An Exploratory Study of the Relationship between Responsible Downsizing Strategies and Firm Performance: The Mediating Role of Dynamic Strategic Capabilities

Abstract

So far, downsizing in organizations is still a popular management strategy all over the world. However, the question of whether downsizing strategy eventually improve firms' performance is frequently asked and is never satisfactorily answered. The consequences have not always materialized for years. The possible answers could be the ignorance of some important mechanisms (black boxes) between them. After reviewing the literature on organization change, strategy, and strategic human resource management research field, we found that firm's dynamic strategic capabilities is the key mechanism between firm's downsizing strategies and firm performance. We used 129 downsized firms as the sample to empirically test this concept. The result proves that one way a responsible downsizing strategy leads to higher firm performance is through developing and enhancing firm's dynamic strategic capabilities. This finding helps to solve the issue which bothered organization change field and management practice for years.