The goal of some organizational structures is to improve agility by creating a lean, flexible organization. Downsizing is a systematic effort to make an organization leaner by closing locations, reducing staff, or selling off business units that don’t add value. Some companies focus on lean management techniques to reduce bureaucracy and speed decision making. Other firms downsize to direct all their efforts toward their core competencies.
Reducing the size of the workforce perhaps has positive outcomes in the long run, although the majority of the evidence suggests that downsizing has a negative impact on stock returns the year of downsizing. Part of the problem is the effect of downsizing on employee attitudes. Employees who remain often feel worried about future layoffs, may be less committed to the organization, and may experience a greater amount of stress and strain.
Downsizing can also lead to psychological withdrawal and more voluntary turnover, so vital human capital is lost. The result is a company that is more anemic than lean. Companies can reduce the negative impact of downsizing by preparing in advance, thus alleviating some employee stress and strengthening support for the new direction. Companies that make themselves lean must make cuts carefully and help employees through the process.
