Match!

Corporate Downsizing and Profitability in Canada

Published on Apr 8, 2009in Canadian Journal of Administrative Sciences-revue Canadienne Des Sciences De L Administration0.85
· DOI :10.1111/j.1936-4490.1996.tb00734.x
Marc S. Mentzer6
Estimated H-index: 6
(U of S: University of Saskatchewan)
Cite
Abstract
Abstract Three competing models of downsizing-the "rational," asymmetrical/hysteretic, and institutional approacheswere tested, using data from large Canadian companies. Although none of the approaches was fully supported, it was noted that there was no consistent relationship between past profit and propensity to downsize, nor was there any consistent relationship between extent of downsizing and future profit. Downsizing is all around us, yet this phenomenon is based on heroic assumptions about both the necessity to downsize and the hoped-for results. Does poor organizational performance lead to downsizing? Does downsizing lead to future organizational success? What if the economic rationale for downsizing is false, the result of mistaken perceptions on the part of corporate executives? Although downsizing is a timely issue in all types of organizations-public, non-profit, and private sectordownsizing is likely a substantively different phenomenon in each sector. This study attempts to address the above questions as they apply to large Canadian companies. The definition of downsizing is not without controversy. Does any decrease in number of employees constitute downsizing, or does the construct of downsizing also include an element of deliberate intent? Some authors draw very fine distinctions among downsizing and related phenomena. For example, Marks (1994, p. 16) contrasts rightsizing and downsizing, while others treat rightsizing as a specific form of downsizing (Hitt, Keats, Harback, & Nixon, 1994). Tomasko (1987) distinguishes between demassing and downsizing. Hardy (1990, p. 2) treats retrenchment, downsizing, resizing, cutbacks, and rationalization as synonyms in her book's introduction, although she does distinguish among the terms in the glossary. S.J Freeman and Cameron (1993) emphasize the intentional nature of downsizing and then carefully distinguish among downsizing, decline, nonadaptation, growthin-reverse, and layoffs. These authors also made these distinctions in an earlier article on downsizing, where they distinguish among downsizing, decline, and layoffs. They then cite Sears, IBM, and the U.S. auto companies as examples of downsizing, as opposed to layoffs or decline (Cameron, Freeman, & Mishra, 1991). This is quite ironic. Such fine-grained distinctions among downsizing and related concepts are problematic, given Cameron et al.'s decision that the U.S. automakers represent downsizing rather than layoffs or decline. In addition, such conceptual distinctions are not always recognized by actual business practitioners, for whom the difference between downsizing and layoffs, or downsizing and rightsizing, may seem elusive. There seems to be a strong desire to distance oneself from labels that connote failure, accompanied by a search for fresh euphemisms for what is, after all, a painful and gut-wrenching process. This discomfort over terminology is reminiscent of arguments in the 1980s over whether the definition of organizational decline should include an element of mismanagement, or whether it should simply refer to organizational shrinkage in a value-neutral manner (Ford, 1980; Greenhalgh, 1983; Whetten, 1980a, 1980b). There are difficulties with defining downsizing as including an element of deliberate intent, since intent is so difficult to assess. The concept of intent refers to a decision-maker's cognitive processes, and executives are unlikely to be candid about their intent when it relates to a topic as sensitive and controversial as that of downsizing. It is the fact of the personnel reduction itself, not an executive's intent, that matters to public policymakers and to the people who are laid off. Because this element of intent is so difficult to measure, and because there is little agreement on how downsizing should be distinguished from closely-related terms, the current study uses a very broad definition in which downsizing consists of any reduction in number of employees-more specifically, as the percentage change in employees, so as to maintain the scalar properties of the variable. …
  • References (26)
  • Citations (62)
Cite
References26
Newest
Published on Jan 1, 1995in Relations Industrielles-industrial Relations0.47
Nancy D. Ursel8
Estimated H-index: 8
,
Marjorie Armstrong-Stassen27
Estimated H-index: 27
Il est de croyance populaire que les lienciements sont benefiques pour les investisseurs et que ce sont les employes qui subissent le fardeau des reductions corporatives. En fait, il y a peu de recherche sur le sujet, et celle qui existe vise surtout des firmes americaines. De plus, la recherche existante peut etre biaisee par le fait qu'elle fait des moyennes de reactions aux reductions en temps de recession et en temps de prosperite. On sait tres bien que les reactions peuvent varier entre ces...
Published on Sep 1, 1994in Organizational Dynamics1.40
Michael A. Hitt95
Estimated H-index: 95
,
Barbara W. Keats12
Estimated H-index: 12
+ 1 AuthorsRobert D. Nixon8
Estimated H-index: 8
Electrical conductors and field plates utilized in monolithic integrated circuit components are buried in insulating media by forming a high temperature resistant insulating film on the semiconductor substrate, depositing a metallic film thereover which is non-reactive with the insulator at temperatures of the order of 700 DEG C or higher, and covering the conductive film with another high temperature resistant, non-reactive insulating film. After all fabrication steps for the integrated circuit...
Published on Jan 1, 1994in Human Resource Management2.93
Kenneth P. De Meuse10
Estimated H-index: 10
,
Paul A. Vanderheiden4
Estimated H-index: 4
,
Thomas J. Bergmann12
Estimated H-index: 12
Conventional wisdom holds that when a firm gets into trouble due to lagging sales and rising costs, cutting the size of the organization to reduce fat and waste is a normal and effective response. In this study, evidence was found to suggest that just the opposite might be true. The financial performance of Fortune 100 companies was tracked over a five-year period—two years prior to the announced layoff, the year of the layoff announcement, and two years following it. Contrary to expectations, t...
Published on Feb 1, 1993in Organization Science3.26
William McKinley22
Estimated H-index: 22
(SIU: Southern Illinois University Carbondale)
In 1980, David Whetten published a seminal paper that urged organization scientists to revise their underlying assumptions of continuous organizational growth, and develop an agenda of research and teaching on organizational decline (Whetten 1980a). Since then, the organization science literature on decline has mushroomed. Some of this work has attempted to define the construct of organizational decline, using such definitions as maladaptation to the environment (Greenhalgh 1983), a downturn in ...
Published on Feb 1, 1993in Organization Science3.26
Sarah J. Freeman9
Estimated H-index: 9
(UWM: University of Wisconsin–Milwaukee),
Kim S. Cameron49
Estimated H-index: 49
(UM: University of Michigan)
Organizational downsizing is becoming pervasive as a characteristic of modern organizations, yet little scholarly literature has addressed the processes and outcomes associated with this phenomenon at the organizational level. Downsizing has often mistakenly been confused operationally with concepts such as decline, layoffs, or nonadaptability, indicating that the definition of the concept remains imprecise. This paper offers a straightforward, operational definition of downsizing. Then the lite...
Published on Jul 1, 1992in Organization Studies3.54
Marc S. Mentzer6
Estimated H-index: 6
(U of S: University of Saskatchewan),
Janet P. Near44
Estimated H-index: 44
(IU: Indiana University Bloomington)
During organizational decline, the administrative component grows in some organizations and shrinks in others. Why do such differences occur? In a study of U.S. railroads, efficient organizations were found to be most prone to make administrative cuts. Furthermore, railroads making such cuts improved their chances of long-term survival. When an organization is faced with organizational decline, the results suggest that managers must cut to survive.
Published on Feb 1, 1992in The Executive
Richard A. Bettis19
Estimated H-index: 19
(SMU: Southern Methodist University),
Stephen P. Bradley14
Estimated H-index: 14
(Harvard University),
Gary Hamel24
Estimated H-index: 24
(LBS: London Business School)
Executive Overview The improper use of outsourcing is playing an important role in the continuing competitive decline of many Western firms. Western managers often view outsourcing as a defensive operational measure. The approach tends to be incremental. A whole series of incremental outsourcing decisions, taken individually, may make economic sense, but collectively they may also represent the surrender of the business's capability to compete. However, properly understood and managed as an over...
Published on Jan 1, 1992in Academy of Management Review10.63
William McKinley22
Estimated H-index: 22
(SIU: Southern Illinois University Carbondale)
This article presents comments on an article published in a previous issue that discussed the effects that work force decline has on organizational structures. In that article the authors presented two models that outlined the results that declining financial resources and a decreasing work force has on the structure of an organization. This article suggests that their argument about the long-term influences of work force decline needs to be reexamined. The author notes that the process of organ...
Published on Jan 1, 1992in Academy of Management Review10.63
Robert I. Sutton40
Estimated H-index: 40
(Stanford University),
Thomas D'Aunno31
Estimated H-index: 31
(UM: University of Michigan)
In this article the authors respond to comments made about a paper they published in a pervious issue that discussed that examined organizational decline. The authors proposed two models of the process in their original work, the second of which drew the most scrutiny. In this article they reexamine this model of organizational decline and address various aspects of the model more intensively. The main areas that they focus on are explaining why administrative ratios were not included in their m...
Cited By62
Newest
Published on Jun 1, 2019in Information & Management4.12
José Céspedes-Lorente15
Estimated H-index: 15
(UAL: University of Almería),
Amalia Magán-Díaz1
Estimated H-index: 1
(UAL: University of Almería),
Ester Martínez-Ros14
Estimated H-index: 14
(ISCIII: Instituto de Salud Carlos III)
Abstract Recent literature analyses the economic effects of employee downsizing on organizations under a contingent framework. Information technology (IT) can be considered a relevant factor for organizations that downsize. IT could enhance knowledge management, innovation management and organizational learning. Given the damage produced by downsizing on these organizational capabilities, the aim of this research is to study the moderating role of the implementation level of IT in the relationsh...
In this paper problems in the functioning of national bank system as a system behavioral object are considered. Also, mechanisms of interaction of bank system with other sectors of national econ- omy and the state are discussed. Finally, internal mechanisms of self-organizing of national bank system are investigated. The article is a brief overview of a book printed in Russia (in Russian). The question of the general concept "bank system" is seldom addressed and the methodology of its analysis i...
ABSTRACTThis study examines whether the reduction of the number of employees has actually been efficient in the restructuring undertaken in the European banking sector, focusing on the case of Spain but providing insight into restructuring and downsizing issues similar in other southern countries in Europe. In Spain, the concentration process has been more intense because of the financial crisis. For this purpose, the evolution of the number of employees in the subsector of the listed banks was ...
Norifumi Kawai6
Estimated H-index: 6
(University of Duisburg-Essen)
This article empirically examines the antecedents and consequences of organizational downsizing using a sample of 67 Japanese multinational corporation (MNC) subsidiaries operating in the European manufacturing industry. To date, existing findings on the occurrence of downsizing at the subsidiary level are based on anecdotal accounts or simple descriptive surveys without any clear-cut conceptual framework that addresses factors and consequences of downsizing events. This study provides evidence ...
Published on Apr 1, 2013in Asia Pacific Business Review0.90
Byoung-Hoon Lee5
Estimated H-index: 5
(CAU: Chung-Ang University),
Jung-Min Nam1
Estimated H-index: 1
Drawing upon the Korea Workplace Panel Survey (KWPS) data, this study examines how Korean firms responded to the global financial crisis (GFC), and in particular, what factors induced Korean firms to adopt downsizing actions. Analysis reveals that Korean firms are driven to implement downsizing due to experience with prior episodes of redundancy action, rather than due to economic considerations of business difficulties. The institutionalized norm of downsizing in the common cognitive mode of ma...