Downsizing Case Essay

British Log of Supervision, Vol. sixteen, 253–259 (2005)

DOI: 12. 1111/j. 1467-8551. 2005. 00460. x


The Impact of Downsizing on Company


Stelios C. Zyglidopoulos

The Judge Institute of Management, University of Cambridge, Trumpington Streets, Cambridge, CB2 1AG, UK E-mail: [email protected] com

This study investigates the impact that downsizing is wearing corporate standing. Drawing on the relevant literatures, two hypotheses will be developed and tested. The findings from the study are as follows. Initially, downsizing includes a negative impact on corporate popularity. Second downsizing is more harmful to business reputation than ‘downscoping'–the sale of a division.

Downsizing, irrespective of its elevating acceptance by

corporations, has always been a controversial topic.

Scientific evidence do not support the notion that

downsizing leads to excellent financial functionality in the long run (Baily, Bartelsman and Haltiwanger, year 1994; Cascio, Small, and Morris,

1997; Sobre Meuse, Bergmann and Vaderheiden,

1997). A lot of academics demand that downsizing, if

completed strategically, can benefit the firm (Burton,

Keels and Shook, 1996), while others declare that

downsizing like a strategy for improvement is ‘by

and large, a failure' (Cameron, 1996). Despite

this lack of consistent evidence, however , managers have continued its practice (McKinley, Mone and Barker, 1998).

Through this context, the downsizing literary works

has looked into numerous problems, but provides paid

little attention to the impact of downsizing on

corporate and business reputation. This kind of paper, using data

via Fortune's ‘America's Most Respected Corporations (AMAC) survey, details this issue by simply investigating just how downsizing influences corporate standing, which is necessary for two factors. First, an improved understanding of the effect of downsizing about corporate reputation assists in the

management of just one of the most intentionally

important intangible firm solutions, reputation

(Barney, 1991; Dierickx and Amazing, 1989; Fombrun, 1996; Roberts and Dowling, 1997). Second, r 2006 British School of Managing

from a downsizing materials perspective, this

study helps in better understanding the controversy surrounding downsizing.

Downsizing and company Reputation

Although the term ‘downsizing' has frequently been

employed in the materials to involve a number of

related activities (Cameron, 1996; Cascio, Young

and Morris, 1997), for the purposes on this study

that refers exclusively to work downsizing.

There are two conditions used in the literature to

classify a personnel lowering as downsizing.

First, the reduction must be significant; Cascio,

Young and Morris (1997) employed a five per cent reduction while

a cut-off point. Second, this reduction must be

intentional (Cameron, 1996), but given that significant labor force reductions happen to be ‘less probably be due to attrition' (Littler and Innes, 2004), it

is usually sufficient to talk about that a firm engaging in a

significant workforce reduction is definitely downsizing.

Nevertheless is a worker reduction as a result of the

sale of a split downsizing? Below, ‘downsizing'

is used exclusively to refer to significant reductions in personnel due to layoffs (Burton, Keels and Shook, mil novecentos e noventa e seis; Worrell, Davidson and

Sharma, 1991), whereas ‘downscoping', which

has been accustomed to refer to ideal divestiture


programmes (Hoskinson and Hitt, 1991; Hoskinson, Johnson and Moesel, 1994), refers to significant reductions in personnel because of the sale

of a division. Basically, while downsizing

involves employees losing their very own jobs, downscoping involves personnel keeping their particular jobs although working for different owners.

Company reputation, ‘the overall evaluation in

which in turn a particular company is placed by its various

constituents' (Fombrun, 1996, p. 37), is one of the

most crucial intangible resources of a firm. Research in strategic managing suggests that a favourable reputation is an important

source of sustainable competitive advantage

(Dierickx and...

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