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selection and long-term performance implications of alternative corporate downscaling strategies
The study distinguished downscaling, reductions in the scale
of a firm's activities, as a strategy distinct from other
forms of downsizing, such as changes in the extent of firm
diversification (i.e., downscoping) or reductions in force
(RIF) triggered by such events as mergers and acquisitions.
A typology of downscaling strategies was developed based upon
the focus of the targeted RIFs and the scope of efforts to
redesign firm activities. Hypotheses were developed about
various pre-downscaling factors and the selection of specific
downscaling strategies and between downscaling strategies and
post-downscaling performance. A population of 260 large,
publicly traded firms that downscaled between 1989 and 1993
was drawn from Standard and Poor's Compustat database. Of
these 260 firms, 46 responded to a survey used to identify
the downscaling strategy employed. While variation was
observed in the type of downscaling strategy selected, no
statistically significant relationships were identified
between strategy and a variety of pre-downscaling measures,
including firm performance (economic or competitive
necessity) and institutional influences (mimetic effect). No
statistically significant relationships were found between
downscaling strategies and implementation efforts. Finally,
no relationship was found between downscaling strategy and
postdownscaling performance. However, statistically
significant relationships were found between some performance
measures and RIF size. In addition, union membership was
found to reduce the probability of being terminated. The
most compelling findings deal with pre- and post-downscaling
performance. Using the population of 260 firms, strong
support was found for a significant improvement in net income
and return on sales two years after the RIF. However, even
stronger support was found for decrease in productivity,
market share, and market share relative to the industry
leader. These findings suggest that downscaling results more
from random processes than from careful planning. In
addition, there is little support for believing that
implementation strategies other than involuntary termination
are given careful consideration. Nor are the precursors of
downscaling clear. In fact, there is little support for
downscaling being a rational, well-planned and executed
strategy. Finally, short-term improvements in profitability
may be gained at the expense of long-term competitiveness.
Issued also on microfiche from University Microfilms Inc.
Includes bibliographical references: pages 100-116.