What it is:
Downsizing is a strategy used to reduce the size and scope of a business in order to improve its financial performance, usually by laying off employees or closing less-profitable divisions.
How it works (Example):
Downsizing often takes place as part of a larger restructuring program at a company. Although it's usually thought of as a strategy companies use to become smaller, downsizing can also be the result of company mergers, acquisitions, and takeovers.
Why it Matters:
Downsizing is typically seen during economic downturns in order to improve efficiency and maintain profitability. However, if too many companies cut payrolls, it can further the downturn due to higher unemployment.