exploring the consequences of workforce reduction

Exploring the Consequences of Workforce Reduction Terry H. Wagar Saint Mary's University

Abstract Although workforce reduction has remained popular among organizations throughout the I99Os, few large- scale 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 establishntents that had and had not engaged in permanent employee cutbacks, the results indicated that workplaces experiencing docvtzsizirig were more likely ro have lower scores on the employer eflciericy arid employee sutisfaction measures and report less favourable employer-employee relations. Further analysis limited only to establishtioents experiencing workforce reduction revealed that a high-involvemerit workplace strategy was associated with significantly better petforniance outcomes.

Rissumi Bieri que la re'duction des effectifs soit reste'e courante duns les entreprises tout au long des anne'es 90, on a re'alise' peu d'e'tudes a grande e'chelle traitarit de l'int- pact de ces compressions sur les entreprises au Canada. A peu pr2s 55 % des entreprises ont signale' une re'duction nioyenrie de presque 16 % de leurpersoririel sur une pe'riode de deux ans. En compararit ces e'tablissements- Id d ceux qui n'ont pas effectue' de compression de leur personnel pernianenr, les re'sultats indiquent que, par suite de compressions, les e'tablissenients sont davaritage susceptibles d 'assister noii seulement d m e diminution de l'eficacite' de l'employeur et de la satisfaction des employe's, niais e'galement de la qualite' des relatioris enzplo~eur-eniploye's. Une aiitre analyse, qui se liniite 6 des e'tablissenients ayant fait l'expe'rience d'une re'duc- tiori des effectifs, a re've'le' qu'une strate'gie de graiide participation en milieu de travail e'tait associe'e d une sensible ame'lioration des re'sultats.

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). Fur- thermore, 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 effec- tively 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 high- involvement workplace strategy.

Background

Funding for this research was provided by a grant from the Social Sci- ences and Humanities Research Council of Canada. Address all correspondence to Terry H. Wagar, Department of Man- agement, the Frank H. Sobey Faculty of Commerce, Saint Mary's Uni- versity, Halifax, NS, Canada, B3H 3C3.

0 ASAC 1998 300

A Definition of Downsizing

As a starting point, it is important to clarify what is meant by downsizing. Academics and practitioners use

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EXPLORING THE CONSEQUENCES OF WORKFORCE REDUCTION WAGAR

the word to mean a variety of different activities; exam- ples 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 (1 994b) defined downsizing as:

a set of activities undertaken on the part of management and designed to improve organizational efficiency, productivity, and/or competitiveness. It repre- sents a srrategy implemented by managers that affects the size of the firm’s workforce, the costs, and the work processes. (p. 192)

Cameron identified three types of downsizing strategies: workforce reduction, work redesign, and systematic change. Workforce reduction is typically a short-term strategy aimed at cutting the number of employees through such programs as attrition, early retirement or voluntary severance packages, layoffs, and terminations. While some of these approaches permit a relatively quick workforce reduction, their impact is often short- term, and frequently the organization loses valuable human resources.

Work redesign is often a medium-term strategy in which decision-makers focus on work processes and assess whether specific functions, products, andlor services should be changed or eliminated. The strategy of work redesign is frequently combined with workforce reduction and includes such activities as eliminating functions, groups, or divisions; reducing bureaucracy; and redesigning the tasks that employees perform. This strategy requires some planning and thus takes somewhat longer to implement; it also avoids the problem of the organization simply carrying on with what it had always done with fewer human resources.

Systematic change is a long-term strategy that changes the organization’s culture as well as the attitudes and values of employees, with the ongoing goals of cost- reduction and quality improvement. This strategy takes considerable time to implement. Its thrust is to consider downsizing as an evolutionary part of an organization’s life with the goal of continuous improvement: Employ- ees assume responsibility for cutting costs and searching for improved methods and practices. Because the strategy requires considerable human and financial commitment, its impact on the firm’s bottom line is rarely imme- diate. Consequently, this approach is less attractive to employers focussing on short-term profits or budget goals.

Mentzer ( 1996) identified three different approaches to downsizing: the rational approach, the asymmetric or hysteretic approach, and the institutional approach. The rational approach, also known as the economic or

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common sense approach, is based on the belief that senior executives make rational, logical decisions. An inefficient organization must reduce costs to enhance its competitive position and ultimately increase profits. The asymmetric or hysteretic approach involves postponing the downsizing decision because senior management fails to objectively evaluate what is happening in the organization. The close involvement and high level of attachment of senior managers to the organization may render them incapable of critically assessing what is happening and what actions are necessary. Lastly, the institutional approach is based on the premise that when forced to deal with change organizations may choose to adopt a strategy of copying what other firms are doing. This may result in the perception of downsizing as a fad that is attractive to employers because it is the popular thing to do.

Consequences of Downsizing

Although executives frequently assert that employment cutbacks will lead to reductions in overhead costs, less bureaucracy, better communications, improved decision-making, increased innovative activity, and higher productivity, the research evidence often points to the contrary. Early studies on organizational decline also highlighted some of the dysfunctional attributes associated with cutback management. For example, Cameron, Whetten, and Kim (1987) found that declining organizations were significantly more likely to experience increased conflict and negative reactions from organization members.

As Cascio (1993) noted, “study after study shows that following a downsizing, surviving employees become narrow-minded, self-absorbed, and risk averse. Morale sinks, productivity drops, and survivors distrust management” (p. 100). This viewpoint is also described by Tomasko (1 990), who observed several undesirable outcomes experienced by downsizing firms, such as the high human costs, psychological trauma experienced by the victims and survivors, reduced employee commitment, lower performance among employees due to job insecurity, greater attention by management to the downsizing process while ignoring customer needs, loss of valuable employees, a shift from innovation to protect- ing one’s turf, lower morale, and litigation by employees who believed that they were victims of discrimination. However, recent evidence reveals that a number of factors related to the management of human resources (e.g., increased communication and participation, systematic analysis of tasks and personnel in advance, and increased employee effort regarding downsizing) may mitigate against the presence of negative attributes associated with organizational decline (Cameron, 1994b).

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The Survivors of Dowwsizbig

While media reports of people rebounding from downsizing and embarking on new and exciting careers exist, the reality is that for many individuals the pain of being laid off is devastating. The effects on family life, career plans, and self-esteem are enormous, as can be the social costs.

How do employees who remain with an organization react’? Lee (1992) portrayed a common survivor response:

The initial anger and pain are often followed by fear and cynicism. Stress, bred of uncertainty and the necessity of doing more with less, skyrockets. Trust in the company and its management plummets. Employees who remain spend their days juggling more work and avoiding anything that approaches risk taking or innovation. (p. 18)

There is considerable evidence that downsizing may produce a number of dysfunctional consequences among the employees that remain with the organization. Some of these impacts, which have been documented in the literature, include negative attitudes and behaviour such as increased job insecurity, fear, stress, burnout, lower self- confidence and self-esteem, reduced job satisfaction, and lower commitment to the organization (Mone, 1994). Not unexpectedly, these factors may result in increased turnover, absenteeism, and lateness.

A number of organizations report reduced performance capabilities. Unfortunately for employers, it is not always the poor performers who leave the organization. Of particular concern is the fear that the best employees will leave, since quality workers are more attractive to other firms. Furthermore, negative employee attitudes and behaviour, in conjunction with lower performance capabilities, may destroy or substantially impair team- based programs and lead to reduced productivity (Mone, 1994). The research suggests that survivor reactions to workforce reduction may be affected by several factors including how the downsizing was communicated (Cameron, Freeman, & Mishra, 1993; Smeltzer & Ziner, 1992) as well as survivors’ job insecurity (Brockner, Grover, Reed, & DeWitt, 1992), their self-esteem (Brockner, Grover, et al., 1993), and their occupational level (Armstrong-Stassen, 1993).

Downsizing arid Firiaticial Performance

Although many organizations embarking on a downsizing strategy expect that their financial performance will improve, the empirical research often suggests otherwise. In their study of the impact of layoff announcements on stock prices, Worrell, Davidson, and

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Sharma ( 1 99 1) found that investors generally responded negatively to the announcement of a layoff, particularly if the cutback was related to financial concerns or involved a large-scale and permanent workforce reduction. Similarly, in an analysis of almost 1,000 announcements of plant closings, Gombola and Tsetsekos (1992) reported that such announcements were typically associated with negative stock price reactions, cutbacks in asset acquisition and dividend growth, and a decline in productivity.

DeMeuse, Vanderheiden, and Bergmann ( I 994) monitored the financial performance of Fortune 100 firms that did and did not make public layoff announcements. They concluded that firms that engaged in layoffs continued to perform much more poorly than organizations that did not. Similarly, a Canadian study by Ursel and Armstrong-Stassen (1995) supported the hypothesis that shareholders generally reacted negatively to layoff announcements, particularly when they involved a large percentage of the workforce. Moreover, a study of the effect of layoff announcements in the United States and Japan found that such announcements were associated with abnormal negative stock price reactions (Lee, 1997).

Two recent studies further enhance our understand- ing of the relationship between downsizing and financial performance outcomes. In his research on major Canadi- an firms, Mentzer (1996) found no consistent relationship between downsizing and firm profitability. Howev- er, a study of firms in the United States concluded that improved return on assets and common stock may be related, at least in part, to the downsizing strategy employed by the organization (Cascio, Young, & Morris, 1997). Firms pursuing a “pure employment” downsizing (defined as a cutback of at least 5% of the workforce combined with little change in plant and equipment expenditure) did not outperform other firms in their industry. However, “asset downsizers” (characterized as firms cutting back at least 5% of the workforce with a decline of at least 5% in expenditures on plant and equipment) generated higher returns relative to other industry competitors. Although the empirical literature is somewhat fragmented, the bulk of the work suggests that downsizing is associated with a number of negative consequences.

Method

Data Collection

The data for this study were obtained by combining results from two surveys of Canadian workplaces. The

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first survey was a regional sample of employers in Atlantic Canada; the second was drawn from employers in the rest of the country. All major sectors of the econ- omy, including not-for-profit employers (such as those in the public service, health care, and education) were sur- veyed. Establishments had to have at least 75 employees (as identified in the mailing list provided by Dun and Bradstreet) to be included in the survey. A total of 1,907 establishments meeting the above criteria completed the survey (for a weighted response rate from the two sam- ples of about 42%).

Surveys were mailed to each establishment using the contact name provided by Dun and Bradstreet (typically the chief executive officer or senior human resource management executive). The contact person was asked to complete the survey or pass i t on to the person in the best position to do so.

isfaction was determined by summing responses to four items (employee morale, employee commitment to the organization, employee satisfaction, and employee quality of work life); and employer-employee relations was calculated by adding responses to five items (rate of grievances, rate of absenteeism, employee turnover, employee resistance to change, and conflict within the organization). Each of the variables was initially measured on a 6-point scale ranging from l (very low) to 6 (very high). In addition, respondents were also requested to indicate the extent of change (over the past 5 years) for each of the variables.’

Due to the ordinal nature of the dependent variables and to ensure convergence of the ordered probit estimates, each of the dependent variables was reduced to five categories of approximately equal size and coded 0 through 4. This approach has been used by other researchers (Drago, Wooden, & Sloan, 1992).

Dependent Variables Primary Itidependerit Variables

As noted above, the unit of analysis in this study was the establishment rather than the organization. Fur- thermore, respondents from the not-for-profit sector were also sampled. Consequently, the use of objective financial measures of performance was not possible-a number of respondents did not have access to financial performance data at the establishment level, and such data were not appropriate for not-for-profit employers. Consequently, the dependent variables were measured using perceptual measures. There was no attempt to have respondents attribute the degree to which the variables were affected by the specific independent variables (such as workforce reduction behaviour or high-involvement practices).

While the use of perceptual measures of performance is open to criticism, such measures are often the only ones available at the establishment level and have been used in a large number of other studies. Cooke (1992) has argued that the use of perceptual measures permits comparison across establishments in a variety of industries, and that infortned managers should be able to provide reasonable approximations of organizational performance within a restricted response range.’ Some recent studies using perceptual measures of performance include Cameron (1 994b), Cooke ( 1 992), Delaney and Huselid ( 1 996), Kim (1 996), Leckie and Betcherman (1994), Mishra and Mishra (1994), Naman and Slevin (1993), and Youndt, Snell, Dean, and Lepak (1996).

For presentation purposes, the dependent variables were given the labels “employer efficiency,” “employee satisfaction,” and “employer-employee relations.”? Employer efficiency was calculated by summing responses to three items (productivity, product/service quality, and customerklient satisfaction); employee sat-

One of the major objectives of this study was to examine whether permanent workforce reduction was associated with three specific outcome measures (employer efficiency, employee satisfaction, and employer-employee relations). In conducting this analysis, the primary independent variable was whether the organization permanently reduced its workforce over a 2-year period. In order to test the robustness of the results, two different approaches to measuring permanent workforce reduction were used. First, establishments were placed in one of two categories based on the presence of workforce reduction over the relevant 2-year period (permanent workforce reduction was coded 1 , and no permanent workforce reduction was coded 0).

A second approach to measuring workforce reduction was possible, because the survey also asked establishments engaging in workforce reduction to indicate the percentage of the workforce reduced over the relevant 2-year period. This information permitted an investigation of the relationship between the dependent variables and the size of the workforce reduction. Percentage of the workforce reduced was coded 0 if the establishment did not reduce the workforce, otherwise the percentage of the workforce reduced was coded.

Although an investigation of the consequences of workforce reduction is important, we were also interest- ed in examining the effect of pursuing a high-involvement workplace strategy by establishments that had reduced the workforce. This decision was motivated by Cameron’s (1994b) discussion of the role of work redesign as a downsizing strategy and the emerging literature emphasizing the importance of human resource management practices as a predictor of organizational

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Table 1 Breakdown of Respondents by Size and Industry Sector

Variable Respondents (%)

Establishment size (employees) < 200 200-499 500-999 1,000 or more

Industry sector communication and transportation Wholesale and retail trade Finance and insurance Other business services Health Education Government Manufacturing

32.5 31.6 15.2 20.7

6.2 12.7 5.6

15.9 10.5 6.8 7.2

35.1

performance (e.g., Becker & Gerhart, 1996; Huselid, 1995).

In order to measure a high-involvement workplace strategy, two separate scales were created. The first, employee involvement work practices, was calculated by averaging the percentage of employees involved in six programs Qob enlargemendenrichment, quality circles, quality of work life programs, problem-solving groups, autonomous work teams, and total quality management). The Cronbach’s coefficient alpha was .80. Note that this combination of programs is somewhat similar to the classification used by Osterman (1 994).

The second scale, progressive decision-making ideology, was adapted from Go11 (1991). Progressive decision-making ideology is based on the notion of open communication with employees and employee participation in decision-making. Respondents were asked to indicate their level of agreement ranging from 1 (strongly disagree) to 6 (strongly agree) with five statements (e.g., “Employer has open channels of communication,” and “Employer explains proposed changes to those affected by them”), and the results were averaged. The Cronbach’s coefficient alpha was .88.

The degree to which an establishment pursued a high-involvement strategy was based on its scores on the employee involvement work practices and progressive decision-making ideology scales. Each of these scales was standardized (using a 2-score transformation) and then rescaled for the purposes of interpretation, so scores would range from 0 to 100. Finally, the two scales were

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then combined by adding them together and dividing by 2. This approach is somewhat similar to that employed by Pi1 and MacDuffie (1 996).4

Control Variables

A number of additional variables entered the estimates as control variables. Demand for the establishment’s primary product or service, which was measured using a 6-point scale ranging from 1 (substantial increase) to 6 (substantial decline in demand), was controlled for because of the relationship between declining demand and a number of negative consequences (Cameron, Sutton, & Whetten, 1988).

Investment in new technology, measured on a 6- point scale ranging from 1 (no investnient) to 6 (substantial investment), was also controlled for. Although new technology may enhance organizational performance over the long term, it may also be related to negative people consequences (Osterman, 1989).

Union status of the establishment was dummy coded (1 = uriiori and 0 = nonunion). Union status was controlled for because evidence from the economics and industrial relations literatures indicates that union status may influence organizational behaviour and employee satisfaction (see, for example, Blinder, 1990; Ng & Maki, 1994).

Finally, establishment characteristics such as size and industry sector had to be controlled for since such characteristics may be associated with measures of orga-


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Table 2 Breakdown of Respondents by Size of Workforce Reduction

Size of workforce reduction (%) Respondents (5%)

5 or less 5.1-10 10.1-20 20.1 or more

22.2 24.5 29.4 23.9

~~ ~

Table 3 Ordered Probit Results: Permanent Workforce Reduction

Dependent variable Coefficient for Number of

workforce reduction Asymptotic T-ratio observations

Employer efficiency -0.1 1 o** -2.03 I 1,717 Employee satisfaction -0.3 13*** -5.73 1 1,718 Employer-employee relations 0.1 13”” 2.094 1,70 I Change in employer efficiency -0.064 -1.162 1,686 Change in employee satisfaction -0.361*** -6.632 1,688 Change in employer-employee relations 0.064 1.160 1,635

X I ’ < 10 ’ ” “ / I < .05 “ Y X p < .01

nizational effectiveness (Jackson, Schuler, & Rivero, 1989). Establishment size was measured as the natural logarithm of the number of employees, while industry sector of the establishment included communication and transportation, wholesale and retail trade, finance and insurance, other business services, health, education, government, and manufacturing (the omitted category).

Results

was 4.2, indicating a moderate level of investment. With reference to the incidence of permanent workforce reduction, 55% of respondents reported permanently reducing the workforce over the relevant 2-year period. Among establishments reducing the workforce, the average reduction was 15.6%. Further information on the percentage of the workforce reduced is provided in Table 2. In addition, the mean score for a high-involvement workplace strategy was 46.0; note that scores on this variable range from 0 to 100.

Effects of Workforce Reduction Characteristics of the Resporidetits

A total of 1,907 establishments completed the mail survey. On average, respondents had 1,488 employees and represented eight major industry sectors. Just over 62% of the establishments were unionized. Further information on the size and industry breakdown of par- ticipants is presented in Table 1.

The mean score for the demand for the establishment’s major product or service was 3.2; slightly more than half of the respondents reported an increase in demand for their establishment’s major product or service. The mean score for investment in new technology

As noted previously, each of the dependent variables was reduced to five categories of approximately equal size and coded 0 through 4 to ensure convergence of the ordered probit estimates. Because the underlying measure of the dependent variables is an ordinal scale, ordered probit is a preferred estimation technique (Greene, 1993).

The ordered probit results relating to permanent workforce reduction are provided in Tables 3 and 4. It should be noted that while only the coefficients that relate to workforce reduction are reported in the tables, each of the models was estimated with all of the control

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Table 4 Ordered Probit Results: Percentage of the Workforce Reduced

Dependent variable Coefficient for Number of

workforce reduced (%) Asymptotic T-ratio observations

Employer efficiency Employee satisfaction Employer-employee relations Change in employer efficiency Change in employee satisfaction Change in employer-employee relations

-0.006*** -3.046 1,717 -0.0 14*** -7.82 1 1,718 0.006*** 2.820 1,701

-0.002 -0.847 1,686 -0.015*** -8.208 1,688 0.003 1.583 1,635

Table 5 Ordered Probit Results: High-Involvement Strategy

Dependent variable

Employer efficiency Employee satisfaction Employer-employee relations Change in employer efficiency Change in employee satisfaction Change in employer-employee relations

Coefficient for high- involvement strategy

0.016*** 0.027***

0.018*** 0.028***

-0.0 12***

-0.01 3***

Number of Asymptotic T-ratio observations

7.170 905 12.445 907 -5.988 894 8.282 892

11.920 898 -5.913 866

variables included in the analysis. As well, for each of the estimates, the overall chi-square test was highly significant (p < .OOI).

In Table 3, the primary independent variable was the presence of workforce reduction. When considering present performance measures, the negative and significant coefficients on employer efficiency (y < .05) and employee satisfaction (p < . O l ) indicate that permanent workforce reduction was associated with lower employer performance and ernployec satisfaction. The coefficient on employer-employee relations was positive and significant at p < .05; thus establishments undergoing workforce reduction experienced less favourable employer-employee relations. Although the direction of the coefficients remained the same when considering the change in performance measures, only the change in employee satisfaction was significant (at p < .O l ) ; thus establishments engaging in workforce reduction were more likely to report less favourable changes in employee satisfaction.

Table 4 presents the ordered probit results when the

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independent variable is measured as the percentage of the workforce reduced. In terms of the signs on the coefficients, the pattern observed in Table 3 is repeated. However, the results are somewhat stronger, particularly with regard to the measures of present performance (all of which were significant at p < .Ol). Furthermore, a more severe workforce reduction was associated with less desirable changes in employee satisfaction.

High-ltivolvetiietit Workplace Strategy

The second phase of the multivariate analysis involved an examination of the relationship between the dependent variables and the use of a high-involvement workplace strategy. Recall that this analysis was limited to establishments that had undergone a permanent reduction of the workforce. Again, while the ordered probit results reported in Table 5 only contain the coefficients for the high-involvement workplace strategy variable, each of the estimates was run with all of the control variables entered into the model. For these estimates, an

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additional variable, percentage of the workforce reduced, was included to control for the size of the workforce reduction.

In Table 5 , all of the coefficients were highly significant at p < .01. Among establishments that had undergone a workforce reduction, higher employer efficiency, greater employee satisfaction, and more favourable employer-employee relations were very strongly associated with the adoption of a high-involvement workplace strategy.

Several other analyses (not contained in Table 5 ) were carried out. For example, each of the models was also estimated with the adoption of a high-involvement workplace strategy removed from the analysis and sub- stituted by the employee involvement work practices scale or the progressive decision-making ideology scale (with all of the other control variables included). While the results were consistent with those reported for the high-involvement workplace strategy variable, the progressive decision-making ideology variable had a con- siderably stronger impact on the performance measures (compared with the high-involvement work practices measure).

To further test the robustness of the result, establishments were placed in one of four categories based on their scores on the high-involvement work practices and progressive decision-making ideology scales. The categories were (a) low scores on both the high-involvement work practices and progressive decision-making ideology scales, (b) a low score on the high-involvement work practices scale and a high score on the progressive decision-making ideology scale, (c) a high score on the high- involvement work practices scale and a low score on the progressive decision-making ideology scale, and (d) high scores on both scales.

While collapsing the variables into categories does result in the loss of some information, the results indicate that, relative to the group that had low scores on both scales, the most favourable performance ratings were obtained by establishments with high scores on both scales, followed fairly closely by establishments with a high score on the progressive decision-making ideology scale and a low score on the high-involvement work practices scale. A somewhat lower performance was obtained by establishments with a high score on the high-involvement work practices scale but a low score in terms of progressive decision-making ideology. This pattern of results suggests that while high-involvement work practices are important, their impact is markedly reduced if a supportive workplace environment (measured here as progressive decision-making ideology) does not exist.

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Conclusion

Based on data from establishments across the country, this study investigated the association between permanent workforce reduction and a number of performance outcomes. In addition, the study examined whether a high-involvement workplace strategy mitigated the effects of permanent workforce reduction.

On average, permanent workforce reduction was associated with a number of negative consequences, particularly with respect to present performance measures. Establishments reporting employee cutbacks were significantly more likely to score lower on the measures of employer efficiency and overall employee satisfaction and have less favourable employer-employee relations. In addition, such establishments were also more likely to indicate that employee satisfaction had declined-this finding is consistent with much of the pre- vious research documenting the negative impact of downsizing on people outcome variables (Cascio, 1993). Considering that many of the workforce reductions observed in this study were characterized by declining employee relations, it not surprising that several of the downsizing programs failed to meet their intended objectives.

When examining only establishments that had undergone a permanent workforce reduction, an important finding was the clearly superior performance of establishments adopting a high-involvement workplace strategy. Cameron (1994b) found that factors such as increased communication, employee participation, and a systematic analysis of tasks may mitigate at least some of the negative consequences associated with employee cutbacks, and there is substantial evidence that employee perceptions of fairness and equity are important in explaining how survivors adjust to organizational downsizing (Armstrong-Stassen, 1993). Although the present study was not a direct test of Cameron’s work, the focus on high-involvement work practices and progressive decision-making ideology (which is based on open communication with employees and employee participation in decision-making) parallels to some degree the factors Cameron described as important.

While the results of this study suggest that a high- involvement workplace can enhance performance in a downsized organization, the notion of progressive human resource management practices is diametrically opposite the shedding of workers-employee involvement and empowerment programs require employee attachment and commitment, while downsizing programs focus on organizational detachment (DeMeuse et al., 1994). There is a need to further examine the success of such programs in downsized organizations-in the cur- rent study, the success of high-involvement workplace


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practices was linked to the presence of a progressive decision-making ideology.

Firms engaging in downsizing typically emphasize only the workforce reduction component of the strategy and ignore the more time-consuming but critical ele- ments of redesigning the organization and developing a systematic strategy predicated on massive cultural change within the firm. While about 90% of organizations focus on the workforce reduction, only about half make some attempt at work redesign, and less than a third implement a strategy of systematic change (Cameron, 1994b; Mishra & Mishra, 1994).

Human resource management professionals need to play an active role in the development of a downsizing strategy. Moreover, senior management needs to assume an aggressive, visible, and interactive role in strategy for- mulation. However, decision-makers charged with implementing a downsizing strategy often have minimal experience or training in managing such a substantial and important change process. Consequently, the identi- fication of inefficiencies and the development and imple- mentation of procedures should involve employee participation, because employees are often in the best position to make such judgments (DeMeuse et al., 1994).

Despite the negative consequences often associated with downsizing, it would be incorrect to conclude that reducing the workforce is always an inappropriate strategic response. Some workplaces are not “lean and mean,” and a comprehensive downsizing strategy may be necessary. However, strategic downsizing is not a quick fix remedy-it requires careful planning and implementa- tion.

Although the results of this study are important, the findings should be treated with some caution, particularly in light of the exploratory nature of the research. While the number of establishments participating was quite large and the multivariate estimates included several control variables, the data are cross-sectional, the performance outcome measures are perceptual, and the measure of a high-involvement workplace strategy is still in the developmental stage. Reliance on a single respondent (such as the chief executive officer or senior human resource executive) is problematic; still, one might reasonably expect that a senior member of the upper-management team would be in a good position to answer the questions relevant to this study. Although examining a large number of organizations has several advantages, the richness obtained from in-depth case studies is s ac r i f i~ed .~

Several opportunities for future research exist. For instance, are the results generalizable to the small business sector and establishments outside of Canada? What is the effect of downsizing strategies such as work redesign and systematic change on establishment perfor-

mance? Does the relationship between workforce reduction and negative performance consequences endure over the long term? To what extent are the negative consequences of workforce reduction mitigated by factors such as open and honest communication, employee participation in the decision-making process, and strategic planning of the downsizing? These are important questions that deserve future research attention.

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Notes

1. Naman and Slevin (1993) summarized some of the relevant issues surrounding measurement of performance that have been debated in the strategic management literature. These groupings were further supported using factor analysis. It should be underscored that for the employer-employee relations variable, a higher score is less favourable from the employer’s perspective (indicating more grievances and absenteeism, employee turnover, resistance to change, and conflict). In the multivariate analysis, we applied different weight- ing of the variables. However, modest changes in the weights had relatively little impact on the results. For a discussion of some of these issues, see Huber and Power (1985).

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Revue canadienne des sciences de I’administration

309 Canadian Journal of Administrative Sciences

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exploring the consequences of workforce reduction

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