Strategic downsizing based on performance analysis in small companies

Downsizing is an organizational strategy aimed at improving the performance of the organization. In this context, it represents an option to optimize costs, increase profitability, prevent organizational collapse, and establish organizational decisions for continuous improvement. The study aimed to analyze organizational reduction to guide the resulting performance, mediated by strategy and efficiency in the field of micro and small businesses. The research was carried out in 101 micro and small entrepreneurial companies in Peru that experienced a recession during the pandemic. The methodology was quantitative with a predictive model through structural equations based on variance analysis. The results indicated that downsizing, strategy, and efficiency have positive effects on business performance. In conclusion, the findings confirm that reducing the size of the workforce represents an organizational change strategy, allowing for renewal, establishing new work mechanisms, and taking advantage of the employee’s potential for business continuity.