Implementing effective corporate downsizing and outplacement strategies

There are many reasons why a business may consider downsizing. It may be experiencing a drop in profits, a site closure, or a business acquisition that means it needs to cut operating costs. It’s a natural part of running a business – but a very challenging one. Downsizing is rarely carried out due to employee performance, even though it’s the employees who are often impacted the most. And when downsizing events happen, it’s left to HR departments to manage them. It’s crucial that they’re prepared when planning and implementing workforce reductions when they inevitably happen. The question is, how? Is it possible to downsize while maintaining the corporate brand and making the process as easy as possible for affected staff?

The good news is that it’s entirely possible. First, though, let’s take a look at what corporate downsizing means, and how a corporate downsizing event can be planned and managed. 

We’ll examine: 

• The meaning of downsizing
• Why do companies downsize?
• The difference between downsizing and layoffs
• Popular downsizing techniques 
• How to manage a corporate downsizing event
• How to determine which employees will be laid off
• Managing employee morale
• Legal considerations
• Downsizing FAQs

When we talk about the meaning of downsizing in business, it refers to a deliberate, strategic process which involves reducing the size of a business by eliminating roles – or even whole departments. It achieves increased efficiency, reduced costs, and greater competitiveness by optimising available resources and streamlining operations. 

While downsizing is a routine part of managing a business, the way it’s handled is of the utmost importance. Downsizing events must be handled sensitively and with empathy, ensuring that affected employees are supported into new, meaningful roles. A well-planned downsizing will ensure the continuation of smooth business operations, protect the corporate brand, and retain key talent. 

Every business is unique, with its own objectives and motivations, but the most common reasons for downsizing are:

• A corporate restructure, merger, or acquisition. Resources need to align with the new business structure. If roles are duplicated following a merger or acquisition, or a restructure means that certain roles are no longer needed, a downsizing event will be necessary. 
• Market changes. Downsizing may be required if there is a decreasing demand for certain products or services, in order for the business to remain competitive. 

• Automation. Roles may be automated as technology develops, meaning that staff are no longer needed to fill those positions. 

There are many other reasons for companies to downsize, including a financial downturn, identified inefficiencies, or a new focus. 

Downsizing and layoffs are intrinsically linked, but are not exactly the same. Layoffs happen for numerous reasons, and downsizing is just one of them. While layoffs are usually a part of downsizing, the downsizing exercise may also have other outcomes for staff – such as the offer of alternative work in another department. While there’s a lot of overlap in the terms, “downsizing” and “layoffs” shouldn’t be used interchangeably. Simply, layoffs are just one tool that can be used during a corporate downsizing. 

As we discussed above, layoffs are just one tool in the downsizing toolbox. Downsizing can take many shapes – these are the three most common: 

• Layoffs. A headcount reduction is the most common technique used in downsizing, as it significantly reduces staffing costs. When a major change happens in the business, or there is a wider economic downturn, a reduction in staff is the go-to strategy to deliver immediate cost benefits. However, it must be handled well to prevent repercussions. 

• Cost reduction. Besides reducing staffing costs, there are other techniques available to cut operating costs. These include eliminating bonuses, stopping the use of freelancers, or slashing technology expenses. If the downsizing event is purely for financial reasons, reducing this type of cost can avoid the need for layoffs. 

• Restructuring. Redesigning an organisation’s structure can focus activity and resources on the most profitable operations, leading to growth and stability. 

As we said above, downsizing events need to be well planned and implemented. Assuming that your downsizing project involves layoffs, the strategic planning can be complicated and stressful. 

The first step for an HR team is to be entirely clear on which business problems the layoffs are expected to solve. They’ll then need to develop fair selection criteria to identify affected staff and consider how the project will impact the company in the long term. For example, how can existing work be distributed among remaining staff without productivity decreasing and with morale remaining high?

To achieve that, the HR team needs to analyse each team and function to assess which ones are critical to ongoing business operations and which employees within them are vital to their success. In doing this, HR needs to collaborate with management teams to secure the insight they need. Cross-departmental communication is key to completing the layoffs without damaging the business in the longer term. 

In fact, communication is key at every stage of a downsizing event. Clear communications throughout can help a business avoid the common pitfalls of downsizing, such as poor talent retention and lawsuits. The HR team should also explore alternatives to layoffs, before progressing with the project. 

For example: 

• Voluntary layoffs. Incentives such as outplacement support and severance pay could motivate staff to leave voluntarily. 

• Early retirement. Financial incentives could make early retirement an attractive option for certain employees. 

• Furlough. Temporary, unpaid leave can provide a short-term solution if the business is expected to pick up again in the near future. 

• Hiring freezes. Natural attrition is a slow but sure way to reduce the size of a workforce. 

• Other reductions. Staff may be willing to accept reductions in pay, benefits, or hours as an alternative to redundancy. 

If none of these options meet the objectives of the business, it’s time to initiate a downsizing strategy. 

One of the most challenging parts of the downsizing process for the HR team is deciding which employees will stay and which will go. It’s vital to develop selection criteria that are fair, objective, and meet the company’s goals. There’s no right or wrong way to do this – the best method will depend on the business – but these are some common methods to think about: 

• Longevity. Also known as last-in-first-out, this works on the basis that whoever joined the company last is the first to go. This is a simple method to implement, but risks laying off key talent which is an asset to the business. 

• Status. This strategy prioritises full-time staff over part-time or contract staff. This method ensures your employer brand isn’t tarnished, but depending on the business structure it may not deliver the same financial benefits as other methods.

• Performance. Management teams like this strategy, as it weeds out underperformers and retains top talent, but it’s risky due to the subjectivity involved. Care must be taken when using this selection criteria, in order to avoid lawsuits. 

• Skillset. This method involves selecting employees based on whether their skills are vital to the company’s success or not. This enables the business to retain talent and quality. 

• A combination. This is generally considered to be the best way of selecting impacted employees. Each criterion is allocated a weight, based on its importance to company goals. Employees are ranked against the criteria, and those with the lowest score are selected for redundancy. The key benefit of this method is that it can be customised to suit the needs of individual businesses. 

As with everything, there are pros and cons to each method, so selection criteria need to be developed carefully and with business objectives firmly in mind. 

As is to be expected, downsizing can affect the morale and productivity of both impacted and remaining staff. Impacted employees may find their redundancy unfair, they may feel betrayed and insecure, they may create negative social media posts, and they may feel anxious about their future. They may even resent ever working for the company. 

Bad news travels fast. Therefore, it’s imperative to make the layoff as easy and stress-free as possible for the impacted employees. To minimise the damage, your downsizing communications should include reasoning, positions affected, selection criteria, benefits, notification, and outplacement services. The communications plan, alongside outplacement support, will mitigate risk, keep things fair, and maintain morale. In the long run, this will make new talent acquisition, employee retention, and investor relations much easier. Employee satisfaction should be one of your top priorities. 

Another key element of your downsizing and layoff strategy should be legal compliance. No-one wants their layoffs to result in a lawsuit, so ensure your project is carried out in collaboration with your legal team. 

As a bare minimum, you’ll want to consider the following: 

• The Employment Act 1968. This legislation outlines how much notice a company should give employees before their contract is terminated, payments, retrenchment benefits, and many other contractual considerations. 

• Workplace fairness legislation. This legislation prohibits discrimination on the grounds of age, nationality, sex, marital status, pregnancy status, caregiving responsibilities, race, religion, language, disability, or mental health conditions, so these attributes must never be part of your selection criteria. 

• Ministry of Manpower guidelines. Retrenchment benefits aren’t obligatory in Singapore, as they are in other parts of the world, but the Ministry of Manpower has issued guidelines to ensure employers act fairly and responsibly. 

• Potential employee actions. Employees who disagree with their selection criteria can make a claim with the Tripartite Alliance for Dispute Management.

To ensure your downsizing event flows without a hitch, we’ve compiled a list of Frequently Asked Questions with some top-level answers. 

Downsizing is certainly a sensitive issue. One view is that it’s a common business strategy that many companies need to use to continue operating, for a variety of reasons. Therefore, as it’s unavoidable, it can be considered as ethical when executed thoughtfully. The opposing view is that the negative impact on the employee makes it unethical. When all is said and done, downsizing is usually carried out as a last resort and, when it’s well done, can be delivered in such a way that the employee doesn’t experience those negative impacts. Clear action plans and open communications, coupled with a willingness to support affected staff with outplacement services, means that downsizing doesn’t need to be negative or unethical – especially if there’s no other option. 

One of the main disadvantages of downsizing is that it can lead to layoffs, presenting challenges for both HR teams and impacted employees. Done badly, it can lead to a loss of specialist knowledge and expertise, affecting the company’s ability to compete and innovate. 

Downsizing done wrong can also create a negative work environment. Job insecurity, reduced morale, and stress can cause a loss of key talent. It can also lead to reputational and brand damage, which can have far-reaching effects among investors and the general public. 

Finally, carrying out a downsizing event can be costly and time consuming. 

These disadvantages can generally be overcome with a robust layoff strategy, clear communications planning, and outplacement support. 

The impact of carrying out a downsizing exercise depends very much on the business and other factors. On the one hand, it can deliver necessary cost reductions and greater efficiency, but on the other hand, there are disadvantages too, which we’ve discussed above. 

While downsizing can damage morale, talent retention, talent acquisition, loyalty, reputation, and productivity, much of this can be mitigated by partnering with a reputable outplacement service provider. When it comes down to it, the impact of downsizing depends on how well it is managed. 

To ensure a successful downsizing, great care must be taken with the planning and execution of the event. The first step is understanding whether layoffs are really necessary, or if other workforce reduction strategies can be used instead. 

If headcount reductions are the only way forward, it is imperative to have a well-thought-out layoff plan, which includes outplacement support, to ensure that impacted employees are supported throughout their exit and beyond. 

Understanding the impact of a poorly-executed layoff means that an HR team is better equipped to avoid the potential pitfalls. 

Providing outplacement is one of the best ways that a company can support its affected employees. Outplacement services help staff to navigate the next steps in their career, enabling them to land a new, fulfilling, and meaningful role. This not only makes a difference to your staff, but also to your brand and your company. 

If you need outplacement services, do get in touch with us at Careerminds for further information.

Jen David

Jen is a careers writer and CV specialist, with over 13 years' experience in the job search sector. Find out more by connecting with her on LinkedIn or visiting her website.