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A Global Perspective on the Non-Financial Consequences of Downsizing

Listed author(s):
  • Franco GANDOLFI


    (The University of the South Pacific, Fiji Islands)

  • Magnus HANSSON

    (Örebro University School of Business Centre for Empirical Research on Organizational Control (CEROC), Sweden)

Registered author(s):

    Firms engage in workforce downsizing for a multitude of reasons, generating a myriad of consequences and implications at organizational, sub-group, and individual levels of analysis. The downsizing literature is extensive, reflecting the prevalence of this management practice in North America and around the globe. Despite the large body of research, there is scarce evidence regarding the success of the downsizing strategy when assessed from financial, organizational, and human resource perspectives. This paper demonstrates that there are patterns in downsizing practices irrespective of country of origin. Internationally-oriented firms adopt similar strategies and practices to handle external threats or internal inefficiencies and experience similar outcomes. Also, there is substantial empirical evidence from multiple countries suggesting that executives have adopted downsizing activities as a strategy, driven by a deep-seated belief that these strategies will improve organizational efficiency, effectiveness, and overall financial performance. The paper shows that managers often experience a crisis mentality following the planning and implementation of downsizing and fail to make effective long-term plans for the firm and its constituencies. Furthermore, executives have a tendency to inadequately prepare for the aftermath of downsizing, and fail to understand how downsizing survivors will be affected by workforce reduction activities. Finally, the authors argue that firms mitigate some of the negative effects by providing training for survivors and introducing human resource policies and plans to mediate the after-effects of downsizing.

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    Article provided by Faculty of Management, Academy of Economic Studies, Bucharest, Romania in its journal REVIEW OF INTERNATIONAL COMPARATIVE MANAGEMENT.

    Volume (Year): 16 (2015)
    Issue (Month): 2 (May)
    Pages: 185-204

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    Handle: RePEc:rom:rmcimn:v:16:y:2015:i:2:p:185-204
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    1. Canice Prendergast, 1999. "The Provision of Incentives in Firms," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 7-63, March.
    2. Claude Montmarquette & Jean-Louis Rullière & Marie-Claire Villeval & Romain Zeiliger, 2004. "Redesigning Teams and Incentives in a Merger: An Experiment with Managers and Students," Management Science, INFORMS, vol. 50(10), pages 1379-1389, October.
    3. Gregory Fisher & Janet Lee & Leanne Johns, 2004. "An Exploratory Study of Company Turnaround in Australia and Singapore Following the Asia Crisis," Asia Pacific Journal of Management, Springer, vol. 21(1_2), pages 149-170, 03.
    4. Gandolfi, Franco, 2007. "How do large Australian and Swiss banks implement downsizing?," Journal of Management & Organization, Cambridge University Press, vol. 13(02), pages 145-159, June.
    5. James P. Guthrie & Deepak K. Datta, 2008. "Dumb and Dumber: The Impact of Downsizing on Firm Performance as Moderated by Industry Conditions," Organization Science, INFORMS, vol. 19(1), pages 108-123, February.
    6. Joel Cutcher-Gershenfeld, 1991. "The Impact on Economic Performance of a Transformation in Workplace Relations," ILR Review, Cornell University, ILR School, vol. 44(2), pages 241-260, January.
    7. Hannele Mäkelä, 2010. "Social responsibilities of MNCs in downsizing operations: A Finnish forest sector case analysed from the stakeholder, social contract and legitimacy theory point of view," Accounting, Auditing & Accountability Journal, Emerald Group Publishing, vol. 23(2), pages 149-174, February.
    8. Parbudyal Singh & Naresh C. Agarwal, 2002. "Union Presence and Executive Compensation: An Exploratory Study," Journal of Labor Research, Transaction Publishers, vol. 23(4), pages 631-646, October.
    9. Nina T. Dorata, 2008. "The shielding of CEO cash compensation from post-acquisition earnings' charges," Managerial Finance, Emerald Group Publishing, vol. 34(5), pages 288-303.
    10. Espahbodi, Reza & John, Teresa A & Vasudevan, Gopala, 2000. "The Effects of Downsizing on Operating Performance," Review of Quantitative Finance and Accounting, Springer, vol. 15(2), pages 107-126, September.
    11. Gandolfi, Franco & Hansson, Magnus, 2011. "Causes and consequences of downsizing: Towards an integrative framework," Journal of Management & Organization, Cambridge University Press, vol. 17(04), pages 498-521, July.
    12. Nina T. Dorata, 2008. "The shielding of CEO cash compensation from post-acquisition earnings' charges," Managerial Finance, Emerald Group Publishing, vol. 34(5), pages 288-303, April.
    13. Gandolfi, Franco & Hansson, Magnus, 2010. "Reduction-in-force (RIF) – New developments and a brief historical analysis of a business strategy," Journal of Management & Organization, Cambridge University Press, vol. 16(05), pages 727-743, November.
    14. Trevor Buck & Xiaohui Liu & Rodion Skovoroda, 2008. "Top executive pay and firm performance in China," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 39(5), pages 833-850, July.
    15. Paul Jackson & Kamel Mellahi & Leigh Sparks, 2005. "Shutting up shop: understanding the international exit process in retailing," The Service Industries Journal, Taylor & Francis Journals, vol. 25(3), pages 355-371, April.
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