Don't let knowledge walk away: Knowledge retention during employee downsizing

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2012 43: 53 originally published online 23 June 2011Management LearningAchim Schmitt, Stefano Borzillo and Gilbert Probst

Don't let knowledge walk away: Knowledge retention during employee downsizing

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Don’t let knowledge walk away: Knowledge retention during employee downsizing

Achim SchmittAudencia Nantes School of Management, France

Stefano BorzilloSKEMA Business School, France

Gilbert ProbstUniversity of Geneva, Switzerland

AbstractIn today’s business environment, employee downsizing is a widespread strategy aimed at improving firm performance and competitiveness. The literature, however, highlights unequivocal findings that many downsizing initiatives fail to retain critical skills, capabilities, experience and knowledge. Employee downsizing may therefore lead to deteriorating quality, productivity and effectiveness. This article builds on this dilemma and develops a comprehensive framework to explore the relationships between employee downsizing and knowledge retention. By holding specific organizational levels responsible for knowledge retention, we derive propositions that contribute to a better understanding of how firms can retain and avoid critical knowledge losses during employee downsizing.

Keywordsemployee downsizing, knowledge management, knowledge retention, organizational learning, organizational memory

Knowledge is one of the most important sources of competitive advantage (e.g. Hitt et al., 2001). According to the knowledge-based view of the firm, sustainable competitive advantage is based on exploiting, exploring and retaining a firm’s knowledge (e.g. Grant, 1996). While exploitation and exploration have received extensive attention within the literature (e.g. Raisch et al., 2009), knowledge retention has been relatively neglected (Argote et al., 2003; Fisher and White, 2000; Marsh and Stock, 2006). Nevertheless, knowledge retention is a core element of the

Corresponding author:Achim Schmitt, Audencia Nantes School of Management, 8 Route de la Jonelière, 44312 Nantes, FranceEmail: [email protected]

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54 Management Learning 43(1)

organizational memory concept, enabling firms to embed knowledge within the organization (Argote et al., 2003). This knowledge is retained in various ‘human’ and ‘non-human’ repositories on specific organizational levels (Walsh and Ungson, 1991). However, the organizational knowl-edge retained through employees—also defined as human capital—is the most valuable source of competitive advantage (e.g. Grant, 1996). This retained knowledge is an integral part of the organizational learning process (Olivera, 2000).

Recent research has started exploring how firms can actively retain knowledge and avoid losing it over time (e.g. Girard, 2009; Massingham, 2008). Scholars have identified specific relative inter-nal (e.g. Fiedler and Welpe, 2010) and external capacities (e.g. Robinson and Ensign, 2009) that are crucial for knowledge retention. Moreover, research has outlined the beneficial relationship between knowledge inflows through various HR practices (i.e. recruiting, personnel mobility, job rotation, etc.) and knowledge retention (e.g. Madsen et al., 2003). Similarly, authors have started to investigate the negative consequences of organizational knowledge loss (Massingham, 2008; Shah, 2000). In this respect, Carley (1996) emphasizes the potential benefits of further investigat-ing employee downsizing’s negative effects on organizational learning in general and knowledge retention in particular.

Employee downsizing is a widespread strategy to improve operational effectiveness through workforce reductions (e.g. Chadwick et al., 2004). Defined as ‘planned eliminations of positions or jobs’ (Cascio, 1993: 96), employee downsizing has nevertheless been called into question as a strategy to improve a firm’s long-term performance (e.g. Cascio, 1993). In this context, the litera-ture underlines that many employee downsizing efforts fail to retain critical skills, capabilities, experience and knowledge. Deteriorating levels of quality, productivity and effectiveness are the result (e.g. Bedeian and Armenakis, 1998). Consequently, researchers have started exploring the conflicting tensions between employee downsizing and organizational memory (e.g. Bowersox, 2009; Fisher and White, 2000). These tensions have, however, only been addressed on specific organizational levels. There is as yet no comprehensive understanding of the relationship between knowledge retention and organizational downsizing. This is a serious omission. Exploring knowl-edge retention and employee downsizing enables firms to avoid critical knowledge losses, which is, in turn, an important element in creating and maintaining sustainable success (Brown and Duguid, 1991).

In this article, we examine the relationship between organizational downsizing and knowledge retention on various organizational levels. Drawing on Weick’s (1995) four-level framework, we develop a comprehensive understanding of how employee downsizing may destroy retained knowledge. Further, we contribute to extant theory on employee downsizing, organizational mem-ory and the debate on employee downsizing and organizational learning. Our propositions’ theo-retical and practical implications are also discussed in detail.

Employee downsizing

For more than three decades, the concept of employee downsizing has been an integral part of organizational transformation and has gained strategic legitimacy as a reorganization strategy (e.g. Chadwick et al., 2004). According to the US Bureau of Labor Statistics, more than 1.05 bn employ-ees were laid off in the US between 1998 and 2007 due to reorganization activities. In the aftermath of the sub-prime crisis of 2008, prominent S&P 100 companies like Caterpillar, Texas Instruments, Microsoft, General Electric, Citigroup, Pfizer, Cisco Systems and Wyeth announced major work-force reductions. The International Labour Organization maintained that the sub-prime crisis alone caused a loss of 20 m jobs by the end of 2009. The worldwide high incidence of employee



Schmitt et al. 55

downsizing has revived research interest in organizational downsizing (e.g. Datta et al., 2010; Guthrie and Datta, 2008; Trevor and Nyberg, 2008).

However, employee downsizing is not only a common organizational response during times of economic crises. Several scholars have noted employee downsizing in firms with strong product demand and organizational growth (Cascio, 2002). Generally, employee downsizing reflects man-agers’ strategic choice to increase a firm’s organizational fit with its environmental circumstances (Gerhart and Trevor, 1996). Harrigan (1980), for instance, argues that employee downsizing is necessary in situations of long-term industry decline (i.e. the newspaper business) or when techno-logical developments make prior production processes obsolete.

Given its widespread use in business, it is surprising that workforce downsizing has been repeat-edly described as one of the most neglected research topics (Budros, 1999; Datta et al., 2010; Guthrie and Datta, 2008). While employee downsizing may at times increase efficiency and pro-ductivity (e.g. Perry and Shivdasani, 2005), this article aims to contribute insights into its greatest potential disadvantage: the loss of organizational knowledge.

Defining employee downsizing

Freeman and Cameron (1993) defined organizational downsizing in its broadest sense as a set of management activities aiming to improve organizational efficiency, productivity and/or competi-tiveness. These downsizing activities involve reducing various organizational resources (i.e. assets, capital and human resources). Thus, downsizing is often only related to a reduction in organiza-tional size (Freeman and Cameron, 1993), leading to confusion in the extant literature (Budros, 1999). This article focuses on employee downsizing and considers intentional personnel reduction strategies (e.g. transfers, outplacement, retirement incentives, buyout packages, layoffs and attri-tion) that impact an organization’s work processes. A number of scholars echo this perception and associate downsizing with a planned permanent workforce reduction (e.g. Budros, 1999; Chadwick et al., 2004; DeWitt, 1998). Cascio’s definition of downsizing as ‘planned eliminations’ therefore excludes individuals discharged for a reason and individual departures via normal retirement or resignation (Cascio, 1993: 96).

In the light of these conceptualizations, the term ‘layoff’ has often been used synonymously with the organizational downsizing concept. However, in contrast to layoff and other personnel reduction approaches, employee downsizing is a distinct concept due to its focus on the organizational instead of the individual level of analysis (Brockner, 1988). While employee downsizing represents the overarching, broader strategic concept of workforce reductions (Greenhalgh et al., 1988), layoff and the other approaches refer to the operational mechanism used to implement this strategy.

Moreover, the majority of researchers (Chadwick et al., 2004; Datta et al., 2010; DeWitt, 1998; Freeman and Cameron, 1993; Guthrie and Datta, 2008) stress that employee downsizing is driven by managers’ belief that this strategy will increase organizational efficiency and productivity. In this respect, employee downsizing is considered an intentional means of maintaining/increasing firm performance (Chadwick et al., 2004). Consequently, we define employee downsizing as an organization’s planned implementation of workforce reduction strategies in an attempt to increase organizational performance.

Consequences of employee downsizing

Despite employee downsizing’s widespread use as a strategic initiative, strategic human resource management (SHRM) research has no general consensus on the relationship between employee




downsizing and organizational performance. In their recent literature review of this topic, Datta et al. (2010) examined 36 studies that had examined downsizing outcomes from the perspective of market returns, firm profitability, organizational efficiency and other outcomes (e.g. sales growth and R&D investments). While this review reveals that employee downsizing announcements are generally associated with immediate negative effects on the stock price, the long-term stock per-formance effects are rather mixed. The effects of workforce downsizing and firm profitability are much more contradictory (Datta et al., 2010). Researchers state that employee downsizing leads to sustainable performance improvement (e.g. Perry and Shivdasani, 2005), but also that it has sus-tained harmful effects on organizational profitability (e.g. Guthrie and Datta, 2008). Equivocal findings were also identified regarding employee downsizing and labour productivity, firm R&D activity and sales growth (Datta et al., 2010).

Prior research’s mixed results motivated some of the more recent studies to examine moderators that may influence the effectiveness of employee downsizing (e.g. Chadwick et al., 2004; Guthrie and Datta, 2008; Love and Kraatz, 2009). Chadwick et al. (2004) found that employee downsiz-ing’s performance is closely related to the way it is implemented. Earlier, Cascio (1993) identified underestimating employee downsizing’s profound effects on work processes and structures as the main source of negative performance outcomes. This article subscribes to the idea that employee downsizing does not relate to whether or not it should be done, but rather how this strategy should be implemented. In this regard, we add to the emerging stream of research exploring critical con-tingencies’ moderating influences on employee downsizing.

Generally, employee downsizing is not a short-term solution to performance problems. Rather, it is a comprehensive and complex process causing dramatic changes to the existing informal organi-zational structure. These changes often require employees to take on new tasks within and outside the company (Cameron et al., 1991). In the aftermath of such downsizing efforts, the surviving employees frequently have to double their efforts to compensate for the reduced human resources.

Besides these quantitative problems, employee downsizing often leads to qualitative problems linked to implementation errors during the downsizing process. The SHRM perspective suggests that employee downsizing runs the risk of undermining sustainable competitive advantage. Sometimes referred to as ‘dumbsizing’ (e.g. Bedeian and Armenakis, 1998), employee downsizing efforts may result in the loss of key knowledge and individuals, leading to deteriorating quality, productivity and effectiveness. In particular, foresight and downsizing strategies’ non-prioritized implementation tactics run the risk of causing the loss of valuable institutional knowledge and memory if the wrong employees are laid off (Fisher and White, 2000; Guthrie and Datta, 2008).

The business press provides recent examples of valuable knowledge losses during employee downsizing. In this regard, Pfeffer (2010) mentions the US electronics retailer Circuit City, which downsized 3400 of its highest paid (and probably most effective) sales associates in an attempt to gain sustainable cost reductions. The remaining smaller, less skilled sales force provided competi-tors such as Best Buy with an opportunity to gain market share. Once in this spiral, Circuit City could not prevent the haemorrhage of clients and revenues. The company filed for bankruptcy in 2008 and finally ceased trading in 2009.

Charles Schwab Corp. provides us with a crisis-induced reaction in the aftermath of the dot-com crisis at the beginning of the new millennium. After two rounds of employee downsizing, the com-pany offered a US$7500 bonus for any previously downsized employee rehired by the firm within 18 months of the layoffs (Morss, 2008). Astonishingly, this is not a unique phenomenon. Companies often lose people they did not want to lose and rehire them at additional costs. A survey by the American Management Association (AMA) revealed that about one-third of companies that lay people off subsequently rehire some of them as contractors because they still need their skills.



Schmitt et al. 57

These examples draw attention to two critical aspects related to employee downsizing. First, employee downsizing comprises a certain amount of complexity that surpasses a pure quantitative reduction of employees and costs. Second, human and social capital are key sources of competitive advantage (e.g. Hitt et al., 2001) that may be negatively affected by employee downsizing activi-ties. Burt (1997) characterizes human capital as an individual’s ability and knowledge, whereas social capital refers to the combined organizational knowledge obtained through social interac-tions. Employee downsizing’s potential risk will therefore differ depending on whether one takes a human or social capital perspective. If an organization is considered an aggregate of individuals, losing an employee through employee downsizing carries the risk that the information held in that employee’s memory as well as its value will be lost if this is not retained elsewhere within the organization (Fisher and White, 2000).

Conversely, if organizations are considered a collection of individuals with multiple interrela-tionships on a collective or organizational level, employee downsizing’s potential damage trans-lates into the loss of future knowledge created through social interactions between individuals and other organization members (Fisher and White, 2000). The multiple collaborations that each indi-vidual has within and across organizational units are the fundamental basis of knowledge retention (Argote et al., 2003). Consequently, if such collaborations are damaged, employee downsizing’s potential negative effects are revealed. Massingham (2008) has recently highlighted and summa-rized these effects and categorized them into lost human, social, structural and relational capital.

However, organizational culture, processes and structure have also been found to be critical in combining and leveraging individual knowledge retention (Brown and Duguid, 1991). Unfortunately, prior research has provided us with few insights into how firms manage to successfully implement employee downsizing, retain key employees and simultaneously maintain a culture of trust and shared identity. Applying organizational learning theory, we build on prior conceptualizations and develop a comprehensive theoretical model that addresses these shortcomings.

Employee downsizing and knowledge retention

This section describes employee downsizing’s potential effects on a firm’s knowledge retention capability on various organizational levels. In comparison to prior research focusing mainly on the firm’s human and social capital, we present arguments that employee downsizing also affects organizational factors such as organizational routines, procedures and culture. By analysing these interrelationships more comprehensively we build a better understanding of employee downsiz-ing’s inherent complexity. This section commences with an explanation of knowledge retention’s role as part of the organizational memory concept. Thereafter, the interrelationships between employee downsizing and knowledge retention are discussed in greater detail.

Knowledge retention in organizations

Organizational learning enables firms to process information about their environment and make adaptations to achieve optimal fit and performance (Hedberg, 1981). By means of absorptive capacity, firms acquire and assimilate this new information and incorporate it into their knowl-edge base (Cohen and Levinthal, 1990; Easterby-Smith et al., 2008; Lane et al., 2006). This proc-ess depends on prior knowledge to understand and interpret the information acquired (Lichtenthaler and Lichtenthaler, 2009) and requires mechanisms to store the new knowledge in a sustainable way that facilitates retrieval at a future date. According to Walsh and Ungson (1991: 61), organi-zational memory refers to ‘stored information from an organization’s history that can be brought




to bear on present decisions’. Retained knowledge is thus the result of decision stimuli (i.e. new information or problems encountered) and their responses (Anderson and Sun, 2010). It is embed-ded in various repositories that are either located on an individual, group, or an organizational level (Argote et al., 2003). Knowledge retention may therefore refer to an individual’s direct experience, observations and knowledge (e.g. Levitt and March, 1988), as well as to routines (e.g. Cohen and Bacdayan, 1994), organizational processes and practices (e.g. Girard, 2009) and/or culture (e.g. Walsh and Ungson, 1991).

Scholars have generally argued that retained knowledge enables a process of sorting, categoriz-ing and organizational sense making which creates the potential to apply existing knowledge in new and strategic ways in the future (Madsen et al., 2003). Consequently, retained knowledge influences the interpretation of newly acquired information (Cohen and Levinthal, 1990), which may lead to organizational learning through permanent behavioural changes (Levitt and March, 1988). The two concepts are therefore inextricably intertwined (Olivera, 2000; Weick, 1979) and each is necessary to understand the other better (Anderson and Sun, 2010). Figure 1 displays these interrelationships.

From an organizational perspective, groups of individuals retain knowledge through the process of knowledge sharing, thus exceeding any individual’s cognitive abilities (Walsh and Ungson, 1991). In organizations, knowledge sharing refers to the process by which units transfer and use retained knowledge developed by other units (Tsai, 2001). Although scholars have outlined that collective knowledge retention exceeds the level of individual knowledge retention, the anteced-ents and moderators of knowledge retention throughout the organization have not been sufficiently delineated (e.g. Huber, 1991).

Generally, research has recognized the potential of providing a better understanding of the broad variety of mechanisms that enable knowledge retention. A growing number of studies have therefore investigated the possibilities of improving organizational knowledge retention. Madsen et al. (2003), for instance, highlight how an increase in intra-organizational personnel inflows improves knowledge retention within the organization’s boundaries. Fiedler and Welpe (2010) highlight several structural organizational factors, such as standardization and organizational processes, that impact knowledge retention. Moreover, some scholars have particularly focused on analysing how employee outflows affect an organization’s retained knowledge. Droege and

Retained knowledge individual level

New information

Information interpretation

Organizational response

Retained information

Organizational memory

Retained knowledge group level

Retained knowledge organizational level

sorting categorizing sense-making

Organizational learning

Figure 1. The organizational memory concept



Schmitt et al. 59

Hoobler (2003), for instance, investigate the conditions required for firms to capture retained individual knowledge and avoid knowledge losses due to employee turnover. Conversely, several studies (e.g. Bowersox, 2009; Fisher and White, 2000; Shah, 2000) have applied a social network perspective to emphasize the knowledge disruptions that employee downsizing causes. Massingham (2008) has recently presented a case study in which he differentiates between the risk of losing organizational knowledge through human (employees’ combined competence and experience), social (knowledge created through relationships and social networks), structural (organizational memory) and relational capital (knowledge acquired through an organization’s outside collaborations).

Overall, the extant literature provides rich insights into how to explain, measure and avoid the potential negative effects of knowledge loss in organizations. Nevertheless, how employee down-sizing affects organizational knowledge retention throughout the organization has not yet been addressed. In fact, most of the relevant studies are very fragmented, mostly highlighting critical social and organizational network implications (Fisher and White, 2000; Massingham, 2008; Shah, 2000). However, employee downsizing not only runs the risk of destroying valuable organizational knowledge on the individual and social network levels, but may also profoundly disrupt estab-lished procedures, routines and the organizational culture. These more indirect effects can have severe long-term consequences.

There is considerable research (e.g. Brockner, 1990; Konovsky, 2000) indicating that preserv-ing cultural values such as fairness and openness throughout the employee downsizing process has important consequences, such as better employee behaviour. Moreover, several authors (e.g. Casey, 2005) maintain that in order to understand the relationships between individual and organizational learning, a theory is needed that matches the complexity of the phenomenon being studied. These arguments spur our theoretical exploration of employee downsizing as a risk to knowledge reten-tion on various organizational levels. Our approach differs from that in prior literature by offering a comprehensive view of all the direct and indirect effects of employee downsizing throughout all organizational levels. The following section presents our arguments in greater detail and develops testable propositions for our perspective’s key assumptions.

The effects of employee downsizing on knowledge retention

According to the knowledge-based theory of the firm (e.g. Grant, 1996), a key organizational task is accumulating and protecting valuable knowledge. This knowledge determines a firm’s capacity to efficiently convert its inputs into valuable, hard to imitate outputs. Thus, the firm’s critical knowledge, skills and capabilities—embedded in its human resources—contribute actively to its success (Nonaka, 1994). Some scholars argue that the firm’s boundaries should encompass these valuable competencies and core knowledge (Prahalad and Hamel, 1990), thereby keeping this knowledge internal. This will allow unique knowledge or capabilities to be developed and exploited.

As mentioned, inefficiencies and/or failure to implement employee downsizing strategies have negative consequences for an organization. One of these effects is the loss of vital organizational memory, as layoffs directly influence a firm’s stock of existing knowledge (Dougherty and Bowman, 1995). Consequently, research (e.g. Freeman and Cameron, 1993) has argued that effec-tive employee downsizing efforts should be considered part of the firm’s long-term strategy to preserve its critical knowledge for sustainable competitive advantage. The word ‘critical’ knowl-edge is of particular importance for effective employee downsizing, as an elementary aspect of organizational learning is based on forgetting (Huber, 1991). Unlearning is often a necessary con-dition for change.




In this respect, knowledge retention can be viewed as both beneficial and detrimental to organi-zational functioning. Some researchers argue that retained knowledge harbours inefficiency, inflexibility and competence traps (Levitt and March, 1988). Considered a reinforcement of single-loop learning that maintains the status quo (Argyris and Schon, 1978), knowledge retention can prevent adaptation to new situations (Shin et al., 2001), thereby threatening the organization’s effective functioning. Conversely, researchers have recognized the vital role of knowledge reten-tion. Knowledge retention can reduce transactional costs by limiting the amount of search and analysis needed for repeated or similar decision making (Walsh and Ungson, 1991). Retained knowledge has the potential to coordinate, integrate and legitimize organizational activities (Duncan and Weiss, 1979). Furthermore, it provides a basis for a shared context by allowing prob-lem solving, adaptation and learning (Moorman and Miner, 1998).

The above arguments indicate that effective knowledge retention results from a combination of remembering and forgetting. In this respect, only the loss of critical knowledge due to employee downsizing has detrimental effects. Cameron (1994) supports this argument, as he considers it crucial to identify a firm’s future core competencies before undertaking employee downsizing. De Holan and Phillips (2004) describe an even more serious scenario by maintaining that the loss of critical knowledge equals the loss of an organization’s competitiveness and should therefore be avoided. Consequently, effective employee downsizing is closely related to the ability to retain a firm’s critical knowledge.

Weick’s (1995) four-level framework is a good starting point to analyse how critical knowl-edge can be retained throughout an organization. On the first level (individual or intrasubjective level), individuals store their knowledge of specific cause-and-effect relationships, creating an individual frame of reference. Interactions between individuals create the second, intersubjective, level: a universal reliable frame of reference creating shared meaning between individuals and groups. These intersubjective frames of reference create a ‘collective mind’ (Weick and Roberts, 1993). On the third, collective, level, these intersubjective frames are stored and preserved over time (i.e. in job categories, routines, ideologies, etc.), resulting in retained organizational knowl-edge. The final, extrasubjective, level retains knowledge on a macro level, such as in organiza-tional culture and institutional artefacts (Weick, 1995).

Drawing on Weick’s (1995) perspective, knowledge retention can be considered as emerging from interpersonal and/or behavioural connections. Similarly, Walsh and Ungson (1991) consider organizations as networks of ‘intersubjectively shared meanings that are sustained through the development and use of common language and everyday social interactions’ (Walsh and Ungson, 1991: 60). These connections constitute a learning network based on a system of interaction effects within an organizational context. In this way, knowledge retention on the individual level ascends through social interactions to collectively retained knowledge on the organizational level.

Intrasubjective level. Nonaka (1994) proposes two dimensions of knowledge: explicit and tacit. Tacit knowledge is embedded in action, experience and involvement in a specific context (Alavi and Leidner, 2001); it is non-verbalized or even non-verbalizable, intuitive and unarticulated (Hedlund, 1994). It is comprised of cognitive and technical elements (Nonaka, 1994). While the cognitive element refers to the individual’s mental maps, beliefs, paradigms and viewpoints, the technical element refers to know-how, crafts and skills that apply to a specific context (Alavi and Leidner, 2001). Conversely, explicit knowledge is articulated, codified and can be communicated through language (Nonaka, 1994). Specified by means of writing, computer programs, patents and even drawings, explicit knowledge can be captured in ‘non-human’ organizational knowledge storage bins (Hedlund, 1994).



Schmitt et al. 61

Explicit and tacit knowledge are mutually dependent and are knowledge’s reinforcing qualities (Alavi and Leidner, 2001). Tacit knowledge guides individuals to put explicit knowledge into action in the most effective way, since it provides the necessary conditions for structuring, develop-ing and interpreting explicit knowledge. In contrast, explicit knowledge can be easily articulated and replaced by new explicit knowledge that remains in the organization’s common repositories even when key employees leave (Nonaka, 1994). Accordingly, tacit knowledge is more difficult to replace than explicit knowledge and more valuable to the organization, since the individual’s tacit knowledge is never perfectly substitutable by another’s tacit knowledge.

Depending on the number of employees and their value for the organization, losing individuals through employee downsizing carries the risk that the knowledge in those employees’ memories may be lost if this is not retained elsewhere within the organization (Fisher and White, 2000). An individual’s tacit knowledge may be subject matter expertise, memories of why certain key deci-sions were made, or knowledge of prior projects’ undocumented results (Parise et al., 2006). The cost of losing this tacit knowledge can be enormous. Lancaster and Stillman (2002) mention the General Mills Inc. case, in which the loss of a marketing manager’s critical marketing and client knowledge cost the organization millions of dollars as this knowledge was not retained elsewhere. It becomes evident that when key employees leave, they leave with the knowledge that the organi-zation has failed to retain. However, some scholars (e.g. Leonard and Sensiper, 1998) argue that organizations cannot avoid the loss of tacit knowledge, although they can mitigate this. Consequently, employee downsizing efforts should aim to preserve as much critical tacit knowl-edge as possible.

Tacit knowledge is difficult to manage and can only be transferred through highly interactive conversations (Leonard and Sensiper, 1998). Consequently, some scholars argue that dense employee networks contribute to interaction and knowledge transfer (e.g. Tichy and Fombrun, 1979). However, network density alone is an insufficient condition for transferring tacit knowl-edge. Multiple interactions between employees do not guarantee the exchange of ideas and knowl-edge as they are often superficial (Droege and Hoobler, 2003). Only those interactions that form collaborations stimulate tacit knowledge diffusion. Collaborations have transformational effects, as they bring organizational members together to solve problems or to work on common tasks (Powell, 1998). When working together, employees interact more intensively, exchange ideas and observe the application of their colleagues’ tacit knowledge.

Collaboration’s critical role in transferring tacit knowledge provides insights into the loss of an employee’s specific functional expertise through employee downsizing. The risk of laying off key employees with valuable tacit knowledge is high in firms in which employees often perform indi-vidual tasks rather than working in teams or projects. Decreasing a firm’s dependency on individ-ual tacit knowledge by increasing multiple collaborations between employees also reduces the possible loss of tacit knowledge during employee downsizing. Consequently, we present the fol-lowing proposition:

Proposition 1: Firms with high levels of collaboration are less likely to experience knowledge losses through employee downsizing than firms with low levels of collaboration.

Intersubjective level. The intersubjective level considers the creation and retention of knowledge within an interactive context (Weick, 1995; Weick and Roberts, 1993), thus applying a social net-work frame. From a network perspective, the combined action of individuals transferring knowl-edge and learning together (e.g. Huber, 1991) enables knowledge retention through the interpretive connections between individuals (Argote, 1999). Thus, when exchanged with and accepted by




others, individually retained knowledge is converted into collectively retained knowledge (Duncan and Weiss, 1979).

The dispersion of individuals across organizational sub-units also enables knowledge retention throughout an organization (Madsen et al., 2003). In this respect, Reagans and McEvily (2003) highlight the importance of relationships between individuals across organizational units and emphasize network structures that support organizational knowledge retention. Walsh and Ungson (1991) state that knowledge sharing between groups of individuals enables organizations to retain knowledge sustainably. Burt’s (1992) theory on structural holes within organizational networks supports this aspect. Structural holes are characterized by the absence of a connection between two groups in a network. These unconnected networks often have distinct sources of information and foci of activities that differ from those of groups that work together regularly (Burt, 1992). Consequently, structural holes allow groups to contribute to the development of an organization’s knowledge base since their members’ diversity increases the variety of different interpretations of the same experiences, thus generating a new understanding (Edmondson, 1999). These relation-ships are vital for an organization, as they function as a ‘transactive memory system’, enabling organizations to easily identify and apply knowledge (Argote et al., 2003).

Granovetter (1973) differentiates between strong and weak ties in these network connections, which characterize the amount of time spent on, the emotional intensity of and the frequency of the interactions. Thus, employees with only strong ties in an organization are very likely to be part of dense networks with a closed system of information flows. Conversely, employees with weak ties are connected to multiple sources and thus have access to multiple networks of distinct informa-tion. These weak ties often appear between dissimilar people and fuel creativity since employees are exposed to perspectives that differ from their own (e.g. Zhou et al., 2009). Moreover, multiple connections to other organizational networks and subunits enable employees to understand the entire internal organizational context and allow them to position their activities in a global context (e.g. Hansen, 1999). From a resource perspective, weak ties between employees are therefore more valuable than strong ties (Granovetter, 1973).

Employee downsizing may inadvertently cause critical damage to the informal organizational network structure (Freeman and Cameron, 1993). Evidently, the loss of weak ties through the loss of one individual in an organizational network is far greater than the loss indicated by the head count alone. These losses are particularly severe if—in keeping with Parise et al. (2006)—the indi-vidual can be labelled a ‘central connector’ (an employee with high technical expertise, organiza-tional memory and critical relationships), ‘broker’ (an employee with broad retained knowledge of the organization’s functioning and capable of connecting, coordinating and integrating networks), or ‘peripheral player’ (an employee with niche expertise, often well connected within external networks). These individuals’ critical weak network connections create an organizational memory network that supports the firm’s competitive strength in terms of its capacity to build core compe-tencies (Barney, 1991). In this sense, employee downsizing risks destroying weak network connec-tions that are critical to bridge structural holes and connect organizational sub-units. This paves the way for our second proposition:

Proposition 2: Firms with strong network ties are less likely to experience knowledge losses through employee downsizing than firms with weak network ties.

Collective level. On the collective level, retained knowledge embedded in various repositories on the intra- and intersubjective levels develops into formal and informal routines (e.g. Girard, 2009). Organizational routines are repeated patterns of behaviour that occur without having been



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explicitly chosen from alternative behaviours (Nelson and Winter, 1982). This behaviour is bound by rules and customs reflecting much of a firm’s ongoing activity (e.g. Nelson and Winter, 1982). In the absence of suitable routines, firms engage in experimentation to explore or develop new routines (Kogut and Zander, 1996).

According to Cohen and Bacdayan (1994), organizational routines can be classified into stored procedural memory and declarative memory. Procedural memory is rather similar to hab-its and individual skills and often refers to memory regarding ‘how things are done’ (Cohen and Bacdayan, 1994: 554). This routine is characterized by skills tied to a particular domain in which it is exercised; in the context of product developments, procedural memory is manifested in routines for team cooperation and project milestones (Moorman and Miner, 1997). Moreover, it is automatic and inarticulate and can be used without the underlying substantive knowledge (Tsoukas and Vladimirou, 2001). Conversely, declarative memory stores facts, propositions and events (Cohen and Bacdayan, 1994). This memory is more general and may include, for exam-ple, knowledge about a customer or the competitive context (Kyriakopoulos and De Ruyter, 2004). Both procedural and declarative memory allow organizations to structure collective actions efficiently by ‘decreasing the effort spent on decision-making and implementation’ (Cohen and Bacdayan, 1994: 555).

However, routines can also reinforce organizational rigidity (e.g. Leonard-Barton, 1992) by avoiding effective organizational unlearning. In addition, prior research has outlined that routines may lead to parochialism and ‘groupthink’ (Janis, 1975), which can harm the development of new knowledge and behavioural adaptation. Moreover, these organizational routines may be responsi-ble for the often encountered divergence between ‘theory-in-use’ and ‘theory-in-practice’ (Cohen and Bacdayan, 1994). While routines allow organizations to retain and use knowledge effectively, they could also create certain dynamics that could automatically transfer past experience to inap-propriate situations, thus creating inefficiencies and failing to create new knowledge.

On the one hand, employee downsizing can weaken the dominance of memory-based knowl-edge and routines, thus allowing the firm to effectively improve its performance (Fisher and White, 2000). Conversely, employee downsizing can also lead to the elimination of important routines by destroying important networks that cultivate certain organizational mindsets. Thus, Cohen and Bacdayan (1994) call for an improved understanding of how to reinforce appropriate routines and eliminate inappropriate ones, thereby avoiding mistakes and inefficiencies in organizational learning.

Research has found that leaders have a critical role in reinforcing or challenging established routines (Edmondson et al., 2001). Employees’ dependence on work assignment and recognition makes them adapt their behaviour to that of their supervisors (Leonard-Barton and Deschamps, 1988). Moreover, Edmondson et al. (2001) argue that supervisors affect their subordinates’ percep-tion of tasks and feeling of psychological safety. The latter has a critical role in developing new routines. Psychological safety describes the shared belief that well-intentioned experimentation will not be punished (Edmondson, 1996). Employees may hesitate to expand established routines if they fear that this may affect their personal career negatively (Edmondson et al., 2001). Conversely, supervisors who provide scope to experiment and allow trial and error are more likely to motivate the improvement of established routines. Recently, DeRue et al. (2008) have provided empirical support for this argument, as their results emphasize that the team leader structure impacts the way team members adapt their behaviour to employee downsizing.

The organizational structure defines the roles that employees take on as part of their jobs. Changing hierarchical structures during employee downsizing runs the risk of changing previ-ously established employee behaviours and the firm’s capability to improve established routines.




Newly assigned leaders’ behaviour and work attitude may, for example, differ substantially from those of their predecessors. In addition, employees’ dependency on their superiors often fosters changes in established work routines, which could lead to knowledge losses. This leads to the following proposition:

Proposition 3: Firms maintaining their leadership structure during employee downsizing are less likely to experience knowledge losses through employee downsizing than firms with a modified leadership structure.

Extrasubjective level. Organizational culture refers to a shared common frame of reference that employees learn socially and transmit, thus providing rules for organizational behaviour (Schein, 2004). These, mostly tacit, assumptions and beliefs determine how organizations perceive, think about and react to various environments (Schein, 2004). Learning theory (e.g. Brown and Duguid, 1991) has argued that a strong sense of shared identity improves the building and retaining of col-lective knowledge. Similarly, Robinson and Ensign (2009) describe an organization capable of creating ‘a trusting corporate culture that values sharing and provides ample opportunities for such exchanges’ as one that ‘ will go a long way in promoting the company’s efforts to develop and utilize organizational memory’ (Robinson and Ensign, 2009: 42). Moreover, Bock et al. (2005) have found that fairness and affiliation in organizational climates strongly influence employees’ intention to engage in knowledge retention and organizational learning.

Research has confirmed that employee downsizing impacts the surviving employees’ emo-tions, behaviours and attitudes (e.g. Brockner, 1988; Cohen-Charash and Spector, 2001; Mishra and Spreitzer, 1998). In this respect, Brockner et al. (1995) suggest that future organizational suc-cess depends on the reactions of those who survive the employee downsizing. The retained employees (‘survivors’) often experience feelings such as guilt, anger, relief and job insecurity (e.g. Brockner, 1988; Mishra and Spreitzer, 1998) when they witness co-workers and friends los-ing their jobs. Employee downsizing’s psychological effects have been proven to influence employees’ morale, work productivity, motivation, commitment and job performance (Cascio, 1993). Consequently, there is a risk that employee downsizing could disrupt the culture of trust and safety, which, in turn, could reduce the employees’ willingness to apply their retained knowl-edge to present decisions. An accumulation of negative perceptions increases the risk of turnover among the survivors, which will undermine the envisioned savings through employee downsizing (Hopkins and Weathington, 2006).

Much research has been dedicated to exploring the factors that mitigate employee downsizing’s negative impacts (e.g. Brockner, 1992; Hopkins and Weathington, 2006). Particular attention has been paid to organizational justice’s role when employee downsizing occurs (e.g. Cohen-Charash and Spector, 2001). In fact, extant research (Hendrix et al., 1998) states that survivors often evalu-ate an organization’s overall fairness in terms of how employee downsizings are carried-out. Generally, organizational justice can be classified into procedural and distributive justice (Hopkins and Weathington, 2006). While procedural justice relates to the fairness of the overall process, distributive justice describes the outcomes’ perceived fairness (Hendrix et al., 1998).

In the context of employee downsizing, several authors (Brockner, 1990; Cohen-Charash and Spector, 2001; Hopkins and Weathington, 2006) have found a negative relationship between the adverse perception of the employee downsizing process’s justice and the survivors’ organizational commitment. Moreover, McFarlin and Sweeny (1992) provide evidence that procedural justice predicts the level of employee trust in the organization and its representatives. Accordingly, when employees perceive their organization as unfair when it implements employee downsizing (i.e.



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discrepancies between the reasoning and the procedures), their organizational commitment, trust and satisfaction decrease. Given the importance of trust for a firm’s capability to rely on retained knowledge leads to the following proposition:

Proposition 4: Firms with high levels of perceived procedural justice are less likely to experience knowledge losses through employee downsizing than firms with low levels of perceived procedural justice.

According to Brockner and Wiesenfeld (1996), the way organizations treat their dismissed employ-ees is one determinant of distributive justice. These authors identify a positive relationship between dismissed employees’ treatment (i.e. outplacement support and incentive packages) and the survi-vors’ perception of distributive justice. Additionally, the survivors’ perception of distributive fair-ness was found to decrease the risk that they would withdraw, reduce their support and decrease their organizational commitment (Cohen-Charash and Spector, 2001). Thus, our final proposition assumes the following relationship:

Proposition 5: Firms with high levels of perceived distributive justice are less likely to experience knowledge losses through employee downsizing than firms with low levels of perceived procedural justice.

Discussion

The literature only partly provides an understanding of the interrelationships between employee downsizing and knowledge retention. Prior research relied chiefly on a social network approach, emphasizing the risk of employee downsizing destroying valuable social interactions that are criti-cal for knowledge retention. However, the literature has provided us with a deeper understanding of how employee downsizing impacts particular aspects of knowledge retention, such as the loss of tacit knowledge and cultural aspects. In this regard, the multiple organizational levels presented in this article acknowledge, bridge and expand the existing conceptualizations of employee down-sizing and knowledge retention. Instead of merely focusing on one specific level of analysis, we highlight how to avoid knowledge losses on various organizational levels during employee down-sizing (see Figure 2). This theoretical analysis has several important implications for research and managerial practice.

Retained organizational

knowledge

Employee downsizing

Level of

collaboration

Strength of

network ties

P 1 (+) P 2 (+)

Similarity of leadership structure

Perceived procedural

justice

P 3 (+) P 4 (+)

Perceived distributive

justice

P 5 (+)

Figure 2. Employee downsizing and knowledge retention




Research implications

First, analysing the relationships between employee downsizing and knowledge retention requires an approach encompassing multiple levels of analysis. Prior theories and research focused on the individual, group or organizational levels of analysis. On the individual level, prior studies empha-sized ways of reducing the impending risk of losing critical tacit knowledge through employee downsizing (e.g. Droege and Hoobler, 2003). However, these studies tend to neglect the indirect implications of individual knowledge losses for the overall organization’s function and perform-ance. Conversely, studies focusing on the organizational level of analysis highlight that employee downsizing runs the risk of destroying employees’ commitment and their perception of trust (e.g. Hopkins and Weathington, 2006). Unfortunately, these studies do not examine how such organiza-tional outcomes impact the use and development of an organization’s retained knowledge on the individual level. Drawing on our propositions, employee downsizing’s effects on knowledge reten-tion are not solely manifested on a particular organizational level. Combining the intrasubjective, intersubjective, collective and extrasubjective levels provides a more fine-grained understanding of the interrelationships between employee downsizing and organizational memory. This research design echoes recent calls for multi-theoretic perspectives to analyse organizational downsizing on multiple organizational levels (Datta et al., 2010).

Second, the presented interrelationships between the different organizational levels demon-strate that employee downsizing is somewhat complex. Prior research (Guthrie and Datta, 2008) stated that the loss of critical human and social capital as well as the survivors’ lower levels of commitment and greater rigidity is the main reason for employee downsizing’s ineffectiveness. Underspecified models may therefore explain certain inconsistencies regarding employee down-sizing in prior research findings. An organization that successfully preserves its critical social network structures on the intersubjective level does not, for example, necessarily avoid critical knowledge losses if it has failed to maintain its employees’ perception of justice. Consequently, employee downsizing’s negative and positive outcomes are due to a comprehensive approach on all the organizational levels. Neglecting this complexity raises questions regarding the outcomes’ validity and generalizability.

Third, the close interrelatedness between employee downsizing and knowledge retention emphasizes that financial performance measures fall short regarding determining employee down-sizing’s overall effectiveness. The impact of knowledge losses after employee downsizing (Massingham, 2008) may not always be measurable as financial outcomes. Destroying access to individual or collective memory spurs inefficiencies (Cohen and Bacdayan, 1994) that may only become visible through decreasing levels of innovation (Dougherty and Bowman, 1995), creativity and collaboration (Amabile and Conti, 1999) as well as lower degrees of standardization (Tsoukas and Vladimirou, 2001). Consequently, when measuring employee downsizing’s overall effective-ness, the non-financial losses, which cannot be captured in financial figures, should also be taken into account. These measures could entail, for example, variations in individual and collective search behaviours (i.e. request for information and guidance), failure rates, the quality levels in established production/service processes, the amount of product or process innovations, voluntary employee turnover as well as changes in the firm reputation. If employee downsizing’s financial outcomes are enriched with non-financial outcomes, managers should take long-term competitive disadvantages, such as an erosion of skills, disrupted organizational networks and the survivors’ negative response behaviour, into account.

Fourth, retaining key employees and their knowledge during employee downsizing may also provide insights into how to retain employees in general. Prior research (e.g. Trevor and Nyberg,



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2008) has confirmed the close relationship between employee downsizing and subsequent voluntary turnover. These involuntary turnovers have been found to consistently harm firm performance (Shaw et al., 2005). Avoiding knowledge losses during employee downsizings also provides poten-tial insights into how to better retain knowledge in other organizational contexts, thus helping reduce the risk of knowledge losses due to involuntary turnovers.

Fifth, the insights into knowledge retention may also extend the process-based view of absorp-tive capacity (Easterby-Smith et al., 2008). The acquisition and assimilation of new knowledge depends strongly on individuals and organizational units’ existing knowledge (e.g. Cohen and Levinthal, 1990). As a result, multiple authors have called for a more integrative approach when analysing absorptive capacity (e.g. Anderson and Sun, 2010; Argote et al., 2003; Grant, 1996). The conservation of relevant knowledge on various organizational levels helps to create a context that enables collective knowledge processes and social integration mechanisms for absorptive capacity (Lichtenthaler and Lichtenthaler, 2009). Consequently, the presented framework for knowledge retention may provide new insights into how firms maintain and/or improve their absorptive capac-ity in the long term.

In a more general context, our propositions also provide insights into the debate on virtues and virtuousness (e.g. Arjoon, 2000; Caza et al., 2004). Virtuousness refers to standards that provide guidance for excellence in character and moral judgement during times of difficulty (Caza et al., 2004). Virtuous organizations contribute to employees’ ethical development by encouraging the pursuit of that which is beneficial for individuals and society (Fowers and Tjeltveit, 2003). In theo-retical debates, scholars have stressed the importance of virtuousness as a ‘buffer’ against negative organizational consequences (Bright et al., 2006). These counterproductive consequences are the result of detrimental effects on shared values, trust, loyalty and the commonality of culture and values. In this respect, employees’ perceptions of justice during downsizings are crucial for deter-mining how they perceive the level of virtuousness. Consequently, fostering procedural and dis-tributive justice may not only be beneficial for knowledge retention on all organizational levels, it may also increase employees’ ability to absorb the perceived threat and trauma, thus leading to the preservation of social capital and collective efficacy during downsizings.

Managerial implications

The implementation of employee downsizing is often related to the question of who will actually be displaced. Managers sometimes answer this question by implementing across-the-board per-centage cuts to maintain the perception of fairness and transparency. This behaviour lies at the root of one of the main criticisms of employee downsizing, namely that it is often short-sighted, badly managed and considered a ‘one-time, quick-fix solution’ (Cascio, 1993: 103). The theoretical model developed in this article clearly highlights that employee downsizing comprises more than just a pure quantitative reduction of the overall workforce. Implementing employee downsizing has to take the potential damage to a firm’s organizational memory into account. The article’s managerial implications (see below and Table 1) also provide indirect managerial insights into how to proactively reduce potential knowledge losses during future employee downsizing. Forward-looking companies that manage and distribute their organizational memory actively are those that can most successful retain knowledge.

A common approach to retaining knowledge is to capture and store departing employees’ infor-mation and knowledge through interviews and documentation. However, this approach often fails as (a) documentation does not guarantee the retrieval, correct interpretation and application of the knowledge; (b) not all tacit knowledge can be captured and stored in a database; and (c) these




approaches ignore the context that embeds the individual’s knowledge in a social network of co-workers and external parties. Consequently, an initial managerial task is to be aware of informal collaborations within and across organizational units.

Social network analysts have provided us with a wide range of practical tools with which to quantitatively analyse and assess networks (e.g. Scott, 2000). A very straightforward approach to obtaining a list of people in a specific network is to simply ask all the group members to character-ize their relationship with one another (Cross et al., 2002). Managers can assess the knowledge flows between group members by undertaking surveys and subsequently visualize these informa-tive social networks by means of diagrams (Cross et al., 2002; Scott, 2000). Capturing collabora-tions and knowledge flows between individuals in diagrams allows executives to look beyond formal organizational charts and become aware of cross-functional or hierarchical boundaries (Cross et al., 2002; Parise et al., 2006).

The outcome of the social network analysis helps managers identify the individual employee’s critical internal and external relationships (Parise et al., 2006) and to prioritize selecting-out decisions (Fisher and White, 2000). In practice, managers often base selecting-out decisions on legal considerations and disregard a qualitative assessment of their employees (Fisher and White, 2000). On the basis of Burt’s (1992) theory of structural holes, the loss of individuals with very few links to other organizational employees could mean that the tacit knowledge embedded in these employees may be lost. An analysis of these employees’ overall contribution and function regarding the organization’s ‘strategic core’ (Datta et al., 2010) helps managers avoid non-prior-itized selecting-out decisions. Additionally, managers can identify those individuals who form a unique link between otherwise unconnected networks in the organization. Maintaining these

Table 1. Reducing the risk of knowledge loss during employee downsizing

Organizational level

Risk for knowledge retention

Theoretical recommendation

Analytical approach Practical recommendation employee downsizing

Intrasubjective level

Loss of tacit knowledge

Increase level of collaboration

Collaboration ties within organizational units

• Maintain connectivity between critical individuals with low levels of collaboration

Intersubjective level

Damage to informal network structure

Creation of dense networks (strong ties)

Network density and collaboration between organizational units

• Maintain high performing units• Ensure connectivity between

critical networks with low levels of collaboration

Collective level Loss of routines or standardized behaviour

Maintain leadership structure

Artifacts (i.e. rules, standard operating procedures); common behavioural pattern of employees

• Engage key leaders early in employee downsizing

• Maintain employee rewards to increase psychological safety

Extrasubjective level

Undermine motivation to engage in knowledge retention and organizational learning

Procedural and distributive justice

Employees’ perceptions of justice and their knowledge of the reasons for the downsizing

• Rationale for employee downsizing

• Communication and participation before, during, and after employee downsizing



Schmitt et al. 69

employees during employee downsizing prevents the destruction of critical network connections between organizational units. If such employees have to be made redundant, managers should repair their network connections to ensure that the organization’s overall network connectivity remains intact.

From a network perspective, managers should ask themselves how they reward and foster cooperation between organizational units. Cooperation was found to stimulate successful knowl-edge retention through multiple knowledge exchanges that create dense networks (Reagans and McEvily, 2003). Conversely, intense competition between units was found to limit a firm’s capa-bility to effectively retain knowledge between networks (Argote, 1999). Networks consisting of such units are characterized by limited collaborations, inter-unit competition and a focus on performance outcome. If units perform similar tasks and demonstrate low social cohesion, man-agers should avoid layoffs in higher performing units, as they often outperform units with high internal cohesion and effectiveness. If units perform unique tasks and demonstrate low social cohesion, managers should aim to preserve those employees who provide critical links to units in other networks.

Similarly, implementing employee downsizing should go hand in hand with an adequate leader-ship structure. Routines can help solidify or stabilize existing arrangements, or promote change (Adler et al., 1999). While routines and their artefacts are often complex and difficult to identify, managers have to be aware of leaders’ critical role in promoting psychological safety, thus influenc-ing employee behaviour. Maintaining and engaging key leaders early during employee downsizing offer a two-fold advantage. On the one hand, trusted leaders are maintained and motivated, which ensures managerial support throughout the organization. On the other hand, these leaders’ subordi-nate employees are given emotional stability which helps maintain desirable behaviours (DeRue et al., 2008). Conversely, managers need to identify those individuals and leaders who create barriers to effective organizational unlearning and forgetting (Cohen and Bacdayan, 1994). In this respect, employee downsizing provides managers with a good opportunity to destroy detrimental routines that prevent the creation of new knowledge by preserving and applying out-dated retained knowledge.

Finally, managers should be aware that the way in which they approach and implement employee downsizing affects organizations’ ability to use organizational memory. Creating a climate of fear, intimidation and hostility by incorrectly communicating the rationale for and scope of organiza-tional downsizing will not only cause the usual side-effects (i.e. decreased levels of morale and employee involvement), but will also impede effective knowledge retention, which is required for productivity. Managers should therefore be fair during their layoff procedures, carefully following and constantly communicating the overall goals, thus avoiding contradiction and multiple rounds of organizational downsizing. Moreover, critical employees’ involvement in certain situations spurs commitment to and trust in the organization.

Limitations and future research

The developed model is a first step towards comprehensively explaining the interrelationships between employee downsizing and knowledge retention and the article’s limitations suggest the need for additional research. From a theoretical point of view, the article illustrates the interactive effects between employee downsizing and knowledge retention. This could result in managers avoiding involuntarily damaging a firm’s organizational learning processes. While the article’s main contribu-tion focuses on providing a comprehensive research framework, the established propositions need to be empirically validated through qualitative case studies. Future research could, for example, map social network changes before and after employee downsizing (Fisher and White, 2000) in




combination with qualitative interviews on its perceived justice (Cohen-Charash and Spector, 2001; Hendrix et al., 1998). Moreover, these studies should also include various types of firms (i.e. size, industry, internationality, etc.) as prior research has, for example, mentioned the moderating effects of firm slack (e.g. Greenhalgh et al., 1988) and firm governance (Perry and Shivdasani, 2005).

Furthermore, future studies could uncover how distinct types of employee downsizing affect the overall relationship with knowledge retention. Research has provided evidence that diverse methods of workforce reduction also generate different costs and effects regarding organizations and their employees (e.g. Greenhalgh et al., 1988). Distinguishing between specific employee downsizing tactics in future studies will have the potential benefit of uncovering, according to the framework’s varying organizational levels, the different effects of a firm’s ability to actually retain knowledge.

In addition, future research should analyse how different organizational structures impact the rela-tionship between employee downsizing and knowledge retention on different organizational levels. Research has argued that social networks often mirror the formal structure in bureaucratic, tightly coupled organizations. Brass (1995), for instance, maintains that social networks overlap more with mechanistic structures than with an organic organization. In these cases, routines and culture domi-nate, whereas social networks and tacit knowledge become secondary (Fisher and White, 2000). This has different implications regarding employee downsizing’s impact on knowledge retention. Future research may uncover that organizational structure has a moderating role if the relationship between employee downsizing and knowledge retention is analysed on different organizational levels.

Finally, the proposed model should be applied to distinct environmental dynamism and competi-tiveness situations. According to DeWitt (1998), the nature of a firm’s competitive environment is a crucial element in selecting appropriate downsizing strategies. This argument implies that knowledge retention and employee downsizing’s overall importance may vary depending on the environmental context. Consequently, environmental complexity could be a valuable and promising antecedent in a further analysis of the interplay between employee downsizing and knowledge retention.

Conclusion

The purpose of this article has been to provide a comprehensive theoretical framework for explor-ing the relationship between employee downsizing and knowledge retention. The study’s impetus emerges from the lack of knowledge of how employee downsizing can be effectively linked to knowledge retention. The presented model should prove useful for such an analysis, because it considers knowledge retention’s complexity in terms of how knowledge is retained on distinct organizational levels. By highlighting the potential risk of knowledge loss, the article further raises awareness of the importance of combining knowledge retention and employee downsizing. The theoretical discussion presented provides promising insights into and contributions to the debate on employee downsizing and organizational memory for theory and managerial practice.

Acknowledgement

The authors would like to thank the anonymous referees for helpful critical comments on this article. They would also like to thank Eugene Sadler-Smith for substantive and editorial advice.

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Don't let knowledge walk away: Knowledge retention during employee downsizing