Exploring the Role of Information Technology in Organizational Downsizing: A Tale of Two American Cities

This study explores the role information technology (IT) plays in organizational downsizing by studying two medium-sized American cities over a period of 10 years (1985–1995). Data were collected through 73 interviews, a questionnaire, and numerous documents. Four main findings emerged from the case studies. First, IT was found to facilitate organizational downsizing, but not to cause it. New City invested heavily in stateof-the-art IT over the years and more successfully downsized the organization than Old City, which lagged behind in IT investment and made no serious attempts to use IT as a tool to support strategic actions. Second, adverse environmental conditions triggered downsizing in both cities and determined the change strategies that managers used. When environmental pressures were mild (1985–1990), managers favored a convergent change strategy that resulted in limited downsizing efforts and small personnel reductions. In contrast, when environmental pressures were strong (1990–1995), managers of both cities engaged in strategic reorientation and in downsizing efforts that led to larger personnel reductions. Third, the role IT played in organizational downsizing varied according to the change strategy. IT was used to facilitate work redesign in a convergent change strategy and to facilitate more significant structural and work redesign in strategic reorientation. Fourth, more integrated and better use of IT allowed managers of New City to downsize more rationally and efficiently. It facilitated the transfer of personnel within departments, from middle management to the operations level, and across departments, from internally oriented to customer-oriented personnel. In doing so, managers of New City minimized operating costs while maintaining the same level of services. In contrast, IT in Old City did not facilitate such an agenda and managers downsized more superficially across the board, in all departments. Differences in IT consequences in the two cities are explained using the theory of slack resources in organizations. (Information Technology; Organization Downsizing; Middle Management; Environmental Context; Organizational Slack; Change Strategy; Strategic Reorientation; Convergent Change; City Governments) In today’s highly competitive and turbulent environment, downsizing continues to be used by organizations to reduce operating costs, increase flexibility, and improve responsiveness. During the heyday of downsizing efforts (1987–1991), more than 85% of Fortune 1000 firms downsized their white-collar work forces, effecting more than five million jobs (Cascio 1993). Although middle managers made up only 5 to 8% of the work force, they accounted for 17% of all dismissals from 1989–1991 (Cascio 1993). The persistence of white-collar downsizing in the late 1990s is attributed to high penetration of IT and to the large administrative overhead of American companies in comparison to that of their foreign competitors (Budros 1999). Speculation that IT would lead to downsizing dates back to Leavitt and Whisler (1958) who argued that IT would take over most routine decision and communications activities of middle managers and massively reduce their number. IT can automate many decisions and make information widely and easily accessible throughout the organization. This allows top managers to bypass middle managers in organizational communications and to centralize decision making above middle managers. Downsizing occurs because many middle managers are no longer needed. While some empirical evidence supports this argument (Brynjolfsson et al. 1994, Budros 1999), other evidence indicates that downsizing can be caused by factors such as adverse environmental conditions (Freeman and Cameron 1993, Tushman and Romanelli 1985). In fact, our knowledge of the causal relationship between IT, environmental conditions, managerial actions, and organizational downsizing is quite limited. This paper takes the study of organizational downsizing a step further than previous studies by exploring what role IT plays in downsizing and what influence environD ow nl oa de d fr om in fo rm s. or g by [ 12 8. 2. 10 .2 3] o n 13 J an ua ry 2 01 5, a t 0 7: 05 . Fo r pe rs on al u se o nl y, a ll ri gh ts r es er ve d. ALAIN PINSONNEAULT AND KENNETH L. KRAEMER Exploring the Role of Information Technology in Organizational Downsizing 192 ORGANIZATION SCIENCE/Vol. 13, No. 2, March–April 2002 mental conditions and managerial actions have on the process. The paper is organized as follows. First, the literature on organizational downsizing is quickly reviewed and a general theoretical framework describing the role of IT in organizational downsizing is proposed. Second, the research method is described and third, the findings of the two case studies are presented. Then, the differences in IT consequences in the two cities are explained using theory about slack resources in organizations. The paper concludes by discussing the study’s contributions and future research. Information Technology and Organizational Downsizing Organizational downsizing—the planned elimination of positions or jobs designed to improve organizational efficiency and/or effectiveness—is characterized by four main attributes. First, it is undertaken purposively or intentionally, usually in response to environmental conditions such as economic slowdowns or hypercompetition (Budros 1999, DeWitt 1993, Freeman and Cameron 1993, Tomasko 1993). Second, it involves reductions in personnel that might occur through direct elimination of jobs, or indirectly, as a result of eliminating functions, hierarchical levels, or entire units. Third, it is aimed at improving the efficiency and/or effectiveness of the organization (Freeman and Cameron 1993). Finally, downsizing changes work processes. For example, when the work force is reduced, fewer employees are left to do the same amount of work and this alters what gets done, how it gets done, and how workers feel about the change in work processes (Freeman and Cameron 1993). The nature of downsizing is contingent upon the change strategy used by the organization (Freeman and Cameron 1993, Kuwada 1998, Tushman and Romanelli 1985, Pinsonneault and Rivard 1998). Strategic reorientation is revolutionary and characterized by short, discontinuous, and radical changes. It is often precipitated by environmental turbulence and adverse conditions, and involves abrupt and simultaneous shifts in strategy, power distribution, structure, and operations systems. Top managers often initiate such change and mediate between internal inertia and environmental turbulence. In contrast, convergent change occurs over relatively longer time periods and is characterized by incremental change and adaptation. This type of change is geared toward achieving greater consistency among the organization’s internal activities. Downsizing can result from either kind of change. When convergent change is undertaken, downsizing is expected to be incremental, require less redesign, be characterized by the desire to do the same things better, and reinforce existing structures (Cameron et al. 1987, Freeman 1994, Freeman and Cameron 1993, Levine 1985, Robertson 1987, Tushman and Romanelli 1985). Downsizing associated with strategic reorientation is likely to be more severe and reflect an effort to do different things or to do the same things differently (Bailey and Szerdy 1988, Ferris et al. 1984, Tomasko 1987). IT and Organizational Downsizing There are three broad downsizing approaches: (1) changes in work such as eliminating tasks, increasing span of control, or standardizing work, (2) changes in technology such as eliminating jobs by automating work, or (3) changes in structure such as closing plants, eliminating hierarchical levels, and merging, reorganizing, or eliminating organizational units (Freeman and Cameron 1993). These approaches involve progressively more restructuring and integration. Redesigning work can be done locally for a specific task or subtask, but changes in structure necessitate more integrated changes in which resources of different units are reallocated and merged. Freeman and Cameron (1993) argue that managers favor an incremental approach to downsizing aimed at reducing risk. Thus, when managers undertake convergent change, they mostly focus on changes in work, followed by changes in technology, and lastly by changes in structure. In contrast, when reorientation occurs—usually in response to adverse environmental conditions—managers adopt more radical strategies starting with changes in structure, and then technology and work. This usually results in large downsizing of staff, including administrative staff (Cameron 1994, Cameron et al. 1991, Freeman and Cameron 1993). The information systems (IS) literature indicates that IT might play a different and more central role in organizational downsizing than the one depicted in the downsizing literature. Rather than being one of three relatively independent downsizing approaches, IT is likely to be a key enabler or facilitator of work and structural changes, which lead to organizational downsizing (Budros 1999, Markus and Robey 1988, Orlikowski 1992, Orlikowski and Robey 1991, Pinsonneault and Kraemer 1993, 1997). Theoretical Model A preliminary theoretical model describing the role of IT in organizational downsizing has been developed based on the IS and downsizing literature and is used in this study to examine the IT role in organizational downsizing (see Figure 1). The model suggests that IT facilitates work and structural changes that lead to organizational D ow nl oa de d fr om in fo rm s. or g by [ 12 8. 2. 10 .2 3] o n 13 J an ua ry 2 01 5, a t 0 7: 05 . Fo r pe rs on al u se o nl y, a ll ri gh ts r es er ve d. ALAIN PINSONNEAULT AND KENNETH L. KRAEMER Exploring the Role of Information Technology in Organizational Downsizing ORGANIZATION SCIENCE/Vol. 13, No. 2, March–April 2002 193 Figur