downsizing outsourcing

What is downsizing and what does it consist of?

To be competitive enough in today’s market, a large number of companies have devised different strategies aimed at increasing productivity and efficiency levels. One of these strategies is downsizing, a term that refers to a business restructuring that implies an optimization of work systems through an adaptation of the number of employees, in order to achieve high levels of competitiveness. Put roughly, downsizing basically consists of reducing the workforce of a company, although it is not just a matter of firing employees, since it is a concept that combines the strategies of rightsizing and rethinking: managing to implement the optimal organizational size in the company and reformulate its organization.

The main objective of downsizing is to establish lighter and more flexible organizations, with the ability to adapt adequately to changes and to face challenges more quickly. It is worth noting that this is not a liquidation strategy or a reduction in turnover, but rather an offensive maneuver that seeks to improve productivity and increase profits, even if this involves dismissals, transfers, outsourcing, etc.

We can distinguish two types of downsizing: proactive and reactive. Proactive downsizing is implemented in advance of changes that may occur in the business sector in which the business is framed. In fact, anticipating changes in the environment leads to being able to achieve goals faster. Reactive downsizing, in contrast, is carried out in response to a given market situation. That is, the reorganization is given by a new business context, so the results are obtained more slowly and progressively.

Areas susceptible to outsourcing

In recent years we have seen how outsourcing has been gaining ground among the strategies adopted by companies. Not surprisingly, outsourcing is a very useful tool that we can encompass within downsizing, since it is an ideal alternative to reduce the workload that falls on companies. That way, they can fully focus on the core activities of the business.

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The outsourcing phase covers different areas of a business, although it is a process that has a special impact on certain departments such as accounting, marketing, human resources, legal and tax, among others.

Accounting and tax outsourcing

Improvements and advances in accounting and taxation allow companies to delegate these activities, thereby considerably reducing costs and errors in their accounting and/or taxes. These specialized external accounting and taxation services nowadays have specific software and tools that operate with greater efficiency.

Human resources and administrative personnel outsourcing

Outsourcing applied to human resources and administrative personnel (new hires and terminations, contracts, payroll, social security, severance payments…) can make the processes of managing people and administering their payrolls more efficient. In addition, these external companies not only enhance the area of human resources, but also strategically manage worker training, an essential factor to improve the contracting company’s competitiveness. In fact, it helps employees specialize and develop based on business objectives.

Marketing outsourcing

Marketing outsourcing means delegating professional tasks to external people and services with expertise in the field. They must have the support of management to fully understand the company’s corporate philosophy and draw up the appropriate marketing strategies.

Legal outsourcing

Other areas that can be outsourced within the organizational chart of a company are legal services, supporting matters such as corporate matters, contracts, compliance and data protection regulations, or the corporate secretariat. Compliance is becoming increasingly important in all aspects.

Improve productivity by downsizing

There is no doubt that downsizing can become a very useful business tool when it comes to increasing the productivity of a business. One of the main advantages it offers is that the company can achieve the established objectives with the minimum number of resources, especially in highly competitive sectors. In fact, a reduced workforce in non-key business areas can significantly lower costs. furthermore, adequate outsourcing of certain services can be a key factor in improving productivity based on lower spending.

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On the other hand, thanks to downsizing, bureaucracy is significantly reduced – thereby reducing a main cause in complexity and slowness in processes, difficulties in defining responsibilities, deficiencies in the quality of service and less room for innovation and creativity. Downsizing also means that decision-making can be carried out in a more simplified way and with greater peace of mind, since the areas of the company, the hierarchical levels and the activities are reduced. Of course, downsizing also facilitates communications and promotes entrepreneurship. In fact, the simplification and optimization of the business structure makes external and internal communication much more fluid, especially between employees and managers.

Reduced fixed costs

The high transaction costs on the market until the 1980s meant that companies were growing through the gradual integration of activities. Today, however, competition, globalisation, new technologies and a marked reduction in transaction costs mean that large companies and SMEs are shaped by different mechanisms, such as strategic alliances or subcontracting. This allows them to have greater flexibility, reduce fixed costs and greatly reduce the risk of losses.

Today’s more competitive companies manage to increase the volume of resources, but at the same time, they decrease the size of their units to make them more flexible and efficient. The downsizing strategy, therefore, aims to adapt to the environment through a new structure, which ultimately allows for a global vision that facilitates the achievement of results. Naturally, the reduction of fixed costs without reducing the productivity of the company is what, above all, is sought when applying this strategy.

Publicado el 03-2022 por PBS