Skip to main content Accessibility help

We use cookies to distinguish you from other users and to provide you with a better experience on our websites. Close this message to accept cookies or find out how to manage your cookie settings.

Close cookie message
×
Hostname: page-component-745bb68f8f-g4j75 Total loading time: 0 Render date: 2025-02-06T03:48:17.811Z Has data issue: false hasContentIssue false

9 - Reducing costs and enhancing efficiency or damaging the company

Downsizing in today’s global economy

Published online by Cambridge University Press:  05 July 2014

By
Kenneth P. De Meuse  and
Guangrong Dai
Edited by
Cary L. Cooper ,
Alankrita Pandey  and
James Campbell Quick
Kenneth P. De Meuse
Affiliation:
Korn/Ferry Leadership and Talent Consulting
Guangrong Dai
Affiliation:
Korn/Ferry Leadership and Talent Consulting
Cary L. Cooper
Affiliation:
Lancaster University
Alankrita Pandey
Affiliation:
University of Texas, Arlington
James Campbell Quick
Affiliation:
University of Texas, Arlington
Get access

Summary

We have all seen the headlines: “The Worst Recession since the 1930s,” “More Foreclosures, More Bankruptcies, and More Layoffs.” Although the recent economic decline in the global economy has spawned many attention-grabbing news stories of job loss, organizational downsizing in reality has been implemented in large numbers for the past 25 years. It has been estimated that roughly 2,000 employees were downsized in American corporations each business day throughout the 1990s (De Meuse and Marks, 2003). According to the US Department of Labor (2011), this number rose to more than 4,000 employees each business day between 2000 and 2007. And certainly, layoffs have increased markedly during the past few of years of economic difficulty – not only in America but around the globe.

Nearly two decades ago, we delivered a presentation at Cornell University entitled, “Is lean and mean really better than fat and happy?” (De Meuse, Vanderheiden, and Bergmann, 1993). The research tracked the financial performance of corporations that downsized during a five-year period relative to those firms that did not. Although the findings were not a ringing endorsement of large-scale layoffs, they point out an interesting observation. Given the length of time organizations have been implementing downsizing and the frequency in which they occur, one would expect companies to be highly effective at it. And yet, this does not appear to be the case. Numerous studies have reported that downsizing can lead to several adverse organizational outcomes, such as decreased employee morale and commitment, increased employee stress and involuntary turnover, and reductions in employee creativity and innovation (see Datta, Guthrie, Basuil, and Pandey, 2010; De Meuse, Marks, and Dai, 2011). In addition, several studies have found that an organization’s financial performance frequently does not improve in the near term (Cascio, 1998; Cascio and Young, 2003; De Meuse, Bergmann, Vanderheiden, and Roraff, 2004; De Meuse, Vanderheiden, and Bergmann, 1994). Cascio and Young (2003) concluded that “managers must be very cautious in implementing a strategy that can impose such traumatic costs on employees, both on those who leave as well as on those who stay” (p. 153).

Type
Chapter
Information
Downsizing
Is Less Still More?
 , pp. 258 - 290
Publisher: Cambridge University Press
Print publication year: 2012

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Allen, T. D., Freeman, D. M., Russell, J. E. A., Reizenstein, R. C., and Rentz, J. O. 2001. “Survivor reactions to organizational downsizing: Does time ease the pain?” Journal of Occupational and Organizational Psychology 74: 145–164.CrossRefGoogle Scholar
Amabile, T. M. and Conti, R. 1999. “Changes in the work environment for creativity during downsizing.” Academy of Management Journal 42: 630–640.Google Scholar
Appelbaum, S. H. and Donia, M. 2000. “The realistic downsizing preview: A management intervention in the prevention of survivor syndrome (Part 1).” Career Development International 5: 333–350.CrossRefGoogle Scholar
Bardwick, J. M. 2008. One Foot Out the Door: How to Combat the Psychological Recession that’s Alienating Employees and Hurting American Business. New York: AMACOM.Google Scholar
Boroughs, D. L. 1992. “Amputating assets.” May 4, US News and World Report, pp. 50–51.
Bossidy, L. and Charan, R. 2002. Execution: The Discipline of Getting Things Done. New York: Crown Business.Google Scholar
Brockner, J. 1989. “The effects of work layoffs on survivors: Research, theory, and practice,” in Staw, B. M. and Cummings, L. L. (eds.), Research in Organizational Behavior, Vol. X. Greenwich, CT: JAI Press, pp. 213–256.Google Scholar
Brockner, J. 2006. “Why it’s so hard to be fair.” Harvard Business Review 84(3): 122–129.Google ScholarPubMed
Brockner, J., Wiesenfeld, B. M., and Martin, C. L. 1995. “Decision frame, procedural justice and survivors’ reactions to job layoffs.” Organizational Behavior and Human Decision Processes 63: 59–69.CrossRefGoogle Scholar
Bruton, G. D., Keels, J. K., and Shook, C. L. 1996. “Downsizing the firm: Answering the strategic questions.” Academy of Management Executive 10: 38–45.Google Scholar
Budros, A. 2000. “Organizational types and organizational innovation: Downsizing among industrial, financial and utility firms.” Sociological Forum 17: 307–342.CrossRefGoogle Scholar
Buono, A. F. 2003. “The hidden costs and benefits of organizational resizing activities,” in De Meuse, K. P. and Marks, M. L. (eds.), Resizing the Organization: Managing Layoffs, Divestitures, and Closings. San Francisco, CA: Jossey-Bass, pp. 306–346.Google Scholar
Cameron, K. S. 1994. “Strategies for successful organizational downsizing.” Human Resource Management 33: 477–500.CrossRefGoogle Scholar
Cameron, K. S., Freeman, S. J., and Mishra, A. K. 1991. “Best practices in white-collar downsizing: Managing contradictions.” Academy of Management Executive 5: 57–73.Google Scholar
Cascio, W. F. 1998. “Learning from outcomes: Financial experiences of 311 firms that have downsized,” in Gowing, M. K., Kraft, J. D., and Quick, J. C. (eds.), The New Organizational Reality: Downsizing, Restructuring, and Revitalization. Washington, DC: American Psychological Association, pp. 55–70.CrossRefGoogle Scholar
Cascio, W. F. 2009. Employment Downsizing and Its Alternatives: Strategies for Long-Term Success. Alexandria, VA: Society for Human Resource Management.Google Scholar
Cascio, W. F. and Young, C. E. 2003. “Financial consequences of employment-change decisions in major US corporations: 1982–2000,” in De Meuse, K. P. and Marks, M. L. (eds.), Resizing the Organization: Managing Layoffs, Divestitures and Closings. San Francisco, CA: Jossey-Bass, pp. 131–156.Google Scholar
Cascio, W. F., Young, C. E., and Morris, J. R. 1997. “Financial consequences of employment-change decisions in major US corporations.” Academy of Management Journal 40: 1175–1189.Google Scholar
Chadwick, C., Hunter, L. W., and Walston, S. L. 2004. “Effects of downsizing practices on the performance of hospitals.” Strategic Management Journal 25: 405–427.CrossRefGoogle Scholar
Chen, P. Y. and Spector, P. E. 1992. “Relationships of work stressors with aggression, withdrawal, theft, and substance use: An exploratory study.” Journal of Occupational and Organizational Psychology 65: 177–184.CrossRefGoogle Scholar
Cody, A. M., Hegeman, G. B., and Shanks, D. C. 1987. “How to reduce the size of the organization but increase effectiveness.” Journal of Business Strategy 8: 66–70.CrossRefGoogle Scholar
Connell, D. S. 2001. “RIF a la carte: Using reported cases to develop effective reduction-in-force criteria.” Employee Relations Law Journal 27(3): 7–47.Google Scholar
Corporate Leadership Council. 2009. “The employee engagement crisis.” Retrieved from
Datta, D. K., Guthrie, J. P., Basuil, D., and Pandey, A. 2010. “Causes and effects of employee downsizing: A review and synthesis.” Journal of Management 36: 281–348.CrossRefGoogle Scholar
De Meuse, K. P., Bergmann, T. J., Vanderheiden, P. A., and Roraff, C. E. 2004. “New evidence regarding organizational downsizing and a firm’s financial performance: A long-term analysis.” Journal of Managerial Issues 16: 155–177.Google Scholar
De Meuse, K. P., Lester, S. W., Kickul, J., and Oh, S. H. 2006. “Downsizing and upsizing in Japan: Its frequency, magnitude, and effects on financial performance.” Paper presented at the Academy of Management Annual Meeting, August, Atlanta.
De Meuse, K. P. and Marks, M. L. 2003. Resizing the Organization: Managing Layoffs, Divestitures, and Closings. San Francisco, CA: Jossey-Bass.Google Scholar
De Meuse, K. P., Marks, M. L., and Dai, G. 2011. “Organizational downsizing, mergers and acquisitions, and strategic alliances: Using theory and research to enhance practice,” in Zedeck, S. (ed.), APA Handbook of Industrial and Organizational Psychology, Vol. III. Washington, DC: American Psychological Association, pp. 729–768.Google Scholar
De Meuse, K. P. and Tornow, W. W. 1990. “The tie that binds – has become very, very frayed!” Human Resource Planning 12: 203–213.Google Scholar
De Meuse, K. P., Vanderheiden, P. A., and Bergmann, T. J. 1993. “Is lean and mean really better than fat and happy?” Paper presented at the Human Resource Planning Society Research Symposium, Cornell University, New York.
De Meuse, K. P., Vanderheiden, P. A., and Bergmann, T. J. 1994. “Announced layoffs: Their effect on corporate financial performance.” Human Resource Management Journal 33: 509–530.CrossRefGoogle Scholar
DeRue, D. S., Hollenbeck, J. R., Johnson, M. D., Ilgen, D. R., and Jundt, D. K. 2008. “How different team downsizing approaches influence team-level adaptation and performance.” Academy of Management Journal 51: 182–196.CrossRefGoogle Scholar
Dewettinck, K. and Buyens, D. 2002. “Downsizing: Employee threat or opportunity? An empirical study on external and internal reorientation practices in Belgian companies.” Employee Relations 24: 389–402.CrossRefGoogle Scholar
Feldheim, M. A. 2007. “Public sector downsizing and employee trust.” International Journal of Public Administration 30: 249–271.CrossRefGoogle Scholar
Feldman, D. C. 2003. “The impact of layoffs on family, friendship, and community networks,” in De Meuse, K. P. and Marks, M. L. (eds.), Resizing the Organization: Managing Layoffs, Divestitures, and Closings. San Francisco, CA: Jossey-Bass, pp. 188–219.Google Scholar
Gaither, C. and Chmielewski, D. C. 2006. “Fears of dot-com crash, Version 2.0.” Los Angeles Times, July 16. Retrieved from .
Guterman, J. 2009. “Don’t let layoffs ruin customer service.” Harvard Business Publishing, 3–5.
Guthrie, J. P. and Datta, D. K. 2008. “Dumb and dumber: The impact of downsizing on firm performance as moderated by industry conditions.” Organization Science 19: 108–123.CrossRefGoogle Scholar
Hammer, M. 1996. Beyond Reengineering. London: HarperCollins.Google Scholar
Harter, J. K., Schmidt, F. L., and Hayes, T. L. 2002. “Business-unit level relationship between employee satisfaction, employee engagement, and business outcomes: A meta-analysis.” Journal of Applied Psychology 87: 268–279.CrossRefGoogle ScholarPubMed
Hoskisson, R. E., Johnson, R. A., and Douglas, D. M. 1994. “Corporate divestiture intensity in restructuring firms: Effects of governance, strategy, and performance.” Academy of Management Journal 37: 1207–1251.Google Scholar
Kanter, R. 2003. “Leadership and the psychology of turnaround.” Harvard Business Review 81(6): 58–67.Google Scholar
Kashefi, J. and McKee, G. J. 2002. “Stock prices’ reactions to layoff announcement.” Journal of Business and Management 8(2): 99–107.Google Scholar
Kets de Vries, M. F. R. and Balazs, K. 1997. “The downside of downsizing.” Human Relations 50: 11–50.CrossRefGoogle Scholar
Kivimaki, M., Vahtera, J., Pentti, J., and Ferrie, J. E. 2000. “Factors underlying the effect of organizational downsizing on health of employees: A longitudinal cohort study.” British Medical Journal 320: 971–975.CrossRefGoogle Scholar
Larkin, T. J. and Larkin, S. 1996. “Reaching and changing front-line employees.” Harvard Business Review 74(3): 95–104.Google Scholar
Leana, C. R. and Feldman, D. C. 1992. Coping with Job Loss: How Individuals, Organizations, and Communities Respond to Layoffs. New York: Lexington Books.Google Scholar
Lewin, J. E., Biemans, W., and Ulaga, W. 2010. “Firm downsizing and satisfaction among United States and European customers.” Journal of Business Research 63: 697–706.CrossRefGoogle Scholar
Littler, C. R. and Innes, P. 2003. “Downsizing and de-knowledging the firm.” Work, Employment, and Society 17(1): 73–100.CrossRefGoogle Scholar
Marks, M. L. 2003. “Revitalization after resizing,” in De Meuse, K. P. and Marks, M. L. (eds.), Resizing the Organization: Managing Layoffs, Divestitures, and Closings. San Francisco: Jossey-Bass, pp. 275–305.Google Scholar
Marks, M. L. and De Meuse, K. P. 2005. “Resizing the organization: Maximizing the gain while minimizing the pain of layoffs, divestitures, and closings.” Organizational Dynamics 34(1): 19–35.CrossRefGoogle Scholar
McClelland, V. and Wilmot, D. 1990. “Lateral communication as seen through the eyes of employees.” Communication World 7(12): 32–35.Google Scholar
McCune, J. T., Beatty, R. W., and Montagno, R. V. 1988. “Downsizing: Practices in manufacturing firms.” Human Resource Management 27: 145–161.CrossRefGoogle Scholar
McKinley, W., Zhao, J., and Rust, K. G. 2000. “A sociocognitive interpretation of organizational downsizing.” Academy of Management Review 25: 227–243.CrossRefGoogle Scholar
Mellahi, K. and Wilkinson, A. 2010. “A study of the association between level of slack reduction following downsizing and innovation output.” Journal of Management Studies 47: 483–508.CrossRefGoogle Scholar
Mishra, A. K., Mishra, K. E., and Spreitzer, M. 2009. “Downsizing the company without downsizing morale.” Sloan Management Review 50(3): 39–44.Google Scholar
Moskowitz, M., Levering, R., and Tkaczyk, C. 2011. “100 best companies to work for.” Fortune 163(2): 91–101.Google Scholar
Noer, D. M. 1993. Healing the Wounds: Overcoming the Trauma of Layoffs and Revitalizing Downsized Organizations. San Francisco, CA: Jossey-Bass.Google Scholar
Norman, S. M., Avolio, B. J., and Luthans, F. 2010. “The impact of positivity and transparency on trust in leaders and their perceived effectiveness.” The Leadership Quarterly 21: 350–364.CrossRefGoogle Scholar
Pfeffer, J. 1998. The Human Equation: Building Profits by Putting People First. Boston, MA: Harvard Business School Press.Google Scholar
Pink-slip productivity. 1992. The Economist, March, p. 79.
Probst, T. M. and Brubaker, T. L. 2001. “The effects of job insecurity on employee safety outcomes: Cross-sectional and longitudinal explorations.” Journal of Occupational Health Psychology 6(2): 139–159.CrossRefGoogle ScholarPubMed
Probst, T. M., Stewart, S. M., Gruys, M. L., and Tierney, B. W. 2007. “Productivity, counterproductivity and creativity: The ups and downs of job insecurity.” Journal of Occupational and Organizational Psychology 80: 479–497.CrossRefGoogle Scholar
Rigby, D. 2002. “Look before you lay off: Downsizing in a downturn can do more harm than good.” Harvard Business Review 80(4): 20–21.Google Scholar
Rousseau, D. M. 1995. Psychological Contracts in Organizations: Understanding Written and Unwritten Agreements. Thousand Oaks, CA: Sage.Google Scholar
Schneider, B. 2006. “Customer satisfaction.” Leadership Excellence 23(8): 13.Google Scholar
Sheaffer, Z., Carmeli, A., Steiner-Revivo, M., and Zionit, S. 2009. “Downsizing strategies and organizational performance: A longitudinal study.” Management Decision 47: 950–974.CrossRefGoogle Scholar
Spreitzer, G. M. and Mishra, A. K. 2002. “To stay or go: Voluntary survivor turnover following an organizational downsizing.” Journal of Organizational Behavior 23: 707–729.CrossRefGoogle Scholar
Trevor, C. O. and Nyberg, A. J. 2008. “Keeping your headcount when all about you are losing theirs: Downsizing, voluntary turnover rates, and the moderating role of HR practices.” Journal of Management Journal 51: 259–276.Google Scholar
Uchitelle, L. 2006. The Disposable American: Layoffs and Their Consequences. New York: Knopf.Google Scholar
United States Department of Labor. 2011. “Extended mass layoffs – fourth quarter 2010, annual totals – 2010.” Press release, February 11. Retrieved from .
Vahtera, J., Kivimaki, M., and Pentti, J. 1997. “Effect of organizational downsizing on health of employees.” Lancet 350: 1124–1128.CrossRefGoogle ScholarPubMed
Vanderheiden, P. A., De Meuse, K. P., and Bergmann, T. J. 1999. “And the beat goes on: Corporate downsizing in the twenty-first century.” Human Resource Management 38: 261–268.3.0.CO;2-R>CrossRefGoogle Scholar
Wiley, J. E. 2008. “Going beyond the basics: The effects of mergers and acquisitions on employee retention and engagement.” Symposium presented at the Society for Industrial and Organizational Psychology Conference, Multiple Perspectives on Retaining and Engaging Employees suring Organizational Transitions, M. L. Marks (Chair), San Francisco.

Save book to Kindle

To save this book to your Kindle, first ensure [email protected] is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about saving to your Kindle.

Note you can select to save to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be saved to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

Find out more about the Kindle Personal Document Service.

Available formats
×

Save book to Dropbox

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Dropbox.

Available formats
×

Save book to Google Drive

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Google Drive.

Available formats
×