The Tricky Truth About Downsizing

From Harvard Business Review, April 30, 2009...

Downsizing has always been a popular practice in the corporate world - even for firms not in distress. But today, with many companies in distress, downsizing efforts are on the rise. So I thought I might as well look into what we know about the effects of such efforts from academic research to see when they can be a good idea.

The answer? Not very often. On average, they simply don't work. For example, professors James Guthrie, from the University of Kansas, and Deepak Datta, from the University of Texas at Arlington, examined data on 122 firms that had engaged in downsizing and statistically analyzed whether the program had improved their profitability. And the answer was a plain and simple "no." The average company did not benefit from a downsizing effort, no matter what situation and industry they were in.

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