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A company's reduction in the number of employees, number of bureaucratic levels, and overall size in an attempt to increase efficiency and profitability.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.


To reduce the size of a company. A company downsizes when its operations are perceived to become inefficient and it wishes to concentrate on certain competencies in order to improve profitability and reduce expenses. Downsizing often reduces the number of jobs at the company. Because downsizing reduces expenses, it often increases the company's value and/or dividends for shareholders.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved


  1. the use of PERSONAL COMPUTERS in a business in place of large mainframe computers. The introduction of smaller, faster and more cost-effective microprocessors has made it possible for tasks which formerly could only be performed by mainframe computers to be carried out at the personal workstation level, allowing a greater devolution of DATA PROCESSING down to the ‘desk top’.
  2. a term for policies aimed at organizational contraction, usually leading to REDUNDANCY for some employees. The oft-stated rationale for downsizing is that a smaller, more flexible ORGANIZATION will be able to respond better to market forces. Cost reduction, however, is probably an equally important motive. See DELAYERING, RIGHTSIZING.
Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson


a term used to describe the contraction of a firm's operations to make it ‘leaner and fitter’. The general aim of downsizing is to reduce costs and, by creating a smaller, more flexible organization, make the firm better able to respond quickly to changes in its markets. Downsizing frequently occurs during periods of falling demand or intense competition, and it often involves redundancies or earlier retirements among the workforce. Downsizing may also result from productivity improvements associated with technological changes that enable firms to produce the same or greater outputs with fewer employees.
Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005
References in periodicals archive ?
Most definitions of the phenomenon of downsizing assume it is applied as a measure to improve an organization's results (Freeman and Cameron, 1993; Cameron, 1994; McKinley et al.
Other studies have shown that reduced productivity following downsizing may be counterbalanced by savings in personnel costs (Baumol et al., 2003; Cappelli, 2000).
Why do firms resort to downsizing? What are the driving forces?
Downsizing has deep financial, organizational, and social consequences, covered extensively in the change management literature.
Participants were interviewed within 6 months of the completion of downsizing in their organization.
Three experts in the area of downsizing research reviewed the themes and supported the structure that had been developed.
(4) We measured group downsizing in the same way as population downsizing: the sum of the number of members of the same group that downsized over the previous three years, minus downsizings by the focal firm, divided by the number of firms in the group minus the focal firm, multiplied by three.
Table 1 Annual Downsizing Rate (*) Size of downsizing 1990 1991 1992 1993 1994 1995 1996 1997 2% or more .175 .126 .142 .191 .311 .438 .513 .518 5% or more .059 .038 .049 .106 .159 .205 .240 .222 10% or more .027 .016 .015 .042 .074 .085 .071 .075 (*)Number of downsizings divided by number of firms in sample.
Respondents were asked to rate their performance, compared to their average performance prior to the downsizing, on 11 different aspects including quality of work, productivity, assuming responsibility, and amount of effort expended on the job.
This is one of a very few studies to examine job- and organization-related factors from the initial phases of organizational downsizing through the downsizing phases of voluntary departures and then involuntary departures to the post-downsizing period.