2.2.4 Why reducing the size of the workforce may be necessary (3)
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1.
Question 1: A large retail company is experiencing declining profitability due to increased competition from online retailers. The company's management is considering downsizing as a potential solution.
- Explain what is meant by 'downsizing' in a business context.
- Describe two potential advantages and two potential disadvantages of downsizing.
Answer 1:
What is Downsizing? Downsizing refers to a deliberate reduction in the size of a business. This can involve reducing the number of employees, closing down departments or branches, or selling off assets. The aim is often to improve efficiency and reduce costs.
Potential Advantages of Downsizing:
- Reduced Costs: Fewer employees mean lower wages, benefits, and overheads, leading to improved profitability.
- Increased Efficiency: Downsizing can streamline operations by eliminating redundant tasks and departments, making the business more agile.
Potential Disadvantages of Downsizing:
- Reduced Morale: Layoffs can negatively impact the morale of remaining employees, leading to decreased productivity and increased turnover.
- Loss of Expertise: Downsizing may result in the loss of valuable skills and experience within the organization.
2.
Question 3: A service company is exploring downsizing to improve its financial performance. The company is considering closing some of its less profitable branches.
- Explain the potential impact of closing branches on the company's customer base.
- Using a table, outline the key factors the company should consider when deciding which branches to close.
Answer 3:
Impact on Customer Base: Closing branches can inconvenience customers who regularly use those locations. Customers may have to travel further, leading to reduced customer satisfaction and potential loss of business. The company needs to consider how to retain these customers, such as offering online alternatives or consolidating services at remaining branches.
Key Factors for Branch Closure Decision:
| Factor | Description |
| Profitability | The branch's current and projected profit levels. |
| Customer Base | The size and loyalty of the customer base served by the branch. |
| Location & Accessibility | The branch's location and how easily accessible it is to customers. |
| Operational Costs | The cost of operating the branch, including rent, utilities, and staff. |
| Strategic Importance | The branch's contribution to the company's overall strategy and brand image. |
3.
Question 3: Discuss the potential impact of reduced consumer demand on a business's workforce size. Include examples of how a business might respond to a decline in demand.
A decline in consumer demand directly impacts a business's workforce size by reducing the need for labour to produce and sell goods or services. When demand falls, sales decrease, leading to lower production levels and potentially fewer employees required. This can manifest in various ways, from temporary staff reductions to permanent job losses.
How a business might respond to a decline in demand:
- Reduced Working Hours: Implementing reduced working hours for all employees can spread the impact of reduced demand, avoiding widespread job losses. Example: A restaurant reducing opening hours or closing on certain days.
- Layoffs/Redundancies: This is the most direct response, involving the termination of employees. Example: A car manufacturer temporarily or permanently laying off workers due to lower car sales.
- Hiring Freeze: Stopping all new recruitment helps to control costs when demand is low. Example: A retail company putting a freeze on new hires during a period of economic downturn.
- Retraining and Redeployment: Investing in retraining employees to perform different tasks within the business can help to retain staff and adapt to changing needs. Example: A manufacturing company retraining workers to become involved in product design or customer service.
- Reduced overtime: Limiting overtime opportunities can help to reduce labour costs when overall demand is low. Example: A logistics company reducing overtime hours for drivers when freight volumes decline.
The specific response will depend on the nature of the business, the severity of the decline in demand, and the business's overall financial situation. Businesses must carefully consider the potential impact on employee morale and public perception when making decisions about workforce reductions due to reduced demand.