Effects of downsizing practices on the performance of hospitals

Research has found that downsizing is not generally followed by improved organizational performance. Using a sample of hospitals that recently downsized, we evaluate the effects on performance of the human resource management (HRM) practices used in layoffs. Strategic HRM theory suggests that practices can have an impact on performance outcomes. We find that showing consideration for employees' morale and welfare during downsizing is positively related both to perceived success of downsizing and to financial performance following layoffs. Advance notice of layoffs is positively related to subsequent financial performance, but the provision of extended insurance to laid‐off employees is negatively related to financial performance. Planned redesign of work structures is positively related to perceived success, but has neutral to negative effects on financial performance. Copyright © 2004 John Wiley & Sons, Ltd.