The Influence of Downsizing on Market Orientation and Financial Performance
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Abstract
This study takes an interdisciplinary approach to explaining the influence of downsizing on financial performance. Previous research in this area suggests a degree of equivocality regarding this relationship. By introducing market orientation as a mediating variable, this study provides insight into how downsizing can be most effectively approached by organizations to maximize both market orientation and performance.
The results suggest that merely reducing headcount may have a detrimental effect on an organization’s ability to maintain market orientation and meet performance expectations. Alternatively, organizations that pursue new strategic options are better able to sustain market orientation, resulting in improved financial performance.
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