Reducing slack: the performance consequences of downsizing by large industrial firms, 1977–93

Published on Dec 1, 2005in Strategic Management Journal5.57
· DOI :10.1002/smj.487
E. Geoffrey Love7
Estimated H-index: 7
(UIUC: University of Illinois at Urbana–Champaign),
Nitin Nohria42
Estimated H-index: 42
(Harvard University)
We conceptualize downsizing as an attempt to reduce organizational slack. We suggest that the degree to which downsizing will improve firm performance will be contingent on conditions under which the downsizing occurs. We emphasize the level of organizational slack as an important contingency, and also examine two other contingencies: (1) whether the scope of the downsizing is narrow (restricted to personnel reductions) or broad (involves organizational redesign); and (2) if the downsizing is conducted proactively (when performance is stable or improving) or reactively (when performance is declining). By analyzing a panel dataset of downsizings conducted by the 100 largest American industrial firms from 1977 to 1993, we find broad support for our hypotheses that downsizings are more likely to lead to improved performance when firms have high slack, when their scope of the downsizing is broad, and when the downsizing is done proactively. We also explore and find evidence for interactions among these contingencies. We discuss the implications of our findings for the literatures on downsizing and organizational slack. In doing so, we bring together two literatures that have an obvious affinity but have been only loosely coupled in the past. Copyright © 2005 John Wiley & Sons, Ltd.
  • References (67)
  • Citations (168)
Published on Apr 7, 2005
William J. Baumol76
Estimated H-index: 76
Alan S. Blinder59
Estimated H-index: 59
Edward N. Wolff48
Estimated H-index: 48
Published on May 1, 2004in Strategic Management Journal5.57
Clint Chadwick12
Estimated H-index: 12
(UIUC: University of Illinois at Urbana–Champaign),
Larry W. Hunter16
Estimated H-index: 16
(UW: University of Wisconsin-Madison),
Stephen L. Walston1
Estimated H-index: 1
(IUPUI: Indiana University – Purdue University Indianapolis)
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...
Published on Dec 1, 2003in Strategic Management Journal5.57
Justin Tan19
Estimated H-index: 19
(College of Business Administration),
Mike W. Peng60
Estimated H-index: 60
(Max M. Fisher College of Business)
How does organizational slack affect firm performance? Organization theory posits that slack, despite its costs, has a positive impact on firm performance. In contrast, agency theory suggests that slack breeds inefficiency and inhibits performance. The empirical evidence, largely from developed economies, has been inconclusive. Moreover, little effort has been made to empirically test whether such an impact (positive or negative) is linear or curvilinear. This article joins the debate by extendi...
Published on Apr 18, 2002
Nitin Nohria42
Estimated H-index: 42
Davis Dyer2
Estimated H-index: 2
Frederick Dalzell2
Estimated H-index: 2
Preface. The Ordeal of the Industrial Economy. Passages and Patterns. Strategy: Coping with the End of Growth. Structure: Crumbling Walls. Systems: Intelligence Unbound. Governance: The Tighter Leash. Fraying Loyalties. The Churning Mix: The Changing Nature of the Largest American Companies. The Industrial Corporation in a Post-Industrial Age. Acknowledgments. Notes. Index.
Published on Jan 1, 2002
Marshall W. Meyer18
Estimated H-index: 18
(UPenn: University of Pennsylvania)
Introduction 1. Why are performance measures so bad? 2. The running down of performance measures 3. In search of balance 4. From cost drivers to revenue drivers 5. Learning from ABPA 6. Managing and strategising with ABPA Notes Index.
Published on Aug 1, 2001in Academy of Management Perspectives3.86
M. B.(Buff) Lawson1
Estimated H-index: 1
Executive Overview Organizational slack, in terms of time and human resources that are not constantly subject to measures of short-term efficiency, is important for organizations coping with the challenges of the 21st century. Those who must weigh the pressures for short-term efficiency against the demands for long-term effectiveness in confronting strategic resource-allocation and design decisions should consider the value of slack. Slack is important for organizational adaptation and innovatio...
Published on Mar 22, 2001in Journal of Managerial Issues
Kenneth P. De Meuse10
Estimated H-index: 10
Thomas J. Bergmann12
Estimated H-index: 12
Scott W. Lester23
Estimated H-index: 23
Historically, a mutual understanding existed between employees and employers. It was expected that employees would work hard, cause few problems, and generally do whatever the boss wanted. In return, it was expected that employers would provide "good jobs" with "good pay," offer plenty of advancement opportunities, and virtually guarantee lifetime employment. It was a stable, predictable world; the employee would be loyal to the employer and, in return, the employer would provide job security fo...
Published on Mar 22, 2001in Journal of Managerial Issues
Mark C. Johlke9
Estimated H-index: 9
Dale F. Duhan19
Estimated H-index: 19
Salespeople, customer-contact service employees, and other boundary spanning employees often experience high levels of role ambiguity because they (1) operate between the firm and its environment, (2) produce innovative solutions to non-routine problems, and (3) experience differing role expectations from inside and outside the organization (Kahn et at., 1964; Singh, 1993). Babin and Boles (1998) observe that front-line boundary spanners represent a rapidly expanding proportion of a firm's total...
Published on Aug 1, 2000
E. Geoffrey Love1
Estimated H-index: 1
The study investigates how technical and institutional influences on adoption of administrative practices change over time, The context is adoption of downsizing at large U.S. firms during 1977-1995. The findings suggests that the technical benefits of downsizing vary inversely with firm performance, but that state measures of performance such as level of slack do not predict adoption of downsizing. Performance change measures - specifically change in capitalization and change in earnings estima...
Published on Apr 1, 2000in Journal of Management9.06
Victor B. Wayhan1
Estimated H-index: 1
(UH: University of Houston),
Steve Werner26
Estimated H-index: 26
(UH: University of Houston)
During the last two decades, workforce reductions played an integral role in the restructuring strategies of many companies, especially for Fortune 500 companies. However, research in this important area has been limited. A doubly (multivariate) repeated measures design was chosen for this study to determine the longitudinal impact of workforce reductions on financial performance. The largest 250 U. S. corporations, as measured by 1992 revenues, were divided into two groups based on whether or n...
Cited By168
Published on Feb 1, 2018
D. Ritter-Hayashi , Joris Knoben14
Estimated H-index: 14
(Radboud University Nijmegen),
P.A.M. Vermeulen17
Estimated H-index: 17
(Radboud University Nijmegen)
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...
Published on May 1, 2019in Journal of Management9.06
Matthias Brauer9
Estimated H-index: 9
(UMA: University of Mannheim),
Martin Zimmermann1
Estimated H-index: 1
(UMA: University of Mannheim)
Building on behavioral decision-making theory, we study the extent to which current industry downsizing intensity, changes in future macroeconomic outlook, and a firm’s past performance trend influence the relationship between downsizing magnitude and investor response. Based on the analysis of a large-scale sample of downsizing announcements in the United States over a period of 12 years, our results indicate that negative investor responses to downsizings are amplified in periods of industry d...
Published on Mar 29, 2019in Journal of Business Ethics3.80
Kihun Kim (Miami University), Zulfiquer Ali Haider1
Estimated H-index: 1
(UM: University of Manitoba)
+ 1 AuthorsJunsheng Dou5
Estimated H-index: 5
(ZJU: Zhejiang University)
This paper investigates the layoff behavior, a typical people dimension of corporate social performance (CSP), of family firms from a place-based perspective. We theorize that a place-based culture within family firms ensures that all organizational members share a deep sense of connection with the place of operations which makes them inherently care about their impact on society. Using data on layoffs of 2000 largest US firms between 1994 and 2007, we find that family firms do indeed exhibit a ...
Published on Mar 1, 2019in Growth and Change1.20
Joseph Tokosh (KSU: Kent State University)
This study analyzes three national department store chains in order to identify the factors most associated with their store closures. A binary logistic regression revealed some consistencies and differences in the associations. Larger stores are less likely to close for all three chains. Macy's and Sears stores are less likely to close in large malls (than freestanding stores) and if they are located in the West. J.C. Penney stores in the west are also less likely to close than in other regions...
Published on Mar 1, 2019in Journal of Business Research4.03
Pavlos C. Symeou6
Estimated H-index: 6
(CUT: Cyprus University of Technology),
Stelios C. Zyglidopoulos17
Estimated H-index: 17
(KEDGE Business School),
Naomi A. Gardberg12
Estimated H-index: 12
(Baruch College)
Abstract To date, there has been little agreement on the role of organizational slack in firms' Environmental Performance (EP). Drawing on the Behavioral Theory of the Firm (BTOF), we advance this line of inquiry by conceptualizing the distinct effects that absorbed slack and unabsorbed slack have on EP as well as how industry discretion, firm-specific regulatory pressures, and EP-aspiration levels moderate these effects. We test our hypotheses with a unique panel of 753 US public firms for the ...
Published on Mar 1, 2019in Personnel Psychology6.93
F. Scott Bentley (Binghamton University), F. Scott Bentley (Binghamton University)+ 0 AuthorsRebecca R. Kehoe6
Estimated H-index: 6
(RU: Rutgers University)
Published on Feb 12, 2019in Management Decision1.96
Scott W. Geiger10
Estimated H-index: 10
(USFSP: University of South Florida St. Petersburg),
Dan Marlin8
Estimated H-index: 8
(USFSP: University of South Florida St. Petersburg),
Sharon L. Segrest (USFSP: University of South Florida St. Petersburg)
Purpose The purpose of this paper is to contribute to the healthcare management literature and improve the understanding of the slack and performance link by examining the hospital slack and performance relationship using a sample of 148 US hospitals. Design/methodology/approach Using cluster analysis, ANCOVA and means comparisons, this study identifies different hospital slack configurations and their associated performance implications. Findings The results demonstrate that different configura...
Published on Jan 14, 2019in European Journal of Innovation Management
Alexander Styhre27
Estimated H-index: 27
(University of Gothenburg),
Maria Norbäck4
Estimated H-index: 4
(University of Gothenburg)
Purpose Passion and interest are the two principal drivers of competitive capitalism, and reconciling the two is conducive to a dynamic and welfare-generating economic system. On the level of the individual, the same categories can be applied to examining, for example, career choices, at times violating propositions regarding rational expectations as some categories of work include lower economic compensation or higher levels of risk than would be attractive to the median job applicant. The purp...
Published on Jan 1, 2019in Journal of Management Studies5.84
Christina Matz Carnes6
Estimated H-index: 6
(NU: University of Nebraska–Lincoln),
Kai Xu7
Estimated H-index: 7
(UTSA: University of Texas at San Antonio)
+ 1 AuthorsReha Karadag1
Estimated H-index: 1
(NU: University of Nebraska–Lincoln)
The fungibility of organizational slack provides firms significant latitude in addressing both internal and market pressures. A vast literature suggests that slack influences firm performance; however, the empirical record is mixed, and the underlying mechanism linking slack to performance remains ambiguous. We address these issues by theoretically expanding the slack–performance model to include mediation. Specifically, we develop and test a model in which a firm’s competitive behaviours direct...
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