The Impact of Downsizing on Corporate Reputation

Abstract

This study investigates the impact that downsizing has on corporate reputation. Drawing on the relevant literatures, two hypotheses are developed and tested. The findings of the study are as follows. First, downsizing has a negative impact on corporate reputation. Second downsizing is more damaging to corporate reputation than ‘downscoping’–the sale of a division.

Slash and burn or nip and tuck? Downsizing, innovation and human resources

“…Downscoping is a reduction in 'over' diversificationthroughdivestureofassetsandbusinessesthatareunrelatedtotheorganization's core business. In contrast, downsizing to focus the organization on its core activities refers exclusively to significant workforce reductions to reduce the scope of operations (Zyglidopoulos 2005). When a firm downsizes to focus its activities, it does so by eliminating unnecessarymanageriallevels,focusingthefirmonthecoreproduct,andreducingoverallwork level(LuthansandSommer1999).ChalosandChen(2002)reportedthatfirmsthatdownsizeto focus their activity are likely to redirect the savings from downsizing unprofitableor unrelated lines of activities towards their core activities.…”

Customer reactions to downsizing: when and how is satisfaction affected?

“…Only if they devote a certain amount of time and attention to a product category might they notice quality deficiencies resulting from downsizing. Likewise, for signaling effects (Love and Kraatz 2009) as well as reputational effects of downsizing (Flanagan and O'Shaughnessy 2005;Zyglidopoulos 2005) to affect satisfaction, typically requires that customers follow the business press. To account for these effects, we analyze customers' product category involvement and customers' purchase criteria as moderators of the downsizing-satisfaction link.…”

Personality, perceptions and retrenchment decisions of managers in response to decline: Evidence from a decision-making study

“…While the role of retrenchment in the turnaround process is still being debated (e.g., Barker & Mone, 1994;Bruton et al, 2003;Pearce & Robbins, 1994;Robbins & Pearce, 1992), we do know that retrenchment or downsizing disrupts innovative processes (Dougherty & Bowman, 1995), is linked to turnover of valuable human resources (Rosenblatt & Sheaffer, 2001), decreases corporate reputation (Zyglidopoulos, 2005) and affects employee morale (Leanna & Feldman, 1994). Hence, "framing" decline situations may have important outcomes for the organizations and their various stakeholders.…”

“…There is mixed evidence about the need for retrenchment in order to improve poor financial performance at declining organizations (cf., Barker & Mone, 1994;Bruton et al, 2003;Pearce & Robbins, 1994;Robbins & Pearce, 1992). However, a growing number of studies document that retrenchment disrupts innovative processes (Dougherty & Bowman, 1995), leads to turnover of valuable human resources (Rosenblatt & Sheaffer, 2001), sullies corporate reputation (Zyglidopoulos, 2005) and enacts hardships on employees (Leanna & Feldman, 1994). Given its uncertain consequences for firm recovery and organizational processes in general, we believe it is important to understand why some leaders emphasize greater or lesser levels of retrenchment in their reactions to decline.…”