Workforce Reduction: Ultimate Guide for HR (2024)

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Workforce Reduction is defined as ”Reducing the number of personnel, positions and hierarchical levels in the organization in order to increase the competitiveness in accordance with the plans and strategies that organizations have made to achieve their goals”. Some companies are trying to solve the problem by creating alternatives. Instead of immediately hiring workers, they put strategies such as “working from home”, “assignment abroad”, “starting your own business”, “half-paid leave”, “part-time work” into operation.

The basic downsizing strategies can be listed as follows:

It is usually the first strategy for downsizing and is usually seen as urgent improvement, which includes incentives for retirement and layoffs.

It aims to reduce the work instead of reducing the number of employees. These activities are a medium-term strategy that finishes the production of departments and completes a shorter working week.

It is about downsizing, which includes suppliers, process design, marketing, sales support, method generation and simplifies all aspects of the organization.

Workforce downsizing best practices

  • Making the decision to downsize:

Downsizing should be used as a last resort application and a reliable vision should be created.

  • Planning of downsizing:

All the elements that make up the organization should be determined, experts should be used to organize the process, and information should be provided to all units of the organization.

  • Explanation of downsizing:

The reasons for downsizing should be explained, determination should be made, attention should be drawn to the advantages of downsizing, and the decision to downsize should be announced at an appropriate time.

  • Implementation of Downsizing:

When going to the downsizing application, one should be sincere and this sincerity should be shown. Employees who leave their jobs should be helped to find other jobs.Dismissal practices should be fair, those who leave their jobs voluntarily should be allowed, and those who stay in the organization should be offered education and career opportunities.

How to Decide to Downsize?

  • Where there are better sources of investment
  • The market share of the enterprise is insufficient
  • There are not enough resources for new technologies
  • The organization should plan which downsizing strategies to adopt.

The Problems created by downsizing

  • Creates stress, demoralization and distress on the staff
  • The fear of the future lives on
  • It causes a low yield
  • Reduces the commitment to the business
  • Alienates staff to the business
  • Employees’ workload increases

Managing workforce transitions

Reducing the workforce is one of the management tools that has been widely used all over the world in the last decade. Although it develops for different reasons and with different results in each economic structure, it is also a phenomenon with characteristics and functions that can be considered universal. Until the 1970s, the decision to terminate employment in companies was mostly based on lack of performance. Today, the employee’s inability to meet company expectations or having adjustment problems caused by personality problems continue to be grounds for dismissal. However, over the past decade, we have seen that layoffs have literally ceased to be performance-related. Increasing international and domestic competition as a result of globalization forces companies to change for reasons such as mergers, downsizing, restructuring. As a result of this forced change, some positions lose their function, roles and expected competencies undergo changes, and it becomes mandatory for many employees to leave the system in order to maintain productivity.

In natural etching, which is the simplest method used by organizations to reduce the workforce, employees have the opportunity to make a free choice when deciding to stay or leave the organization, but since it is an unplanned and uncontrollable process, natural etching can lead to serious consequences for the organization. Voluntary termination, which is the second approach used to reduce the workforce, is used to provide additional compensation, health insurance and other ancillary rights to the employees of the organization. It is the process by which the organization asks some staff to resign voluntarily in order to reduce the number of layoffs by offering an improved exit package.

In early retirement incentive, which is another labor force reduction method, as in voluntary termination, it is aimed to reduce the labor force by offering employees an incentive package for early retirement. In order to encourage early retirement, the organization can also implement a regular and gradual workforce reduction strategy by setting different quit dates instead of collective workforce reduction. Compulsory termination, which is the last labor reduction method, appears as a final reduction or savings strategy in which the right of choice is not granted to the departing personnel. This process, which is not attractive for employees, can sometimes also occur with the complete closure of departments, business units or facilities.

Strategic HR cost reduction

Human resources is a department that covers all the processes related to employees and aims to use the human capital of the enterprise in the best way. The support and services that a good human resources management will provide can strengthen the competitiveness of the enterprise by increasing operational efficiency. Because when the skills and competencies of employees are correctly evaluated and directed, the overall success of the enterprise is directly affected. Operating costs have a significant share in the total expenses of a business. These costs do not consist only of raw material or production expenses; they also include investments in human resources. A wide range of elements that should be considered, ranging from education to health services, employee rights to pension plans, have a decisive impact on the budget. Planning and executing human resources strategies and applications in the best way plays a critical role in reducing operating costs. In markets where competition is intense, the sustainability of enterprises is closely related to the effective management of costs. Optimizing operating costs allows you to be more flexible in pricing strategies, while ensuring efficient use of resources. Thus, enterprises can be in a stronger position in the market by gaining a competitive advantage. Human resource management can have a major impact on operating costs in both a direct and indirect way. Direct impacts include, in particular, issues such as the cost of recruitment processes, the budget of training programs or employee benefits. Indirect effects, on the other hand, include elements that indirectly affect the efficiency and profitability of the enterprise, such as low employee turnover rate, increased employee satisfaction and higher job performance.