earlier before it downsized. It may have negative effect on the employees and they may also quit in such cases, forcing the company to close down.

Certainly, an organization in such cases requires stimulus in the following form:

• Offer workplace challenges: The organization should offer the employees challenging assignments so that they do not feel monotony by working on the same old assignments.


• Build team spirit: The left-over employees after the organization has downsized should be encouraged to build their teams so that their spirits are lifted to work in a restructured environment.


• Bring process innovation: With the help of experts and utilising the knowledge storm, the processes and systems can be innovated. Thus, new product introductions or a new concept on the same product will go a long way in lending creativity to the employees.

As an employee, one should be accountable towards his superiors and responsible towards his job. He should be able to face the reality and try to acquire new modes of working. The feeling of insecurity should be ousted only then can he perform in the existing environment.

The IT giants like Wipro, IBM and HCL maintain higher volume of the workforce as they are rich in terms of resources, technology innovations and also services. If an organization is not able to reap profits with large workforce, it needs to downsize but it should be done with lot of planning for the future business success.

Article Source: ArticlesBase.com - Retrenchment-why is it Feared So?