A Global Perspective on the Non-Financial Consequences of Downsizing

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.