Every company will eventually get to the point where they have to downsize or let go some employees. Often it is one or two of them due to budget restrictions or in-house issues that make employees disposable or not necessary.

But sometimes big companies have to actually fire a big amount of people at the same time and almost always it is not their fault directly. We can say that issues as economic developments or currency changes can make companies weak or make them lose money in fast and enormous ways. Here is when downsizing is actually a good solution and even though it affects people and jobs, it can save the company from bankruptcy or even from disappearing.

Suzzanne Uhland took the time to do a little research on the matter and she brings us the things that companies should do when downsizing. Let’s take a look.

There are two main things companies should do before downsizing or when they are in the middle of the process: companies should evaluate if the Job Cuts are going to save money or if it will only save the company a couple of salaries; and companies should always have different solutions to cut on costs.

As for the first part, it is a broad belief that downsizing is a cost reduction strategy and that by reducing on salaries and wages, the company will automatically allocate those resource to other things. But on the other hand, there is wide evidence that downsizing does not reduce expenses as much as companies would like.  The thing is that while companies fire people and some money is saved on the side, performance could be seriously affected, productivity can be interrupted and uncertainty among the staff can be so dangerous that people can actually look for another job or even quit

So, what companies should do when they are considering downsizing or restructuring is to also take a deep look at other cost-saving operations and strategies that could go along with the downsizing approach (which should always be the last thing to consider).

At the same time, employees who are going to be fired deserve and need a convincing explanation to what is happening so they can at least understand that it is not entirely the company´s fault. A company is made of many employees and there will be a considerable number that is going to stay in the company so the company’s managers have to have the ability to explain to these employees the purpose behind such a downsizing strategy. Sometimes, employees can accept cost-cutting efforts such as short-term pay reductions or they can understand that some of their partners will have to be fired or taken out of the company.

Image courtesy of Anna Hirsch at Flickr.com

Now, what does it mean to have many solutions to reducing costs?

Well, it is not only about firing people when it is necessary and take the easy way out. Companies can also be creative at reducing costs so employees are not totally affected or at least not a big part of them. Some solutions include asking employees how to reduce costs. Very often employees have very creative solutions to reducing costs or to increasing performance.     

Another cost saving solution is a much-overlooked strategy called Compressed Workweek. For example, taking the week from 40 hours to 25 hours so short-term payroll cost can be saved.  Maybe this strategy is a little bit frustrating and beneficial for employees as they can have vacations but they are not being paid. Anyway, logically they will prefer to have this than to be laid off from the company.

Lastly, there is a strategy called Hiring Freeze. This is when the companies stop all the hiring processes in order to reduce labor costs.  As a surprise to many, a lot of employers continue to hire people while they are still firing others. This sends the wrong message to the staff as they will feel that they can be changed at any given moment. Also, this stops employees and thus knowledge from returning to the company. Moreover, building new facilities or investing in assets also sends the wrong message while the staff is being cut off from their work. Employers should be very careful with these types of strategies as they can lose the wrong employees and demotivate the ones that stay in the company.

All these strategies avoid a wrong turn over when a company wants to restructure or downsize. In many cases, the mistakes made by companies can be avoided with a bit of common sense and respect for the work employees have given to companies and the time they have dedicated to their job. This, in turn, can be very useful for future hiring or even have a good image even though the company is letting go many people at once.

Be sure to also read this post about why entrepreneurs should be careful when acquiring distressed companies.

* Featured Image courtesy of vxla at Flickr.com