Exploring the Consequences of Workforce Reduction

Abstract Although workforce reduction has remained popular among organizations throughout the 1990s, few largescale studies of the impact of employee cutbacks have been conducted in Canada at the establishment level. About 55% of establishments reported reducing their workforce over a 2-year period, with an average reduction of almost 16% of the workforce. When comparing establishments that had and had not engaged in permanent employee cutbacks, the results indicated that workplaces experiencing downsizing were more likely to have lower scores on the employer efficiency and employee satisfaction measures and report less favourable employer-employee relations. Further analysis limited only to establishments experiencing workforce reduction revealed that a high-involvement workplace strategy was associated with significantly better performance outcomes. Resume Bien que la reduction des effectifs soit restee courante dans les entreprises tout au long des annees 90, on a realise peu d'etudes i grande echelle traitant de l'impact de ces compressions sur les entreprises au Canada. A peu pres 55 % des entreprises ont signals une reduction moyenne de presque 16 % de leur personnel sur une periode de deux ans. En comparant ces etablissementsla a ceux qui n'ont pas effectue de compression de leur personnel permanent, les resultats indiquent que, par suite de compressions, les etablissements sont davantage susceptibles d'assister non seulement a une diminution de l'efficacite de l'employeur et de la satisfaction des employes, mais egalement de la qualite des relations employeur-employes. Une autre analyse, qui se limite a des etablissements ayant fait l'experience d'une reduction des effectifs, a revele qu'une strategie de grande participation en milieu de travail etait associee a une sensible amelioration des resultats. Although the 1990s may be characterized as the "downsizing decade," there is growing evidence from both the practitioner and academic literatures that many downsizing efforts have failed to meet organizational objectives (Cameron, 1994a; Cascio, 1993; Tomasko, 1990). Furthermore, many downsizing programs are not carefully thought out or linked with the strategic plans of the organization (American Management Association, 1994). An important question that is being debated in the academic literature and in boardrooms across the country is quite simply: Does downsizing work? There is a tendency for management to focus on financial issues during an organization's restructuring, and it is only recently that the literature has begun to provide guidance for managers who acknowledge the importance of effectively managing nonfinancial issues (Ford & Perrewe, 1993). This study, which is based on survey responses from almost 2,000 Canadian establishments, has two major objectives. First, it examines the relationship between permanent workforce reduction and three sets of outcomes (employer efficiency, employee satisfaction, and employer-employee relations). Although several studies have investigated the impact of downsizing on the survivors (e.g., Armstrong-Stassen, 1993; Brockner, Grover, O'Malley, Reed, & Glynn, 1993; Mone, 1994), little empirical work in Canada has focussed on the establishment level. Second, it explores whether the consequences of downsizing are mitigated by a highinvolvement workplace strategy. Background A Definition of Downsizing As a startingm point, it is important to clarify what is meant by downsizing. Academics and practitioners use the word to mean a variety of different activities; examples of words used as synonyms for downsizing include "building-down," "de-hiring," "de-recruitment," "reduction in force," "resizing," and "right-sizing. " It is problematic to study downsizing if the meaning of the word is unclear (Littler, Bramble, & MacDonald, 1994). Cameron (1994b) defined downsizing as: a set of activities undertaken on the part of management and designed to improve organizational efficiency, productivity, and/or competitiveness. …