Downsizing strategies and organizational performance: a longitudinal study (original) (raw)

Downsizing implementation and financial performance

Management Decision, 2010

PurposeThe objective of this paper is to analyze whether the way that downsizing is implemented has any impact on the firm's performance.Design/methodology/approachThe sample under investigation consists of a set of Spanish companies, which downsized between 1995 and 2001. The paper includes downsizing announcements and combines information from two different datasets (BARATZ and SABI). The focus is placed on the size of downsizing and the use of disengagement incentives.FindingsA negative relationship between the size of downsizing and post‐downsizing corporate performance is found. In particular, firms which announced severe downsizing experience relatively lower performance in the year following the announcement.Originality/valueThe analysis advances organizational research by reinforcing the concept that firm performance is not only contingent on strategies, but also influenced by the means through which these strategies are implemented.

Dumb and Dumber: The Impact of Downsizing on Firm Performance as Moderated by Industry Conditions

Organization Science, 2008

W orkforce downsizing through employee layoffs has become commonplace in American businesses over the last 20 years. While these initiatives are typically undertaken in the quest for improved firm performance and competitiveness, empirical research to date has been equivocal in supporting the efficacy of these initiatives. In addition, extant research has not thoroughly examined factors or conditions that may influence or moderate the performance impact of workforce downsizing. In this paper, we address the question: Do industry conditions moderate the impact of workforce downsizing on firm performance? We examine this question using matched primary and secondary data on a sample of U,S, manufacturing firms. After controlling for a set of industry and firm-level variables, including firms' prior performance levels, our results indicate that downsizing is associated with decreases in subsequent firm profitability and that these negative effects are more pronounced in industries characterized by research and development (R&D) intensity, growth, and low capital intensity.

The effects of downsizing on operating performance

Review of Quantitative Finance …, 2000

We examine the performance of 118 ®rms that downsized between 1989±1993. We ®nd that downsizing ®rms experience declines in operating performance prior to the downsizing announcement. Operating performance improves signi®cantly following the downsizing. These ®rms are able to reduce the cost of sales, labor cost, capital expenditures and R&D expenditures. We also ®nd that ®rms that perform poorly in their industries prior to the downsizing and have increases in assets following the downsizing have larger improvements in performance. There is some evidence that the improvements are greater for ®rms that increase their focus.

To Downsize or not to Downsize – What does the Empirical Evidence Suggest

There has been much written about the effects of downsizing on the financial health and the market valuation of companies that engage in this practice. But this literature is fragmented, focusing on various aspects of companies, various reasons for downsizing, and various financial and market outcome measures. The present study was conducted to try and address some of this fragmentation by comparing those companies that downsized in 2008, while financially healthy or not, with those companies that did not downsize. The impact of the downsizing event was assessed by using various financial measures as well as a measure of company market valuation over the short-term (2009-2011) and long-term (2009-2014). Findings indicate that across all financial measures, except Return on Equity, downsizing makes no difference to the financial health of a company either in the short term (up to 3 years after the downsizing) or in the long-term (up to 6 years after the downsizing). And with regards to Return on Equity, downsizing companies immediately after the downsizing were more inefficient in their use of equity. A theory is proposed to explain the persistence of the use of downsizing in the face of evidence that suggests it is not effective in addressing financial and market difficulties. The hope is that this work will better inform, not only scholars, but also senior leaders faced with a decision to downsize or not to downsize.

The Impact of Downsizing Practices on Corporate Success

Journal of Management Development, 1994

Contains a review of the literature on research conducted to investigate organizational practices in downsizing after a restructure and the effects of these practices on the organization and its employees, in particular, and on other stakeholders in general. Based on the literature review, proposes a process model for the development and implementation of downsizing plans. The objective of the model is to provide a guide to be used by organizations when downsizing to ensure that the interests of all stakeholders are taken into account. The proposed model is tested through a field research in the form of case studies of five major organizations in Canada. Outlines the actual practices of these organizations and compares them with the proposed process model, both collectively and individually. Analyses the differences and proposes a new revised model that emphasizes not only the downsizing process itself, but also what organizations must do during and after downsizing to ensure that e...

Downsizing the firm: Answering the strategic questions

Academy of Management Perspectives, 1996

Executive Overview Though downsizing has become a routine activity, most of what has been written relies on anecdotal evidence and focuses primarily on personnel issues. To make good downsizing decisions, executives need to appreciate more than just the immediate impact on human resources. And their information should be based on the collective experience of many firms. In this article, we raise five important strategic questions about downsizing and provide answers based on analyses of 100 downsizing firms. We show that downsizing has the potential to be beneficial to healthy and declining firms in a variety of industries. Those firms that are the most successful downsizers tend to use the process strategically to refocus on related business activities. Done strategically, even modest cuts have positive impact. One of the principal criticisms of downsizing is that it is frequently shortsighted, a knee-jerk reaction to changes in competitor strength and competitive position rather than part of an overall strategic plan for the organization. Downsizing the Work Force: Does it Work? Despite the continued growth of downsizing in American firms, there is ambivalence about its benefits. For example, a recent Fortune magazine article pointed out that many downsizing firms, "rather than becoming lean and mean, often end up lean and lame."' One of the principal criticisms of downsizing is that it is a frequently shortsighted, knee-jerk reaction to changes in competitor strength and competitive position rather than part of an overall strategic plan for the organization.

Does Size Matter? – The impact of the size of downsizing on financial health and market valuation

Although the management and financial literature is replete with much research looking at the impact of downsizing on the financial health and market valuation of companies employing this practice, there has been very little attention paid to the size of the downsizing effort and its impact. The present study was conducted to try and address this lack by looking at companies that downsized in 2008, considering the relative size of the downsizing, and the ongoing financial health and market valuation of the companies. The impact of the size or severity of the downsizing event was assessed using various financial measures as well as a measure of market valuation from one to five years after the downsizing event. Findings indicate that the size or severity of the downsizing did not impact any measures of profitability or efficiency or market valuation, with one exception. The size of the downsizing event was negatively related to return on investment, one year after the downsizing. On the other hand, the size or severity of the downsizing had a positive relationship with the companies' ability to have enough cash at hand to cover expenses (current ratio) from one to four years after the downsizing. This may provide additional support for the " band-aid solution " theory of downsizing, as suggested by Carriger (in press), downsizing may stop the bleeding but does not address the underlying financial or strategic issue leading to the need to downsize. The hope is that this work will better inform scholars and practitioners, providing a more nuanced picture of the impact of downsizing on corporate financial health and market valuation.

Does downsizing improve organisational performance? An analysis of Spanish manufacturing firms

The International Journal of Human Resource Management, 2011

The objective of this study is to examine the effect of downsizing on corporate performance, considering a sample of manufacturing firms drawn from the Spanish Survey of Business Strategies during the 1993-2005 period. No significant differences in post-downsizing performance arise between companies which downsize and those that do not. Likewise, we find that substantial workforce reductions through collective dismissals do not either lead to improved performance levels. Downsizing, therefore, may not be a way for managers to increase performance, particularly in a context like the Spanish one, where the labour market is characterized by a high protection of employees' rights and substantial contract termination costs.

Impact of Downsizing on Organizational Performance

2016

Workforce downsizing has became very popular in the last few decades. It is a positive and useful strategy to improve organizational performance and efficiency. In this study we examine the impacts of downsizing on the performance of survived employees. In this research article the independent variable is downsizing and dependent variables are emotional stability, job satisfaction and financial rewards. The research will be conducted on a Pakistani firm.

Downsizing and the Organizational Performance

Cases on Management and Organizational Behavior in an Arab Context, 2014

This case study sheds light on the disputable organizational issue of downsizing in EDU-X; one of the leading educational centers in the Middle East. For some reasons, EDU-X management was forced to conduct a downsizing in 2011, after six years of successful experience in the educational field. The case focuses on the underlying reasons that forced the top management to take this action, and describes the impact of downsizing on the stakeholders of the organization before, during, and after the downsizing (one year and a half later). On one hand, the opinions, arguments, and reasons of the top management about the downsizing were presented. On the other hand, the opinions, arguments, and despair of the employees whether survivors, laid off, or resigned were communicated in the case description. Based on the comprehensive model of Kammeyer-Mueller (2001) and in retrospect, the downsizing decision of the management of EDU-X was inevitable and turned out to be the right decision for the organization. Its positive impact can be demonstrated on both the performance and inter-organizational relations and team dynamics within EDU-X. Definitely, the case study shows that the management could have used a higher assistance, higher participation, and more communication with their employees to lessen the undesirable effects of downsizing. In closing, it was enriching to demonstrate a local downsizing case and certainly it would be worthwhile to explore such experiences of other organizations and businesses in the Middle East market.