Do We Have to Downsize – Does the Empirical Evidence Suggest any Alternatives?

Document Type

Peer-Reviewed Article

Publication Date

2018

Abstract

Purpose

Given a growing literature indicating that downsizing is not an effective way to address financial decline, having either little impact or negative impact on the financial health or market valuation of financially troubled companies, what is the alternative for those companies in financial trouble? Three sets of alternatives to downsizing are available to companies suffering financial trouble: strategies addressing personnel/fix costs, strategies focused on addressing cost cutting/variable costs and strategies addressing strategic planning/revenue. Although alternatives to downsizing have been identified, little research has been conducted comparing the impact of downsizing vs alternatives to downsizing on firm performance. The paper aims to discuss this issue.

Design/methodology/approach

This present study looked solely at strategies focused on addressing personnel/fix costs. Focusing primarily on forced attrition (downsizing) vs temporary attrition and/or natural attrition, this research attempts to determine whether specific groupings of alternatives to downsizing are more effective at addressing financial decline that companies find themselves in as compared to downsizing. This included relying on temporary attrition, natural attrition or doing nothing at all.

Findings

The research presented here indicates that various alternatives to downsizing have an immediate positive impact on measures of profitability and a positive long-term impact on one measure of efficiency: revenue per employee. Evidence shows that temporary attrition leads to better financial outcomes than natural attrition than forced attrition or downsizing.

Originality/value

The research presented here indicates that various alternatives to downsizing have an immediate positive impact on measures of profitability and a positive long-term impact on one measure of efficiency: revenue per employee. This has implications for managers put in the position of having to make a decision whether to downsize or not.

DOI

10.1108/JSMA-08-2018-0079

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