This article could be many times longer, but it's only an introduction. You're not alone in not liking this subject, but if you keep putting it off, it may cost your business survival. Just make sure you have evaluated all alternatives. This should be the last step.

Companies consider downsizing and cutting costs for many reasons, but the effects of Covid-19 on the economy are probably forcing many people to think about this. Downturns generally hurt profits, but even in "normal" times you may have to deal with overproduction, excess capacity, poor or decreasing efficiency, a fall in client orders or sales to consumers, increased supplier prices and loss of market share to competitors.

When costs rise or revenue falls, you may start thinking about laying off team members. But layoffs often fail as a cost-cutting measure. This does not mean that downsizing never works. It just means that a lot of strategic thinking needs to go into downsizing to make it effective.

Successful downsizing is usually based on a thorough company review. It identifies talented and essential team members and keeps them. It maps out workplace processes and eliminates redundant activities while making sure that no essential activities are compromised. It is based on good change management that minimises the emotional impact on the team members who leave and those who stay.

When you downsize, you should aim at producing a more highly skilled, flexible, and better-performing workforce.

The Downside To Downsizing: Factors To Consider

Poorly managed downsizing can hurt productivity. It can leave your organisation with demoralised and less efficient team members. Worse, good team members are hard to replace.

Possible ill effects include team members who are less creative or willing to take risks, damage to morale and company loyalty, a factionalised and politicised workplace, suspicion and resistance to change, reduced teamwork as team members keep information to themselves, damage to informal networks within an organisation, damage to informal relationships with clients and customers, poorer customer service due to lower morale and commitment, less long-term, strategic thinking among managers, overly centralised decision making, the loss of talented team members with essential skills, the loss of corporate memory, legal action brought by disgruntled team members and an increase in stress-related disability claims.

These factors can be broken into three key areas you need to consider: the human resources issues; how to map your business activities to identify activities you might eliminate or outsource; and how to manage the changes with your team.

Downsizing can leave your company without many of its best people. They are the most employable and often the first to find other jobs. Even the rumour of downsizing may be enough to make them start looking. If downsizing merely cuts employee numbers, the remaining team members may find themselves having to do more work and learn new skills in a hurry - at the same time as they are dealing with the emotional upheaval of seeing their friends lose their jobs.

And it may all be for nothing. Companies that reduce team members to meet number targets may find themselves wanting to re-hire people with similar skills when conditions improve.

Alternatives to downsizing

Downsizing is not the only way to cut costs. You may cement team member loyalty and avoid a lot of pain by implementing alternatives. They include restricting overtime, offering voluntary leave-without-pay, early holiday leave, part-time work or job sharing, cutting salaries - perhaps with compensation such as company share options, reducing discretionary spending on items such as travel, conferences or training, imposing a hiring freeze, redeployment, cutting bonuses and/or reducing benefits such as health insurance, allowing team members to work from home, thus reducing your office overheads and offering early retirement.

Many of these measures work best when you expect problems to be short-term. But if problems persist alternative measures may turn out to be merely a way to draw out the unpleasantness and postpone harsher action.

Pay cuts and sabbaticals ring alarm bells for your most employable team members and encourage them to look elsewhere for work. You must clearly communicate the reasons for the cuts for your team members to be supportive of any changes. If you communicate the issues well, they may see the cuts as proof that you are doing your best to avoid layoffs.

You may be tempted to cut costs by reducing training for your team members. But a downturn can actually be the best time to schedule training. It may cost less, as you are less likely to be taking workers away from immediately profitable activities. And you may be better advised to look at training as an investment rather than as a cost.

Cutting allowances may save money, but may also hurt productivity. Cutting back on company taxi allowances may help the expenses budget, for example, but may also mean that your team members are less willing to turn up at valuable after-hours networking events.

A hiring freeze can cut costs in the short term, but it risks blocking the flow of necessary skills into your company. Offering early retirement may achieve downsizing without a lot of grief, but it tends to take time to implement and may lead to a loss of expertise.