Downsizing is reducing your company's workforce. The purpose of downsizing is to make your business more profitable and more cost-effective. Essentially you can use this important tool to change the course of your business strategy.

For you to call an exercise 'downsizing', it usually involves laying off three or more workers. Please don't use 'downsizing' as an excuse for firing problem employees, or creating a culture change in the organization by replacing old workers with new ones. These are different circumstances usually involving problem employees. In these situations, it is more efficient to counsel individual employees about their expected standards of behavior, and how they have acted wrongly. Remember people have their own personalities and it is usually better to deal with them on a case-by-case basis.

On the other hand, employees that are 'downsized' lose their jobs for reasons that are no fault of their own. Either the business environment has changed or the company itself is undergoing financial stress. Downsizing then becomes necessary to refocus the company on just those core business areas making money.

The Immediate Effects of Downsizing

Here's something that all owners and managers need to know.

Downsizing will lower your productivity for a short while. Be aware that this is normal. No matter how small the change, your employees will feel insecure and often resentful. This is true even if they were not the ones to lose their jobs. Likely, the individuals laid off were friends with some of the remaining workers. Those left behind may feel a sense of loss that will take focus away from their work.

However, the layoff will not affect everyone. As Dr Franco Gandolfini notes, 60-70% of your employees will be indifferent, 10-15% will be openly hostile or subtly try to sabotage the changes to show management it has been ineffective. The other 10-15%, the leaders, will see the benefits of the change, be positive about it, and try to make it work.

If the layoff is handled appropriately by management, this period of lower productivity will be brief. Although management should allow employees time to grieve for their coworkers, they also need to refocus the organization quickly on new goals and objectives. Once everyone finally accepts the changes and starts to work within the new team environment, you should see productivity higher than before the downsizing. Usually this takes about two to three months.

Carrying Out Culture Change through Downsizing

What is the best way to affect your company's culture by changing its employees? First, consult with other relevant managers on who you should fire and why. Also discuss whether you could restructure some jobs. Remember your goal is to eliminate waste and refocus on profit making business areas. Anything you can do to combine existing job duties and increase efficiency must be considered. The ultimate goal of downsizing is to ensure the company's survival. Only in this way can you continue to employ those workers that remain with the company.