UK Accounting Glossary
Downsizing is a cutback in a company’s operations and usually implies a reduction in its employee headcount as well. Downsizing results from many factors, including increased global competition, new technologies, and weaker labour unions; it takes various forms and has various outcomes. Some firms use downsizing as part of a long-term effort to transform their businesses; others turn to downsizing simply to slash costs and boost earnings. Sometimes downsizing boosts employee morale by giving the remaining workforce new responsibilities and opportunities; in other cases, downsizing leaves a demoralized staff that is undermanned when economic conditions improve. Some firms carry out downsizing relatively gently by offering workers strong incentives to retire; for other companies, downsizing means chopping heads as quickly and cheaply as possible. Whether downsizing generally helps or hurts a company’s long-term profitability remains controversial. Evidence can be presented on both sides, but most would agree that the answer greatly depends on how the downsizing is executed.
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This glossary post was last updated: 9th February 2020.