Our team of researchers from Auburn University, Baylor University, and the University of Tennessee, Chattanooga set out to better understand the consequences of downsizing in large, U.S.-based corporations. In our recently published work in the, we tested the theory that downsizing could lead to a host of problems that eventually increases the likelihood of bankruptcy.
To ensure the accuracy of our results, we controlled for known potential drivers of both downsizing and bankruptcy. These included the size of the firm, changes in market capitalization, prior performance, profitability, trajectory toward bankruptcy , a large number of employees per sales relative to their industry peers, and other indicators of financial health.
Given this finding, we sought to understand why some firms were able to survive the negative effects of downsizing while some were not. We speculated that examining firms’ remaining resources could shed light on this question. Accordingly, we examined intangible resources , financial resources, and physical resources.
We did find, however, that intangible resources helped to reduce the likelihood that downsizing firms would declare bankruptcy. Intangible resources can be redeployed in unique and perhaps innovative ways following downsizing. For example, existing employee knowledge can be utilized to revamp processes that have been interrupted or to replace these processes with more effective ones.
Wet streets cause rain.
Is'nt it a survivability bias. As companies, that downsize are already stressed Correlation does not imply Causation.
Could it be a survivorship bias, tho? Those who downsize means they’re already in trouble at the first place. It couldn’t be the dependent variables and comparing it to the control group (healthy companies).
Correlation ≠ Causation. Maybe downsizing is a warning sign of a biz model that doesn't work with additional EE expense. Could be an indicator that the company is overly focused on stock prices. Downsizing done properly can save a struggling business.
Downsize to free up cash for immediate bonuses, then suffer the inability to provide the underlying service/product and crash the company. Seems like a common practice among shortsighted management.
Correlation is not causation. Both the downsizing and the bankruptcy were caused by some shared factor, like being a shitty company.
That does not make any sense. Its like saying to save yourself from bankrupty get more credit cards and spend, go on a shopping spree?
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Yes, but is the causal link the way you imply or the opposite?
By downsizing you shrink the engine of the company… consider reshaping.
Downsizing reduces the chance of getting new business prospects
No kidding. If you downsize that’s because your company is in dire straits meaning your likelihood of failure is higher
Interesting report. Businesses are unique living organisms that adapt in diverse ways to different situations.
O my what surprise in this time and age 🙃
Hey! Mostly downsizing begins when innovation dries up or projects aren't growing and lose money. Some won't take the risk with new ideas or advised against it. Keeping the management energy up should be a class. Always think of M.J. Fox in this.
What about those who right sized?