The Mean and Lean Firm and Downsizing: Causes of Involuntary and Voluntary Downsizing Strategies
Despite the longevity and pervasiveness of downsizing, our knowledge about this practice is inadequate for at least two reasons. One involves underanalysis of the historical context in which downsizing has evolved and the other involves the tendency to equate downsizings with layoffs even though layoffs represent only one of numerous downsizing strategies. I address the one inadequacy by identifying two institutional factors—the spread of economic competition and shareholder activism—that have motivated large firms to embrace the “lean and mean” conception of control and thus to implement downsizings. I address the other inadequacy by distinguishing between involuntary and voluntary downsizings and by testing the ability of a theory of downsizing strategies to explain these two kinds of downsizing among Fortune 100 firms from 1979 to 1995. The findings support the theory: Involuntary downsizings occur when firms face economic pressures and when social processes define these acts as natural; voluntary downsizings occur when firms are shielded from economic pressures and when there is a social preference for these acts. There also is support for the hypothesis that the effects of economic factors on downsizings should decrease over time while those of institutional ones should increase. Finally, I emphasize the role that analyses of institutional contexts, conceptions of the firm, and corporate strategies and structures can play in advancing our understanding of the powerful large firm in America.