An examination of the effects of downsizing on organizational performance

The purpose of this study is to develop greater understanding about how organizations can continuously adapt as their competitive landscapes continuously transform. Theories of organizational change emphasize episodic changes or slow transformation, but many organizations now face continued turbulence as their technologies, markets, and competitors shift unpredictably. I investigate the relationship between continual product innovation and repeated episodes of downsizing, two primary approaches for adapting to turbulent conditions that are often employed simultaneously, since an organization must introduce streams of new products to stay current with evolving markets, while at the same time must cut costs to respond to intense competition. However, downsizing and product innovation may be negatively correlated, which would create a significant tension in managing organizational adaptation. This research seeks to develop better theory for managing continual organizational adaptation by exploring how these potentially conflicting means for adaptation interact. Through product innovation, organizations can continuously adapt to turbulent conditions by strengthening their position with product enhancements, and exploiting capabilities. To be capable of ongoing product innovation, organizations must maintain employee skills and capabilities for creating, combining, and recombining knowledge, and working collaboratively in multifunctional networks. Downsizing may disrupt both employee capabilities and the strategic commitment necessary for product innovation. Research is unclear: while several studies suggest that downsizing reduces innovativeness, no study has specifically examined the actual effects of repeated downsizing on product innovation over time and the connections between these practices and ongoing innovation remains unexplained. To sort out these divergent ideas about downsizing and innovation, I use data from a panel of 2174 product innovations that were initiated during a 39 month period at one telecommunications firm when the firm carried out downsizing events. This study found that the general effect of downsizing increases the likelihood of project withdrawal. Convergence protects radical innovations and buffers them from withdrawal; no effect on completion. Reorientation enhances the likelihood of starting new projects and this prospect increases for more radical product categories. Overall, it takes time for managers to get up to speed with the strategic implications of downsizing and resources are wasted, a potential pitfall for innovation.Ph.D.Includes bibliographical referencesIncludes vitaby Tashonna Lorraine Smit