Difference between Downsizing and Outsourcing

People often misunderstand the terms downsizing and outsourcing, as they consider them the same thing. However, these terms are entirely different from one another. The organisations take the decision of downsizing to save their costs and focus more on their core business as they are going in loss or not earning reasonable profits from their other businesses. On the other hand, the decision to outsource is used to improve the efficiency and achieve job specialisation. The downsizing is considered a negative move while the outsourcing is highly appreciated as it reflects progression.


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    As the name implies, downsizing reflects the downfall of a company. However, it is necessarily not the case as sometimes, organisations downsize to get rid of their less profitable businesses and invest more in their businesses which help them earn more profit. Here, the organisations often get rid of the unrelated diversification to invest in a new business or to survive. Generally, it is done to survive as it helps the organisation in cutting their losses and focus more on their main activity. Downsizing is more of a defensive approach, which if not implemented properly can lead the company to liquidity. In business world, downsizing is considered negative. It main involves the reduction in number of staff members. Some people confuse downsizing with layoff but there is a reasonable difference between both of them. In downsizing, the employees are fired on permanent basis while in the layoff this is done on a temporary basis as they are re-hired after the business gets on track.

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    In contrast, outsourcing is a way of getting your work done from another party. Here, the companies tend to share the burden of their work with other companies. This is mostly done in case of seasonal goods, where the demand for a particular good escalates significantly. Not to mention that in order to save time, resources and reach job specialisation, companies are bound to outsource their business. This not only helps them in getting rid of the burden but it also helps them in completing the recorded orders timely. Here, a company hires another company to perform a part in their manufacturing. This is usually done in case of the high tech or costly material that holds a critical value for the company’s products. In some cases, outsourcing also helps the companies in achieving cost efficiency.

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