Strategies for successful organizational downsizing

This article reports the results of a study of 30 organizations that engaged in downsizing over a four-year period. Three questions were investigated: (1) What general strategies are used by organizations to downsize? (2) What are the effects of downsizing on organizational performance? (3) What are downsizing's “best practices?” or, What are the differences between organizations that effectively downsize and those that do not? Three main strategies for downsizing are explained, the managerial actions to overcome the negative effects of downsizing are enumerated, and the best practices of successful downsizing firms are presented.     

Relationships between self-concepts,aspirations, emotional responses,and intent to leave a downsizing organization

This study examines how individual-level factors, such as task self-confidence, self-esteem, personal goals, job satisfaction, and organizational commitment affect workers' decisions concerning intent to leave the downsizing organization. Results indicate that task self-confidence and role self-esteem had positive, largely direct effects on intent to leave, which can be contrasted with the inverse relationship between the self-concept and intent to leave typically found in non-downsizing organizations. From this investigation, several implications for managing human resources in the downsizing organization are drawn and discussed in the context of planning for downsizing, implementing downsizing, and managing the downsized organization.     

Response to haar's comment— and the beat goes on: Corporate downsizing in the twenty‐first century

Corporate downsizing continues to be a major strategy used by organizations to cope with a dynamic and turbulent global marketplace. A fundamental assumption made by executives is that this strategy improves the financial health of the corporation. De Meuse, Vanderheiden, and Bergmann (1994) examined several indices of financial performance over a five‐year period and found that firms employing downsizing experienced a deterioration in financial performance rather than an improvement. Haar (1999) questioned the findings of this study, asserting that if a company's risk level would have been included in the analysis, their results could have been different. In the present investigation, risk was incorporated in the original analysis. Again, the findings strongly indicate that downsizing was not an effective corporate strategy for enhancing the financial performance of corporations. © 1999 John Wiley & Sons, Inc.     

A Study of the Association between Level of Slack Reduction Following Downsizing and Innovation Output

Over the years scholars put forward a number of theories to explain the association between slack and innovation. This study extends this body of research by focusing on the effects of reduction in slack level following downsizing on innovation output. We developed two hypotheses to examine the total effects and varied yearly effects. We tested the hypotheses with data from a panel of UK firms that downsized between 1997 and 2003. The results show that the level of downsizing has only temporary effects on innovation output. We discuss the implications of these findings and avenues for future research.     

Labor union negotiations: stepping stones or stumbling blocks for a responsible downsizing strategy? Empirical tests in Taiwan

Firms have used organizational downsizing strategies for years. But organizational downsizing not only cannot surely improves firm performance, but also harms thousands of employees and their families. A number of scholars investigating organizational change suggest that ‘a responsible downsizing strategy’ can mitigate or solve this issue. As the major stakeholder in downsizing, labor unions naturally negotiate with firms to protect employee rights and benefits. Their negotiation, therefore, may either enhance or mitigate the effect of responsible downsizing strategy on firm performance. This study used a sample of 154 downsized local firms and multinational corporations in Taiwan to examine the research construct, and invited focus groups to have a further validated explanation. The findings show that labor union negotiation may act as either stepping stones or stumbling blocks. The results indicate that firms employing labor union negotiation experience higher downsizing performance than non-unionized firms do. However, labor union interventions can also become stumbling blocks. Labor union negotiation neutralize the positive effect of employee-caring practices on downsizing performance, leading to a decline in downsizing performance when firms increase employee participation and justice consideration in the downsizing process. The research findings provide implications for further scholarly research and management practices in terms of organization change, stakeholder management and labor–management relationship.     

Downsizing and the changing role of HR

This paper examines the changing role of HR in the specific context of downsizing. It highlights the key dilemmas facing HR professionals - on the one hand, the contribution of HRM to the achievement of business results has come under increasing scrutiny and, on the other hand, most of the challenges of downsizing are people-related issues that require sophisticated HR interventions. The paper reports the key findings of a pilot study conducted in sixty organizations in the UK that downsized in the last three years. The key conclusion of the study is that the role of HR has become wide ranging, covering the strategic as well as implementation aspects. The clear message from the study suggests that, unless there is alignment between the two aspects, the envisaged benefits of downsizing are unlikely take place. Key challenges facing HR professionals are managing middle managers, managing careers and managing employee expectations. There are indications to suggest that the process role of HR is likely to become more important in the medium and longer terms.     

An empirical test of stakeholder influence strategy models: evidence from business downsizing in Taiwan

Frooman's model of stakeholder influence strategies uses levels of resource dependence to determine the power of stakeholder influence. Our study provides initial empirical tests of his model applied in business downsizing. Data from 18 recently downsized firms in Taiwan, including nine multinational corporations (MNCs), were plotted against the Frooman model. We found that resource-dependence alone as Frooman theorized could not explain the influence strategies that stakeholders (in this case the employees) took in response to firms' downsizing decisions. Further investigation revealed that the institutional factors had a significant effect on how firms structured their downsizing initiatives and hence changed the way the employees reacted to firm decisions. We proposed a new model using both resource-dependence and institutional legitimacy as determinants of stakeholder influence strategy and suggested relationships between these determinants and stakeholder actions. This proposed model has profound research implications for the strategic stakeholder theory, as well as practical implications for human resource management.     

HRM retrenchment practices and firm performance in times of economic downturn: exploring the moderating effects of family involvement in management

A substantial number of studies have indicated a significant negative relationship between human resource management (HRM) retrenchment practices such as downsizing, and firm performance. However, a consideration of the potential effects of business family involvement in management is largely absent from the general employment restructuring literature. Using a sample of 218 Taiwanese publicly listed firms, this study seeks to further our understanding in this area by examining the moderating effects of family involvement in management on the relationship between the adoption of HRM retrenchment practices and firm performance during the period of global economic downturn that erupted in the middle of 2008. Data analysis reveals that HRM retrenchment practices had a negative influence on firm performance, and that the relationship between HRM retrenchment practices and firm performance was negatively and significantly moderated by family involvement in management.     

Downsizing and the fragility of corporate reputation: An analysis of the impact of contextual factors

This study extends prior research on the impact of downsizing on corporate reputation by investigating how specific aspects of downsizing measures influence this relationship. Using panel data on the S&P 100 companies for the period 1990–2000, we find that downsizing affects corporate reputation negatively and that the size of the effect depends on the content and the context of the downsizing announcement. More specifically, we find that the motive for downsizing, the time period in which it is announced as well as the extent of previous layoffs significantly influence the reputational penalties that are associated with corporate downsizing. Our results thus elucidate how contextual factors of a downsizing decision can influence the extent of the reputational damage of this measure.     

Do Institutionalized Traditions Matter During Crisis? Employee Downsizing in Korean Manufacturing Organizations

This study examines the downfall of the permanent employment tradition in South Korean manufacturing organizations in the aftermath of the 1997 East Asian economic crisis. We explore whether organizations abandon their traditional institutionalized practices under discontinuous environmental change or despite the change continue these time‐honoured practices. We examine both the organizational factors that inhibit lay‐offs and performance indicators that trigger organizations to re‐evaluate their lifetime employment practices under drastic environmental upheaval. We test our hypotheses on 574 Korean manufacturing organizations and find that under discontinuous change: (1) economic and institutional factors simultaneously apply opposite forces on organizational actions; (2) organizational factors such as poor performance on productivity and export create a need for headcount reductions while factors such as size, domestic ownership, government support, and unionization create social and institutional pressures that inhibit downsizing; and (3) prior experience with downsizing moderates the relationship between institutional factors and further downsizing.     

HR managers as toxin handlers: The buffering effect of formalizing toxin handling responsibilities

Toxin handlers are organizational members who help colleagues manage negative emotions in the workplace. Although toxin handling activities help distressed employees remain productive, they put the toxin handler at risk of emotional exhaustion. In this research, more than 400 HR managers described their experience managing emotionally charged employee problems. We found that formalizing toxin handling responsibilities provided a buffering effect: HR managers whose organizations had made handling emotionally charged employee problems a formal part of HR responsibilities experienced lower levels of emotional exhaustion and perceived HR as more effective, even when they engaged in high levels of toxin handling. Formalizing toxin handling responsibilities may protect HR managers from harm and ensure that they maintain the toxin handling function in their organizations. © 2009 Wiley Periodicals, Inc.     

Downsizing and the hyper-effective manager: The shifting importance of managerial roles during organizational transformation

This article describes how managerial roles change in importance during periods of significant organizational transition. An interdisciplinary approach reveals that (1) the competing values framework is a useful framework for examining this question; (2) the transformational roles increase as expected during downsizing; (3) three of four transactional roles also increase during downsizing. This last counterintuitive finding is illuminated by the interdisciplinary model developed. Overall, managers show significant evidence of hyper-effectivity—a state of high performance that is likely to be unsustainable in the long term. Implications for human resource practitioners and researchers are discussed. © 1996 by John Wiley & Sons, Inc.     

Mutual fund managers: Does longevity imply expertise?

We analyze the performance of 1,042 mutual funds from 1986 to 1995 to measure the relationship between manager tenure and performance. Funds whose managers' have at least ten years tenure do not generate significantly higher excess returns than funds with less experienced managers. The excess returns of the best managers are not greater than those of their less experienced colleagues. Regardless of tenure, managers producing positive risk adjusted returns for three years are not likely to repeat their performance in subsequent periods. Our results provide further evidence that tenure should not be a factor in selecting mutual funds.     

Financial Risk Propensity,Business Cycles and Perceived Risk Exposure

We analyse whether individual financial risk propensity changes over time with background financial conditions, as well as personal and subjective portfolio risk exposure. We elicit risk propensity from six different self‐assessed facets collected in a long panel data set from the DNB Household Survey, annually covering the period 1995–2015. Risk propensity is generally higher during periods of economic growth and lower during periods of recession, but is untrended when elicited, using questions referring to safe investments. Our risk propensity measure is also higher following positive stock market returns or subjectively large risk exposure in own past investments.     

Managing careers in downsizing firms

The literature on managing careers has traditionally been based on the twin assumptions of organizational growth and increased opportunities for individual advancement. Large-scale layoffs in the 1980s and continued downsizing in the 1990s, however, have left organizations questioning how to develop the careers of their employees under conditions of diminished resources and have left employees wondering how to manage their own careers under conditions of diminished opportunities. This article examines the issues involved in managing careers in downsizing firms from both the organization's and the individual's perspective. In addition, it explores not only short-term tactics for handling career disruptions which occur at the time of downsizing but also longer-term strategies for managing careers during times of little or no organizational growth. © 1996 by John Wiley & Sons, Inc.     

Long-term analysis of technologically focused smaller manufacturing enterprises

This study examines the operations of technologically focused SMEs over the past 20 years. A panel of SMEs was studied in 1975, 1985, and again in 1995 to determine (1) whether or non-technologically focused SMEs changed over time and (2) if it was possible to identify the differences between those SMEs that perceived themselves to be technologically focused and those that did not. The panel consisted of over 800 SMEs operating in a single Midwestern State business climate. In 1975 the panel generated almost 500 responses to a research instrument that had been designed in a two-stage process. In the first stage, 23 case studies were developed to generate a conceptual and theoretical understanding of SMEs’ operations. The results of the case studies and available theory were used to design a mail questionnaire that was mailed to the original panel. The study suggests that technologically focused SMEs have changed significantly over the 20-year period from 1975 to 1995. Over this period of time, they have responded to the business conditions and competition around them, but have also changed how they view their own internal planning and operation needs.     

Why doesn’t downsizing deliver? A multi-level model integrating downsizing,social capital,dynamic capabilities,and firm performance

Firms downsize to improve their bottom line results often in reactive response to negative external shocks, such as economic downturns, but even in proactive efforts to enhance organizational performance when they are financially ‘healthy’, such as restructuring. Research reveals, however, that not only does downsizing generally fail to improve a firm’s financial performance, but that it may even lead to reduced financial performance. To investigate this puzzling outcome, we build on previous research and integrate the concepts of downsizing, social capital, dynamic capabilities and performance in a multi-level model as well as discuss how social capital mediates the relationship between downsizing and dynamic capabilities. Thereafter, we develop (a) four propositions to elucidate how changes to the structural dimension of social capital due to downsizing, i.e. the removal of three key social network positions and changes to the firm’s network structure, negatively mediate the relationship between downsizing and a firm’s dynamic capabilities, and (b) two propositions incorporating internal (knowledge intensity) and external (institutional pressures) contextual variables in our model. We conclude by discussing how our research contributes to the downsizing and SHRM literature as well as the resource-based view and social capital literature before providing suggestions for future research and practitioners.     

The Lure of Work‐Life Benefits: Perceived Person‐Organization Fit As A Mechanism Explaining Job Seeker Attraction To Organizations

Drawing from person‐organization (P‐O) fit theory, we explain how the provision of work‐life benefits (WLBs) increases job seeker attraction to organizations during the early recruitment stage because of a perceived value fit between job seekers and the organization. Our results from an experimental study using a sample of 189 MBA students who belonged to two generational groups (Millennials and Gen Xers) and were seeking employment during a period of economic recession support our expectations. We found that job seekers develop higher P‐O fit perceptions for organizations that supplement standard pay with WLBs in their recruitment materials compared with organizations that supplement standard pay with health care benefits or offer only standard pay. In turn, such organizations are assessed as more attractive prospective employers. We also found that generational group moderated the path between P‐O fit and job seeker attraction such that Millennial job seekers were more likely to be attracted toward organizations with which they had strong fit perceptions than their Gen X counterparts. Theoretical and practical implications of our findings are discussed. © 2016 Wiley Periodicals, Inc.