Examining the relationship between organizational change and financial loss

Abstract

Purpose – Research on the effectiveness of organizational change initiatives tends to focus primarily on the positive benefits of organizational change including improved financial performance. Rarely are negative outcomes examined, such as financial losses resulting from change initiatives. However, negative outcomes are possible, common, and understudied. The purpose of this paper is to examine the relationship between organizational change and financial loss. Design/methodology/approach – The research used a database of insurance losses from a global reinsurance company over a 30-year period. Each loss event was examined to determine the cause of the loss, the amount of loss, and type of organizational change if any that preceded the loss. Findings – The results indicate that losses attributed to the organization and its employees are preceded by an organizational change initiative more often than not. In particular, the occurrence of losses attributable to the organization and its employees were preceded more often by organizational changes involving mergers, acquisitions and changes to ownership, changes involving downsizing, changes involving restructuring, but not changes to reporting relationships. Originality/value – This research represents one of the few studies to examine financial loss from a wide variety of different types of organizational change and the only that has examined these questions using data from insurance losses. Findings support the growing theoretical movement focussing on the risks of organizational change.