The Influence of Organizational Downsizing on Organizational Performance

Anju Bala Batra

doi:10.65301/dias.2016.13.2.262

Articles 26th Edition of DTR Oct 2016 – Mar 2017

DOI 10.65301/dias.2016.13.2.262

The Influence of Organizational Downsizing on Organizational Performance

Authors

AN

Anju Bala Batra

Assistant Professor, Delhi Institute of Advanced Studies, Rohini, Delhi-85,

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106 Downloads

Published 2017-03-30

Pages 22-31

Abstract

global headwinds of change have created a volatile, uncertain, competitive and ambiguous (VUCA) environment, which has perplexed business organizations now a days. With the backdrop of twisters like Global economic recession, Euro zone turmoil, Chinese recession and Brexit problem, organizations are nonplussed and are forced to reassess their business structures and strategies. Along with this the issues of fluctuating foreign exchange, fickle financial markets & soaring inflation are posing serious challenge to financial and operational issues in modern organizations. In an obscure scenario of weakening external demand, firms in IT sector especially, are striving hard to retain the foothold by arresting their soaring costs and plummeting profits. The fundamental assumption of 'consistency & congruence' for organizational performance are being blown to air and organizational downsizing has become the 'strategy of choice' for many of the big companies these days. The present study is about conflict & inconsistency arising from downsizing strategy adopted by Infosys which it considered as desirable process for organizational performance. The impact of 'convergence downsizing' on organizational performance, as well as employees' organizational citizenship behavior (OCB-O) and performance has been studied in this correlational research. Exploratory Factor Analysis Technique has been used to identify the factors like Civic Virtue and Sportsmanship indicating Organizational citizenship behavior (OCB-O) which affects the employees' and organizational performance. Cronbach Alpha, AVE, Square Root AVE have been used to measure Reliability and Validity of constructs, whereas the relationship between these has been studied by Correlation and Regression techniques. Certain financial ratios like Operating Profit ratio, ROA, ROS and Value Added per Employee have also been assessed to adjudge the organization's financial performance.

Keywords

VUCA Environment, Downsizing, Organizational Citizenship Behaviour, Civic Vir tue, Spor tsmanship, Organizational Performance

References

Allen, T. D., Freeman, D. M., Russell, J. E. A., Reizenstein, R. C., & Rentz, J. O. (2001). Survivor reactions to downsizing: Does time ease the pain? Journal of Occupational and Organizational Psychology, 74(2), 145–164.
Appelbaum, S. H., Simpson, R., & Shapiro, B. T. (1987). The influence of downsizing on market orientation and financial performance. Organizational Dynamics, 16(2), 16–27.
Appelbaum, S. H., Henson, D., & Knee, K. (1999). Downsizing failures: An examination of convergent/reorientation and antecedents–processes. Management Decision, 37(6), 473–495.
Armstrong-Stassen, M. (2002). Causes and effects of employee downsizing: A review and synthesis. Journal of Occupational and Organizational Psychology, 75, 1–13.
Bhattacharyya, S., & Chatterjee, L. (2005). Organizational downsizing: From concepts to practices. Vikalpa, 30(3), 65–78.
Bruton, G. D., Keels, J. K., & Shook, C. L. (1996). The impact of workforce reductions on financial performance: A longitudinal perspective, 10(2), 38–45.
Bullon, F. M., & Bueno, M. J. S. (2008). Downsizing implementation and financial performance. Universidad Carlos III De Madrid Working Papers, Business Economic Series, 2008(6), 8–29.
Cameron, K. S. (1994). Strategies for successful organizational downsizing. Human Resources Management, 33(2), 189–211.
Carswell, P. J. (2005). The financial impact of organizational downsizing practice: The New Zealand experience. Asia Pacific Journal of Management, 22(1), 56–78.
Cameron, K. S., Kim, M. U., & Whetten, D. A. (1987). Organizational effects of decline and turbulence. Administrative Science Quarterly, 32, 222–240.
Cascio, W. F. (1993). Downsizing: What do we know? What have we learned? Academy of Management Executive, 7(1), 95–104.
Cascio, W. F., Young, C. E., & Morris, J. R. (1997). Financial consequences of employment-change decisions in major U.S. corporations. Academy of Management Review, 40(5), 1175–1189.
Chadwick, C., Hunter, L. W., & Walston, S. L. (2004). Effects of downsizing practices on the performance of hospitals. Strategic Management Journal, 25(5), 27–48.
Chalos, P., & Chen, C. J. R. (2002). Employee downsizing strategies: Market reaction and post announcement financial performance. Journal of Business Finance & Accounting, 29, 847–870.
Daniel, E., Lohrke, F. T., Fornaciari, C. J., & Turner, R. A. Jr. (2004). Slack resources and firm performance: A meta-analysis. Journal of Business Research, 57(1), 68–82.
DeMeuse, K. P., Bergmann, T. J., Vanderheiden, P. A., & Roraff, C. E. (2004). New evidence regarding organizational downsizing and a firm’s financial performance: Long-term analysis. Journal of Managerial Issues, 16(2), 155–177.
Denis, D. K., & Shome, D. K. (2005). An empirical investigation of corporate asset downsizing. Journal of Corporate Finance, 11(3), 427–448.
Ellis, P. D. (2006). Market orientation and performance: A meta-analysis and cross-national comparison. Journal of Management Studies, 43(5), 1089–1107.
Farrell, M. A. (2003). The effect of downsizing on market orientation: The mediating roles of trust and commitment. Journal of Strategic Management, 11(1), 55–74.
Farrell, M., & Mavondo, F. T. (2004). The effect of downsizing strategy and reorientation strategy on a learning orientation. Personnel Review, 33(4), 383–402.
Farrelly, F., & Questor, P. (2003). The effects of market orientation on trust and commitment. European Journal of Marketing, 37(3/4), 530–553.
Freeman, S. J., & Cameron, K. S. (1993). Organizational downsizing: A convergence and reorientation framework. Organization Science, 4(1), 100–129.
Gandolfi, F. (2008). Reflecting on downsizing: What have managers learned? SAM Advanced Management Journal, Spring, 46–55.
Hillier, D., Marshall, A., McColgan, P., & Werema, S. (2007). Employee layoffs, shareholder wealth and firm performance: Evidence from the UK. Journal of Business Finance & Accounting, 43, 467–494.
Holder-Webb, L., Lopez, T. J., & Regier, P. R. (2005). The performance consequences of operational restructuring. Review of Quantitative Finance and Accounting, 25(4), 319–339.
Lewin, J. E., & Johnston, W. J. (2000). The impact of downsizing and restructuring on organizational competitiveness. Competitiveness Review, 10(1), 45–55.
Love, E. G., & Nohria, N. (2005). Reducing slack: The performance consequences of downsizing by large industrial firms. Strategic Management Journal, 26(12), 1087–1108.
MacKenzie, S. B., Podsakoff, P. M., & Fetter, R. (1991). Organizational citizenship behavior and objective productivity as determinants of managerial evaluations. Organizational Behavior and Human Decision Processes, 50, 123–150.
McKinley, W., Sanchez, C. M., & Schick, A. G. (1995). Organizational downsizing: Constraining, cloning, learning. Academy of Management Executive, 7(1), 32–42.
Mishra, A. K., & Mishra, K. E. (1994). The role of mutual trust in effective downsizing strategies. Human Resource Management, 33(2), 261–279.
Mishra, K. E., Spreitzer, G. M., & Mishra, A. K. (1998). Preserving morale during downsizing. Sloan Management Review, 39(2), 83–95.
Nutt, P. C. (2004). Organizational de-development. Journal of Management Studies, 41(7), 1083–1103.
Organ, D. W. (1988). Organizational Citizenship Behavior: The Good Soldier Syndrome. Lexington, MA: Lexington Books.
Organ, D. W., Podsakoff, P. M., & MacKenzie, S. B. (2006). Organizational citizenship behavior: Its nature, antecedents and consequences. Sage.
Podsakoff, P. M., MacKenzie, S. B., Moorman, R. H., & Fetter, R. (1990). Transformational leader behaviors and OCB. Leadership Quarterly, 1, 107–142.
Podsakoff, P. M., & MacKenzie, S. B. (1997). Impact of OCB on organizational performance. Human Performance, 10, 133–151.
Rehman, W., & Naeem, H. (2012). Impact of downsizing on survived employees. African Journal of Business Management, 6(7), 2429–2434.
Sharma, V., & Jain, S. A scale for measuring OCB in manufacturing sector. Pacific Business Review International, 6(8), 57–62.
Smith, C. A., Organ, D. W., & Near, J. P. (1983). Organizational citizenship behavior: Its nature and antecedents. Journal of Applied Psychology, 68, 653–663.
Tushman, M. L., & Romanelli, E. (1985). Organizational evolution: Convergence and reorientation. Research in Organizational Behavior, 7, 171–222.
Williams, L. J., & Anderson, S. E. (1991). Job satisfaction and OCB. Journal of Management, 17(3), 601–617.
Worrell, D. L., Davidson, W. N., & Sharma, V. M. (1991). Layoff announcements and stockholder wealth. Academy of Management Journal, 34(3), 662–678.
Yu, G. C., & Park, J. S. (2006). Downsizing and financial performance of Korean firms. International Journal of Manpower, 27(3), 230–250.

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Anju Bala Batra . (2017). The Influence of Organizational Downsizing on Organizational Performance. DIAS Technology Review, 13(2), 22-31.

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[1] Allen, T. D., Freeman, D. M., Russell, J. E. A., Reizenstein, R. C., & Rentz, J. O. (2001). Survivor reactions to downsizing: Does time ease the pain? Journal of Occupational and Organizational Psychology, 74(2), 145–164.

[2] Appelbaum, S. H., Simpson, R., & Shapiro, B. T. (1987). The influence of downsizing on market orientation and financial performance. Organizational Dynamics, 16(2), 16–27.

[3] Appelbaum, S. H., Henson, D., & Knee, K. (1999). Downsizing failures: An examination of convergent/reorientation and antecedents–processes. Management Decision, 37(6), 473–495.

[4] Armstrong-Stassen, M. (2002). Causes and effects of employee downsizing: A review and synthesis. Journal of Occupational and Organizational Psychology, 75, 1–13.

[5] Bhattacharyya, S., & Chatterjee, L. (2005). Organizational downsizing: From concepts to practices. Vikalpa, 30(3), 65–78.

[6] Bruton, G. D., Keels, J. K., & Shook, C. L. (1996). The impact of workforce reductions on financial performance: A longitudinal perspective, 10(2), 38–45.

[7] Bullon, F. M., & Bueno, M. J. S. (2008). Downsizing implementation and financial performance. Universidad Carlos III De Madrid Working Papers, Business Economic Series, 2008(6), 8–29.

[8] Cameron, K. S. (1994). Strategies for successful organizational downsizing. Human Resources Management, 33(2), 189–211.

[9] Carswell, P. J. (2005). The financial impact of organizational downsizing practice: The New Zealand experience. Asia Pacific Journal of Management, 22(1), 56–78.

[10] Cameron, K. S., Kim, M. U., & Whetten, D. A. (1987). Organizational effects of decline and turbulence. Administrative Science Quarterly, 32, 222–240.

[11] Cascio, W. F. (1993). Downsizing: What do we know? What have we learned? Academy of Management Executive, 7(1), 95–104.

[12] Cascio, W. F., Young, C. E., & Morris, J. R. (1997). Financial consequences of employment-change decisions in major U.S. corporations. Academy of Management Review, 40(5), 1175–1189.

[13] Chadwick, C., Hunter, L. W., & Walston, S. L. (2004). Effects of downsizing practices on the performance of hospitals. Strategic Management Journal, 25(5), 27–48.

[14] Chalos, P., & Chen, C. J. R. (2002). Employee downsizing strategies: Market reaction and post announcement financial performance. Journal of Business Finance & Accounting, 29, 847–870.

[15] Daniel, E., Lohrke, F. T., Fornaciari, C. J., & Turner, R. A. Jr. (2004). Slack resources and firm performance: A meta-analysis. Journal of Business Research, 57(1), 68–82.

[16] DeMeuse, K. P., Bergmann, T. J., Vanderheiden, P. A., & Roraff, C. E. (2004). New evidence regarding organizational downsizing and a firm’s financial performance: Long-term analysis. Journal of Managerial Issues, 16(2), 155–177.

[17] Denis, D. K., & Shome, D. K. (2005). An empirical investigation of corporate asset downsizing. Journal of Corporate Finance, 11(3), 427–448.

[18] Ellis, P. D. (2006). Market orientation and performance: A meta-analysis and cross-national comparison. Journal of Management Studies, 43(5), 1089–1107.

[19] Farrell, M. A. (2003). The effect of downsizing on market orientation: The mediating roles of trust and commitment. Journal of Strategic Management, 11(1), 55–74.

[20] Farrell, M., & Mavondo, F. T. (2004). The effect of downsizing strategy and reorientation strategy on a learning orientation. Personnel Review, 33(4), 383–402.

[21] Farrelly, F., & Questor, P. (2003). The effects of market orientation on trust and commitment. European Journal of Marketing, 37(3/4), 530–553.

[22] Freeman, S. J., & Cameron, K. S. (1993). Organizational downsizing: A convergence and reorientation framework. Organization Science, 4(1), 100–129.

[23] Gandolfi, F. (2008). Reflecting on downsizing: What have managers learned? SAM Advanced Management Journal, Spring, 46–55.

[24] Hillier, D., Marshall, A., McColgan, P., & Werema, S. (2007). Employee layoffs, shareholder wealth and firm performance: Evidence from the UK. Journal of Business Finance & Accounting, 43, 467–494.

[25] Holder-Webb, L., Lopez, T. J., & Regier, P. R. (2005). The performance consequences of operational restructuring. Review of Quantitative Finance and Accounting, 25(4), 319–339.

[26] Lewin, J. E., & Johnston, W. J. (2000). The impact of downsizing and restructuring on organizational competitiveness. Competitiveness Review, 10(1), 45–55.

[27] Love, E. G., & Nohria, N. (2005). Reducing slack: The performance consequences of downsizing by large industrial firms. Strategic Management Journal, 26(12), 1087–1108.

[28] MacKenzie, S. B., Podsakoff, P. M., & Fetter, R. (1991). Organizational citizenship behavior and objective productivity as determinants of managerial evaluations. Organizational Behavior and Human Decision Processes, 50, 123–150.

[29] McKinley, W., Sanchez, C. M., & Schick, A. G. (1995). Organizational downsizing: Constraining, cloning, learning. Academy of Management Executive, 7(1), 32–42.

[30] Mishra, A. K., & Mishra, K. E. (1994). The role of mutual trust in effective downsizing strategies. Human Resource Management, 33(2), 261–279.

[31] Mishra, K. E., Spreitzer, G. M., & Mishra, A. K. (1998). Preserving morale during downsizing. Sloan Management Review, 39(2), 83–95.

[32] Nutt, P. C. (2004). Organizational de-development. Journal of Management Studies, 41(7), 1083–1103.

[33] Organ, D. W. (1988). Organizational Citizenship Behavior: The Good Soldier Syndrome. Lexington, MA: Lexington Books.

[34] Organ, D. W., Podsakoff, P. M., & MacKenzie, S. B. (2006). Organizational citizenship behavior: Its nature, antecedents and consequences. Sage.

[35] Podsakoff, P. M., MacKenzie, S. B., Moorman, R. H., & Fetter, R. (1990). Transformational leader behaviors and OCB. Leadership Quarterly, 1, 107–142.

[36] Podsakoff, P. M., & MacKenzie, S. B. (1997). Impact of OCB on organizational performance. Human Performance, 10, 133–151.

[37] Rehman, W., & Naeem, H. (2012). Impact of downsizing on survived employees. African Journal of Business Management, 6(7), 2429–2434.

[38] Sharma, V., & Jain, S. A scale for measuring OCB in manufacturing sector. Pacific Business Review International, 6(8), 57–62.

[39] Smith, C. A., Organ, D. W., & Near, J. P. (1983). Organizational citizenship behavior: Its nature and antecedents. Journal of Applied Psychology, 68, 653–663.

[40] Tushman, M. L., & Romanelli, E. (1985). Organizational evolution: Convergence and reorientation. Research in Organizational Behavior, 7, 171–222.

[41] Williams, L. J., & Anderson, S. E. (1991). Job satisfaction and OCB. Journal of Management, 17(3), 601–617.

[42] Worrell, D. L., Davidson, W. N., & Sharma, V. M. (1991). Layoff announcements and stockholder wealth. Academy of Management Journal, 34(3), 662–678.

[43] Yu, G. C., & Park, J. S. (2006). Downsizing and financial performance of Korean firms. International Journal of Manpower, 27(3), 230–250.