Disadvantages of Downsizing in Business
Downsizing is a term that refers to elimination of departments, divisions or positions within a company or business. While this exercise can trigger positive outcomes, it has negative impacts as well. It impacts numerous employees, ongoing projects, future organization of the business as well as techno logy updates.
Cash flow complications, poor performance of stock market as well as low profit margins are some of the factors that drive the decision to downsize. The impact of downsizing is often felt by those employees left behind and its disadvantages include the following:
While downsizing helps reduce costs in terms of benefits and salaries, it also comes with a set of high costs. The business has to prepare severance packages as well as deal with payment for continued benefits which can be quite costly depending on the number of people being laid off as well as what their contract states layoffs.
Employees with vacation time built up also results to payouts for that amount thus adding to costs. In addition to this, employees left behind are forced to assume the role of those laid off and this means they might neglect their own duties and this could also result to increased overtime. When the business grows and there is need to hire more people, the business also incurs additional costs in screening, advertising, hiring and recruiting employees.
Disruption of communication
Downsizing also affects informal and formal communication channels within a company. From casual communications to international streams of communication, downsized employees are not part of the communication process and this could destabilize the business.
Employees left behind also have a hard time establishing current operations as well as indentifying the individuals responsible for the project as well as defining a new chain of command. This communication loss hampers information flow as well as the company’s internal ideas exchange and decision making process.
Whenever a downsizing announcement is made, the morale of workers takes a turn for the worst. Employees will often worry about those losing their jobs as well as how the company is going to function once the downsized workers leave.
Once the employees laid off leave, those left behind have more responsibilities without necessarily a higher pay and this decreases their morale. In addition to this, those left behind also worry that more layoffs might be made and if for some reason they think that the downsizing process was unfair, the respect and trust they have in employers is diminished.
Even when a business has a valid reason for choosing to downsize, it will face a potential legal suit if any of the employees feel like they were unfairly treated or laid off.
There are other disadvantages to downsizing and they include a drop in the creativity and productivity of employees left behind, loss of knowledge and skills, employee stress and creation of a negative image about the business.
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