DOWNSIZING VS RIGHTSIZING

By J.L.Samyuktha, MBA II Year and

Mrs. M. Somalatha, Associate Professor

Abstract-
Downsizing is a competitive strategy which many organizations are widely in
practice. The study consists of how it majorly impacts the HR in taking decisions of
downsizing the employees and rightsizing the employees for organizational growth and
development. It also gives a brief idea how it has an impact in the today’s corporate. In this
paper it is clearly explained the various strategies that companies are focusing in downsizing
the employees. The recent study includes the concept of Rightsizing which most of the
companies are focusing. This research study involves the historic study as well as the current
strategies in order to bridge the gap in the up gradation to the latest interventions.

Keywords: Downsizing, Rightsizing

DOWNSIZING:

Downsizing can be termed as reducing the number of employees on the

operating payroll. It often results of poor economic conditions. Typically, the company has to
cut jobs in order to lower costs or maintain profitability.

Downsizing also occurs during a merger between two companies, or an

acquisition of the company by another.

IMPACT OF DOWNSIZING ON HR:

HRM, has evolved from a largely administrative and operational role to one that plays an
important part in strategic planning. The concept of downsizing had started from early
1980’s. This expanded role, in which workforce strategies align with the short-, medium- and
long-term objectives of the organization, contributes to the organization's ability to respond to
changing conditions.

In order to control the downsizing several use of alternatives such as

 Work sharing
 Downgrading
 Redeployment

HR personnel must ensure proper communications to minimize the negativity and should
keep each individual informed with factual data. They should convince trade unions and win
their support for downsizing. They need to deal with layoff employees uncertainties such as
service pay, retirement benefit, search for alternative job transition assistance etc.,
 DOWNSIZING IN INDIA:

Most of the Indian companies are now mainly focusing on Downsizing as

it helps in reducing the costs and results in higher amount of profits. Some of the companies
that recently downsized the employees are as follows:

1. Tata Consultancy Services: It is a company where several employees are employable based
on their educational and performance skills. The employees who are performing at a level
‘C’ or below are targeted in this process.TCS informed that the involuntary attrition for the
first 9 months of the financial year 2016-17 had been 2574 employees which represent 0.8
percent of the total employee strength. The statistical for financial year 2013 and 2014 were
2132 and 2203 respectively.
Effects: Due to downsizing, the management mainly focused on performance skills of the
employees and they immediately take measures in order come back the against the loss of
manpower.
2. Infosys: In the year 2015-16 around 10,000 staff of both junior and senior executives are
downsized due to Automation. In the year 2016-17 around 56,000 employees all over the
world were reduced due to their poor performance levels and Automation i.e., Lack of Up
gradation to the new trends and technologies.
Effects: The Company again announced around 20,000 new employees were hired based on
their annual performance audits in order to develop and upgrade the technologies for further
in order to face the competitive world.
3. Wipro: Wipro has once again witnessed reduction by 1206 (1%) to 1,62,553 as on Dec
30,2017. In the second quarter of the year 2017, it had reduced by over 3031. In the last six
months of the year 2018 Wipro has witnessed reduction in its staff by 4,237 (2.5%).
Effects: Wipro decided to hire the people of low designation so that the salary provision is
relatively low. In this way they are rightsizing the employees with low pay structures. It is
continuously hiring in all the areas, there is a significant amount of gross hiring happening
across the globe.
4. Jet Airways: In the year 2018 the airlines had laid off 20 employees including some senior-
level executives from the in flight services department. Jet airways continues to use layoffs
in small chunks as one of the means to reduce costs.
Effects: The airways took major initiation to downsize the employees on timely basis as it
helps in the cost reduction that ultimately results in the more profits.
5. Cognizant: In the year 2016-17 around 6,000 employees are reduced due to their poor
performance levels. And around 5,000 employees are right sized according to their job
description.
Effects: Due to this the employees are right sized and around 2K employees are newly
recruited into the company.

Major techniques of adopting downsizing strategy:

 Layoff
 Retrenchment
 Closure
 Voluntary retirement

EFFECTS OF DOWNSIZING:

The positive effects of downsizing are:

o Faster decision-making
o Increase rapid growth in Business
o Better communication
o Increase in Productivity.
o Job Enrichment.
o Yields in higher profits.
The negative effects of downsizing are:
 To Employees: Adverse Psychological effects such as stress, depression, anxiety, mental
tension, Breakup of social as well as personal life, Breaking of psychological contract with
the organization, Difficulty in getting another job
 To the organization: Loss of goodwill, Low ratings to the company, Unhealthy environment
in the company, Loss of productivity, failing to attract good candidates.

REASONS WHY COMPANIES DOWNSIZE?

The aim of downsizing is to restructure an organization in order to make it more competitive.

It is a natural progression in terms of the development of an organization. Some people say
downsizing differs from a layoff, with downsizing being a more permanent measure, while a
layoff might include a chance of rehiring the workers who lost their jobs at a later date.
Today, the term ‘layoff’ can mean either the temporary suspension or permanent termination
of a job.

If not prepared and carried out properly, downsizing can have unpleasant repercussions for a
business.

It is a very common measure that businesses enforce during times of market volatility or poor
financial performance.

Many people, especially workers unions, say downsizing is simply a euphemism or

doublespeak for a layoff.

Companies typically downsize in order to:

 Improve efficiency (by replacing employees with machinery).

 Reduce costs.
 Right size resources relative to market demand.
 Take advantage of cost synergies after a merger.
 Increase profits by reducing overhead costs.
 Respond to a decline in demand for the company’s products or services.
 ADVANTAGES OF DOWNSIZING:

Downsizing the organization is necessary and essential in some

situations. It also plays an important role in the development of organizations. In the
downsizing process, several business decisions can be taken which suits best to the
company. The advantages of downsizing are as follows:

1. SCALING OPERATIONS: One of the advantages of downsizing is Scaling operations. It

gives a change to scale your business down to more realistic and manageable size. So,
downsizing helps to bring change in company size down to something that can more
efficiently serve the customers and remain profitable.

2. RE-EVALUATION: Downsizing forces an organization to re-evaluate its business

processes and rewrite its business plan to more accurately reflect the current business status.
A business should constantly update its business plan to reflect changes in the marketplace
and internal shifts that affect business productivity. The decision to downsize is part of the
more important process of re-evaluating the business plan and places the company in a better
competitive position for the future.
3. DECISION-MAKING: Downsizing helps in taking crucial decisions in order to get the
better results for the organizational growth. The new decisions helps in developing the firm
in a strategic way and also helps in improving company productivity and profitability. So
due to downsizing new decisions emerge and helps in implementing various strategies to
face competition with other business entities.

4. REPUTATION: Due to downsizing new ideas and new employees will be developed. With
help of these new interventions the organization can gain a reputation which acts as a
motivating factor to the organization for further development.

DISADVANTAGES OF DOWNSIZING:

Corporate downsizing serves as a way for a company to maintain profitability

levels, but the action often causes negative effects within the workplace. It completely
demotivates the employees and leads to disruption to company name and morale. The major
disadvantages of downsizing are as follows:

1. Financial cost: Downsizing reduces the amount you pay in salaries and benefits, but it comes
with its own set of costs. Due to downsizing the company it needs to hire more number of
employees for various jobs who are well trained with latest technologies which will help for
the company growth and development. So, in order to hire more number of employees the
company needs to spend more on advertising, recruiting, screening and hiring the employees
into the organization.
2. Decrease in Goodwill: As soon as the company downsizes the employees, the result is in
the decline of company’s goodwill. After the downsizing takes place, remaining employees
may face greater work responsibilities without extra pay, decreasing morale even further. The
employees may worry that another round of layoffs are possible. If the reasons for
downsizing or the process of eliminating employees is considered questionable by
employees, one may lose trust and respect.

3. Productivity and Creativity Drops: Downsizing is one of the factors that cause a decrease in
creativity in the workplace. The workplace becomes a less creative environment and
employees don't make as many bold, creative moves in their work. In some cases, the
employees may reserve ideas in case, they too are downsized and decide to move to a
different company. Lower creativity sometimes translates into lower productivity and fewer
innovative ideas to keep the company competitive.

4. Potential for Legal Issues: Even if your company has a valid reason for downsizing, one has
to face the potential for legal fallout, if any of the terminated employees feel they were
targeted unfairly. Accusations of discrimination or unjustified layoffs leave the company
exposed to expensive lawsuits. The company also stands to earn a bad reputation which could
further hurt business.

RIGHTSIZING:

Employing and maintaining exact number of employees with required skills, abilities and
knowledge to perform the existing number of jobs in an organization.

Various factors resulted in Rightsizing are:

o Competition
o Information technology
o Technological innovation
o Multi skills

Need for Rightsizing:

 To have exact number of employees as per the Job analysis, Job description, Job specification
exercise of the company.
 To reduce disfunctional activities of employees
 To minimize the cost of human resources and to increase the production cost by eliminating
unnecessary costs.

DIFFERENCE BETWEEN DOWNSIZING AND RIGHTSIZING

The difference between downsizing and rightsizing is “Downsizing refers to reduction

of workforce due to poor economic conditions whereas the term Rightsizing refers to
adjusting the existing workforce to get the organization to a right size”.
 In order to develop the organization and to increase the efficiency of
workforce, the companies started to use the term ‘RIGHTSIZING’. This concept is
gaining increasing acceptance in the business firms. The benefit of outsourcing, out-
tasking, and rightsizing is allowing an enterprise to do what it does best or to return to its
core competency.

Downsizing literally means to reduce the size of the organization by cutting it’s down
the number of employees presently working in the company. The unproductive workers
are eliminated while the most effective personnel are retained, thereby optimizing the
performance of the workforce.

CONCLUSION:

If the firm opts for downsizing, it must follow the rules of Downsizing such as setting
targets, giving prior intimation to the employees that could not effect their self
confidence and self esteem. The downsizing should not effect in the company’s
productivity and the satisfaction levels of other employees. It is a challenge to the
organization to manage employees’ exit without disrupting the organization function.

The implementation of downsizing strategy should be carefully planned and

performed by the organizations. To begin with, a clear and careful analysis of the effects
of the layoffs in the long run as well as in the short run is to be carried out. If a company
performs layoffs in response to the short-term losses, its long-term survivability may be
endangered. Thus before conducting layoffs, the companies should seek an appropriate
balance between short-term and long-term demands. The companies should be well
prepared for downsizing by anticipating the kinds of human resource problems that crop
up subsequently, help the companies to cope up with this change to some extent.

Apart from downsizing, the rightsizing strategy helps more for the
organizational growth as well as for the development of individual growth. The
rightsizing helps in gaining of efficient workforce in the organization. So, rightsizing of
employees in a right time for the right size in order to meet the organizational goals is
necessary.

References:

1. Globalization and Downsizing in India ,Dr. Abhishek Tripathi, Senior Faculty & HOD,
World Bank Consultant, Ministry of Education, Afghanistan
Available at: http://ijmcr.com
2. https://www.reference.com/business-finance/companies-downsize-1f5281bde59df4aa
3. https://www.accountingtools.com/articles/2017/5/10/corporate-downsizing-considerations
4. Resizing the organizations: managing layoffs , diversititures and closings: Maximizing the
gain while minimizing pain. https://www.questia.com/library/108854835/resizing-the-
organization-managing-layoffs-divestitures