At first glance, corporate downsizing could appear to be a logical pathway to improved profitability during poor economic conditions. Dr Wayne Casio in his 2002 book, “Responsible Restructuring” cites research which offers some surprising results to the contrary. Drawn from an 18-year study of leading companies, this research indicates that the most  profitable companies were those where employee turnover remained less than 5% in any particular year and those which were on a path of growth. In stark contrast, organisations that were downsizing appeared at the bottom of the profitability bucket. So, downsizing as a strategy in isolation may not yield the profitability outcomes businesses may hope for.

Downsizing may not be the right strategy if, on balance, the negative consequences of employee redundancy outweigh the short term benefits as the following examples illustrate:

• Redundancy communicates a message of permanent separation from an organisation, so the decision to declare a position redundant creates a significant barrier to re-instating that talent in the near term and represents a significant depletion of knowledge and experience
• Downsizing is likely to carry forward uncertainty and fear for those who remain. Loyalty is tested, stress levels increase, trust declines and productivity is compromised.
• Downsizing represents a threat to the continuity of  day to day operations. Customer responsiveness and productivity may suffer as employees learn new processes and adjust to a different team dynamic.
• Fewer resources mean the business is less adept at responding to the needs of the market and possible loss of market share when the economy turns around
• The cost of redundancy can be high, particularly where it concerns long serving employees and unionised workforces. These costs are exacerbated if these employees are returned to the workforce on temporary contracts when conditions improve.
• Remember how difficult it was to find a good employee? Especially in recent years when talent was scarce. This cycle of redundancies and layoffs is only temporary. We will return to full employment again before you know it. Do you really want to make it even more difficult for yourself than you have to when the war for talent resumes?

This excerpt has been taken from Di Worrall’s new FREE email Report: Downsizing with Dignity: the Manager’s Guide to Downsizing and Redundancies. You can subscribe to the complete series at:

http://www.humanresourceschange.com.au/change-management-news-articles/downsizing_redundancies.html