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

Downsizing strategies and organizational performance: a longitudinal study

Management Decision, 2009

Purpose-How does downsizing affect long-and short-term organizational performance? The present study aims to address this important question and attempts to extend previous research by examining the effect of both personnel and assets reduction on long-and short-term firm performance. Design/methodology/approach-The paper uses data collected through secondary sources on 196 firms traded on the Tel Aviv Stock Exchange (TASE) between 1992 and 2001. Findings-Econometric analyses indicate the positive impact of a combination of downsizing strategies on short-term performance, and the negative effect of this combination on long-term performance and high-tech industry performance is negatively related to assets and personnel cutbacks. Whereas downsizing affects the short-term performance of larger and established companies positively, it generally affects long-term performance inversely. Originality/value-This study offers a first examination of the effects of simultaneous cutbacks in personnel and assets. This combined strategy goes further than dismissing employees, since layoffs are linked to the sale of such tangible assets as product lines or manufacturing facilities. By so doing, firms downscale their activities commensurate with the reduction in workforce and are less likely to generate excess workload on the remaining employees.

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...

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.

Examining the Incidence of Downsizing and Its Effect on Establishment Performance

2000

The interest in examining job security and job stability has been driven in part by the phenomenon of downsizing. The distinctiveness of downsizing, as opposed to more traditional layoffs, is that the job cuts do not necessarily appear to be driven by shortfalls in demand but instead appear to be driven by the search for operating efficiencies. Despite the interest in downsizing, there has been essentially no serious investigation into its causes. I distinguish downsizing from job cuts associated with shortfalls in demand and find that employment and management practices over which employers have control, such as severance pay and profit sharing, are important predictors of subsequent downsizing and more general job losses. Surprisingly, excess operating capacity is not necessarily related to more general job losses at the establishment level. I also examine the relationship between both job losses associated with shortfalls in demand and downsizing and subsequent financial performance. The results suggest, among other things, that downsizing reduces labor costs per employee but also sales per employee. Job cuts associated with excess capacity appear to be somewhat more successful at improving sales per employee than is downsizing.

The influences of the downsizing strategy on business structures

Purpose – This paper investigates the effectiveness of the downsizing strategy when applied to the Telefónica case. Design/methodology/approach – By using the Event Study method, we present the relationship between downsizing strategies and results. Statistical significance of results was analyzed using t-statistics analysis. Findings – Results are significant, proving that the downsizing strategy brought about greater profitability and better funding, leveraging company market values. Originality/value – Results indicate that downsizing is a strategy alternative that allows for better adaptation, if carried out proactively and associated to changes that are necessary within organizational structure and processes.

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.

Downsizing – Overall Impact on Workforce and Organizational Performance

International Journal of Management Studies, 2020

Downsizing is a process through which the current workforce is reduced who are operating on a payroll basis which is permanent in nature. The following research paper is a qualitative paper that is based on secondary data and analysis the process how downsizing is conducted in an entity and the aftermath of downsizing on the performance of the organization and the mental condition of the employees who have survived the process of downsizing. The article also highlights on comparison between different countries (developed and developing nations) rate of unemployment and factors that led to unemployment and how does it affect the economy as a whole.

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.

The Effect of Announced Downsizing on Workplace Performance: Evidence from a Retail Chain

SSRN Electronic Journal

The Effect of Announced Downsizing on Workplace Performance: Evidence from a Retail Chain We estimate the effect of downsizing announcement on workplace performance using data from a German bakery chain of 193 shops. Faced with intensified competition, the firm decided to sell or close down 57 of its worst performing shops. We identify the effect of downsizing from a plausibly exogenous variation in the timing of the sale or closure announcement in the individual shops. We find that the announcements of the shop being sold to a new owner and being closed down reduce sales by six and 21 percent, respectively. The negative effect of downsizing increases with the share of workers with a permanent contract, even though permanent workers faced a much lower unemployment risk. We relate our findings to the literatures on downsizing and psychological contract.