Downsizing and organizational performance: A review of the literature from a stakeholder perspective

Scholars studying downsizing and performance often concentrate on one aspect of the phenomenon at a time without addressing the totality of factors influencing organizations. The result is that some proclaim improvements from cost trimming and strategic focus, while others assert deterioration in performance due to employee resentment and negative societal reactions. This review integrates disparate findings using the stakeholder theory of the organization, developing a model relating organizational actions to stakeholder evaluations and reactions, which ultimately affect profitability and survival. Research propositions are developed based on evidence from a wide variety of literature bases, including organizational behavior, management, sociology, finance, and medicine. Additionally, implications of this model for future theory and research regarding organizational downsizing are developed.