Managerial accounts of downsizing

Managerial accounts of downsizing�

IAN PALMER1, BORIS KABANOFF2 AND RICHARD DUNFORD3

1School of Management, University of Technology, Sydney, PO Box 123 Broadway, Sydney,NSW 2007, Australia2School of Management, Queensland University of Technology, 2 George St., GPO Box 2434,Brisbane, Queensland 4001, Australia3School of Management and Marketing, University of Western Sydney, Macarthur, PO Box 555,Campbelltown, NSW 2560, Australia

Summary Downsizing remains a popular management technique for restructuring organizations.This is despite evidence that, by itself, downsizing often fails to deliver promised bene®tsand can result in a range of sta� and other problems. Within the management literaturesome have responded by identifying `best practices' in downsizing, whilst others haveargued for downsizing to be used strategically, not just for cost reduction. The studyreported in this paper explores management accounts of downsizing, and the extent towhich a strategic language can be detected. It is based upon a content analysis of502 annual reports of Australian organizations over a 7-year period and it identi®es ninekey themes present in managers' discussion of downsizing. Further analysis suggests thatmanagerial accounts of downsizing fall into three `languages': a strategic language, a pro-cess language, and a cost versus consideration language.# 1997 JohnWiley & Sons, Ltd.

J. Organiz. Behav. 18: 623±639 (1997)No. of Figures: 0 No. of Tables: 5 No. of References: 42

Introduction

DownsizingÐor the intentional èlimination of positions or jobs' (Cascio, 1993, p. 96)Ðcontinues to be a popular management technique for restructuring organizations (Cameron,Freeman and Mishra, 1991; O'Neill and Lenn, 1995; Pond, 1995). It is an activity argued to beapplicable to both declining and growing organizations (Cascio, 1993; Freeman and Cameron,1993) and is typically portrayed as a means to lower overheads, simplify bureaucracy, speeddecision making, facilitate communication, enhance entrepreneurship and increase productivity(Cascio, 1993). However, a number of writers suggest that downsizing not only often fails todeliver these promised bene®ts (O'Neill and Lenn, 1995; Schneier, Shaw and Beatty, 1992), butthat it also results in a range of other problems including a decrease in sta� morale, commit-ment and worker productivity (Cascio, 1993; McKinley, Sanchez and Schick, 1995), a lack of

� We wish to thank Andrew Ferguson for his research assistance in producing this paper.

CCC 0894±3796/97/SI0623±17$17.50# 1997 John Wiley & Sons, Ltd.

JOURNAL OF ORGANIZATIONAL BEHAVIOR, VOL. 18, 623±639 (1997)

responsiveness to customers and suppliers (Band and Tustin, 1995), and less product innovationand risk taking (Dougherty and Bowman, 1995).

Despite the existence of such problems, downsizing as a phenomenon continues apace.Cameron et al. (1991, p. 58) claim that in the United States from 1987 to 1991 `More than eighty-®ve per cent of the Fortune 1000 ®rms . . . downsized their white-collar workforce . . . a�ectingmore than ®ve million jobs. More than ®fty per cent downsized in 1990 alone'. Downsizingannouncements reached à new zenith in 1993' (O'Neill and Lenn, 1995: 23; see also Reich, 1993),with a record loss of 615,186 jobs and a further 319,000 job cuts being recorded in the ®rst7 months of 1994 (Dougherty and Bowman, 1995). By the end of 1994 U.S. companies had made516,000 layo�s (The Economist, 1995) and 250,000 layo�s were announced in the ®rst 5 monthsof 1996 (The Economist, 1996). Similar situations are found in other countries, for example,Australia (HRM, 1995; Kitney, 1996).

In the face of both the continued prevalence of downsizing, and identi®cation of problemsassociated with its usage, two di�erent responses have emerged within the management literature.The ®rst response involves the assumption that the negative e�ects of downsizing can be sub-stantially reduced if the restructuring process is appropriately managed. These writings are con-cerned with ways of improving the implementation of downsizing and identifying `best practices'in downsizing (Cameron et al., 1991). This might be termed a `process' response in that it seeks toprovide advice to managers on better ways of conducting downsizing. For example, some o�eradvice on better procedures for terminating employees to èase the pain of layo�s' (Joinson,1995), step by step guidelines for enacting the downsizing exercise, including the importance ofcommunication to retain job satisfaction and the morale of `surviving' employees (Buhler, 1994),and models for conducting downsizing èthically' to facilitate the rebuilding of sta� trust andcon®dence in the organization (e.g. Applebaum, 1991).

The second response in the downsizing literature focuses on the relationship between down-sizing and strategy. The popularity of downsizing has led some writers to suggest that corpora-tions are becoming àddicted' (Spitzer and Tobia, 1994) to downsizing as a form of cost cutting orwhat Hamel and Prahalad (1994) term `denominator' management. Hamel and Prahalad (1994)suggest that many organizations have used downsizing as a means of excising the `fat' or organi-zational `sloth', a move generally encouraged within the popular management literature(see Dunford and Palmer, 1996). However, Hamel and Prahalad (1994, p. 22) argue that costcutting through the use of organizational downsizing is at best a partial solution to most organi-zational problems as many organizations are `blind as well as fat and lazy'. From this perspective,enhanced organizational performance requires not just attention to structural `well-being', butalso an ability to `see' the need for `strategy regeneration and industry reinvention' (Hamel andPrahalad, 1994, p. 22).

This group of writers, who we view as representing the `strategic context' response in thedownsizing debate, share the view that downsizing is a technique, but not a strategy (Kiedel,1994). Their underlying argument is that if downsizing is to be used it should be done so within alarger strategic framework (Band and Tustin, 1995). A key question they pose is the extent towhich managers use downsizing strategically, that is, to pursue objectives beyond simple costreduction. There is some scattered evidence that organizations are changing the reasons why theyuse downsizing. In the United States the results of a recent survey point to a decrease in reportedimportance of `general economic conditions' as a rationale for why downsizing has occurred,while reasons such as better sta� utilization, outsourcing, plant closure, mergers, automation andthe use of new technology have become important (Pond, 1995). In Australia a recent surveyalso found this trend away from èconomic conditions' to è�ciency restructuring' as the mostcommonly given reason for downsizing (HRM, 1995).

# 1997 John Wiley & Sons, Ltd. J. Organiz. Behav. 18: 623±639 (1997)

624 I. PALMER, B. KABANOFF AND R. DUNFORD

The study reported in this paper focuses on the themes or rationales that managers use toexplain, describe and justify downsizing in their organizations. First, we identify what the majordownsizing themes are, and the extent to which they have changed over time. Second, we considerwhether a `strategic' view of downsizing can be identi®ed among these themes, that is, whetherthere is a new `strategic' language associated with the use of downsizing.

This focus on managerial accounts of downsizing is important for two reasons. First, itidenti®es how the `re-presentation' (Linstead, 1993, p. 56) of downsizing by managers may be onemethod through which they manage the meaning attributed to this managerial activity. AsCzarniawksa-Joerges and Joerges (1992, p. 348) argue `power in organizations belongs to thosewho can de®ne reality for others'. It is for such reasons that Pfe�er (1994, p. 112) argues that thestudy of management language is `critical'. Hence, the study of managerial accounts of down-sizing contributes to an understanding of how the `reality' of downsizing is constructed, and theextent to which changes in these constructions occur over time.Second, Abrahamson (1996, p. 280) has argued, in relation to downsizing, that `management

techniques that become fashionable have massive, sometimes helpful, but sometimes devastating,e�ects on large numbers of organizations and their employees'. He suggests that in order for suchtechniques to become fashionable and widely di�used, they `must appear both rational (e�cientmeans to important ends) and progressive (new as well as improved relative to older managementtechniques)' (Abrahamson, 1996, p. 255). Hence, analysis of the language managers use in rela-tion to downsizing also enables an understanding of how they construct rational accounts of itsuse, both as a means to an end and as a progressive management technique.

This paper will proceed in three parts. First, the methodology used in this studyÐa longi-tudinal content analysis of annual reportsÐis outlined. Second, the results of this contentanalysis are reported, including identi®cation of the major themes associated with downsizingand whether these have changed over time. Third, we consider whether a strategic element can bedetected in managerial discussions of downsizing. This is an exploratory study and as such thereis no explicit testing of hypotheses associated with these accounts. Rather, an inductive method isused to identify espoused themes, and the broader issues these address.

Methods

The study reported in this paper is based on a content or text analysis of the annual reports (ARs)of 87 large, Australian organizations for the time period 1986±1992. The sample is a convenientsample rather than one based on a random sampling method. The 87 organizations constituted ageneral cross-section of large Australian organizations and a variety of industries without beingformally representative. More details about this sample are provided later in this section. Contentanalysis is used to assess the extent to which there has been a shift in the management languageand rationale associated with downsizing. The analysis of organizational texts such as ARs hasbeen argued by a number of writers to be a useful and valid approach to organizational analysisthat o�ers an unobtrusive method for the longitudinal analysis of organizational issues thatcombines elements of both quantitative and qualitative research traditions (e.g. Kabano� andHolt, 1996; Abrahamson and Park, 1994; Kabano�, Waldersee and Cohen, 1995; Fiol, 1995).More speci®cally, à number of studies show that the annual report re¯ects managerial percep-tions, intent, and action, and therefore is a reliable source of data for something like extent ofdownsizing' (Dougherty and Bowman, 1995, p. 42).


MANAGERIAL ACCOUNTS OF DOWNSIZING 625

Text analysis

All the text came from 87 companies' annual reports (ARs) for the years 1986±1992; someARs were not able to be obtained resulting in a total of 502 ARs being available for analysis, oran average of 5.7 per organization. In the case of organizations that did not provide ARs, such asgovernment departments, the nearest equivalent to ARs, such as an annual report to the ministerwere used. A total of 874,104 words were included in the data base. This data base hadpreviously been used for several studies of espoused values among Australian organizations(Kabano� and Holt, 1996; Kabano� et al., 1995). Mean total assets for the sample in 1986was $0.73 billion in U.S. dollars and the median number of full-time employees in 1986 was4243.

Organizations came from both the private and not-for-pro®t sectors and included publiclylisted companies (N � 48); unlisted companies under foreign, private, or mutual ownership(N � 16); government departments (N � 7); universities (N � 8); and government-ownedbusiness (N � 8). Those that had been taken over, undergone a merger, or been placed inreceivership during the years 1986±1992 were excluded since equivalent documents were notavailable for these companies over the whole study period. Thus the sample has a `survivor' biasin that organizations that went out of existence for one or another reason are not in the sample.Missing ARs in a few years for some organizations account for the small variations in thenumbers of cases analysed in di�erent years.

Method of text analysis

The method of text analysis used in this study combined both manual and computer-aided forms(cf. Abrahamson and Park, 1994). The process involved the creation of a computer-based diction-ary that contained a variety of words and phrases referring to organizational downsizing. Thesoftware package used to build and run this downsizing dictionary is called ISYS which is arelatively simple but quite powerful and versatile text retrieval package that retrieves and providescounts of target words and phrases (ISYS, 1990).

Apart from its ability to deal with large volumes of text quickly, ISYS possesses a numberof desirable features for constructing and using content dictionaries. It is able to search fordi�erent permutations of a keyword (e.g. the keyword `reduc�' retrieves both `reduces' and`reduction') and it identi®es instances where keywords occur in the context of other keywords.For example a search term such as `job�/7/reduc�' instructs ISYS to identify all instances whenany form of the key word `job' occurs within seven words of `reduction', `reduce', `reduced', andso on.

The process of dictionary building began with a simple dictionary containing a number of themost obvious keywords such as `downsiz�' and `retrench�'. Sections of text surrounding thesereferences were also retrieved by ISYS and studied for how these words were used and for otherwords referring to downsizing. As Weber (1985) observed, contrary to the view of some thatCATA (computer-aided text analysis) is mechanical and crude because it distances the researcherfrom the test, because of its capacity for identifying segments of text referring to the theme beingstudied, CATA helps researchers to revise and re®ne their content dictionary by allowing them toretrieve examplar sections of text e�ciently and reliably. Thus the process of constructingthe downsizing dictionary was an iterative one that involved searching for and retrieving textsegments containing a downsizing theme, examining these, adding to and/or modifying the



keywords used to search text, carrying out new retrievals, making new modi®cations, and so on.In essence the process of dictionary building was terminated when reading samples of text notretrieved by the dictionary failed to identify any other reference to downsizing. The ®nal down-sizing dictionary contained a total of 31 search terms (see Table 1).

This downsizing dictionary was then used to analyse the entire text data set to identify, bycompany and year, all references to downsizing present in ARs. While doing this ISYS alsoretrieved three lines of text either side of the downsizing reference in order to provide informationabout the context within which the downsizing reference occurred. A total of 275 downsizingreferences with their surrounding text were retrieved and printed o� in a hard copy form. Aresearch assistant who had undertaken the development of the dictionary then read these275 retrievals and developed a coding system for the di�erent types of contexts, that is thedi�erent types of explanations, rationales and justi®cations within which downsizing was dis-cussed. The research assistant interacted closely with the researchers during the development ofthis coding system. These di�erent downsizing contexts, rationales and explanations identi®edthe main downsizing themes to be concentrated on in further analyses.

Table 1. Content categories from the downsizing dictionary used by the ISYS software

ISYS Search Term Examples of retrieved words and phrases

sta��/7/reduc� Sta� reduction, sta� reducedemployee�/7/reduc� Employees reduced, reduction in employeesVol� redund� Voluntary redundancy, voluntary redundanciesretrenc� Retrenched, retrenchmentdownsiz� Downsized, downsizing, downsizeworkf�/7/reduc� Workforce reduction, workforce reducedjob�/7/los� Job losses, losing jobs, jobs lostshed� Shed, shedding (of jobs, sta� etc)employ�/7/fall� Falling employee (numbers, positions)sta��/7/cut� Sta� cut, sta� cuts, cutting sta�sta��/7/los� Sta� losses, losing sta�person�/7/reduc� Personnel reduction, reduction in personnelsta��/7/drop� Dropping sta� (numbers)sta��/7/fell Sta� (numbers, totals) fellfewer/7/job� Fewer jobssta��/7/down� Downtrend in sta� (numbers)sta��/level�/7/lower� Lower sta�ng levelsattriti� Attrition (job, sta�, personnel)manning Manning (reduction in)manpower Manpower (reduction in)sta��/7/fall� Sta� numbers fallen or falling sta� numbersjob�/7/reduc� Reduction in job numberssta��/7/declin� Decline in sta� numberslaying�/7/sta�� Laying o� sta�redund� NOT vol�/7/redund� Involuntary redundanciesdismiss� Dismissalsemploy�/7/fell Employee numbers fellemploy�/7/declin� Decline in employee numbersworkf�/7/declin� Decline in worksforceposition�/7/abolish Positions abolishedtrimm�/3/sta�� Sta� (numbers) trimmed



Nine main downsizing themes were identi®ed that seemed to capture all the di�erent contextsfor managerial discussions of downsizing: rationalizing or restructuring activity; cost reduction;productivity; policy-procedural issues; the economic or general business environment; global-ization; expressions of concern and consideration for those a�ected; reasons for not downsizing;and drawbacks of downsizing such as redundancy payments, labour disputation, and so on.Fuller descriptions of these nine downsizing themes and examples from annual reports whichillustrate each of them are contained in Table 2.

The research assistant then re-read all the downsizing references and, based on the dominanttheme associated with each reference, assigned it to one of the nine theme-categoriesÐeachreference being categorized according to its one, dominant theme. A second, independent raterthen read the 275 downsizing references and based on the theme descriptions shown in Table 2 alsoassigned each reference to one of the nine categories. Following Holsti (1969) an inter-raterreliability was calculated using the formula CR � 2D=�N �M�, where D was the number ofcoding decisions on which the two coders were in agreement, N and M the number of codingdecisions made by the two coders respectively. A score of 0.86 was obtained indicating a high levelof agreement between the two raters. Disagreements were resolved by discussion between the tworaters following the initial coding round. These nine downsizing themes in organizations' ARsform the main data for our subsequent analyses of managerial explanations of downsizingactivity.

Because in any year relatively few organizations made any downsizing references and thenumbers of such references were relatively small, the 7 years of frequency data were aggregatedto form three time periods: 1986±1988, 1989±1990, 1991±1992. Frequencies of occurrence ofthe nine downsizing themes for each organization were averaged over the years in each timeperiod. These frequencies were then recoded so that the lack of any reference to a downsizingtheme within a time period was coded as 0.0 while making one or more references to a themewas coded 1.0. This recoding of the variables into a bivariate form was based on the followinggrounds: in every time period the majority of organizations made no reference to downsizingand very few made more than one or two references, thus the frequencies were markedly non-normal in distribution, which is not unusual for word frequency data (Stone, 1996); thissuggested non-parametric statistical tests were most appropriate for these data and these wouldbe most valid if employed with categories containing reasonable numbers of observations.

Downsizing index

The measure of actual downsizing activity by organizationsÐthe downsizing indexÐwas basedupon the change over time in organizations' full-time employee numbers. Information aboutemployee numbers was obtained from organizations' ARs, surveys of publicly listed companiesthat are regularly published by the Australian Stock Exchange, or in a few cases by directlycontacting organizations by phone. A downsizing index was calculated for each of the three timeperiods mentioned earlier, i.e. 1986±1988, 1989±1990 and 1991±1992. Each organization'sdownsizing index for each period was calculated by dividing the number of full-time employees atthe beginning of the period by the number at the end of the period (i.e. the downsizing index forcompany X for 1986±1988 � number of company X's full-time employees in 1986/number ofcompany X's full-time employees in 1988). Thus a value of 1.0 for this index indicates no netchange in employee numbers over a period; a value less than 1.0 indicates growth in employeenumbers, and a value greater than 1.0 indicates downsizing. The larger the value of this index(in a positive direction) the more downsizing is indicated.



Table 2. Examples of themes analysed from annual reports

Theme Included references to: Example of text from annual reports

1. Rationalization restructuring, sale disposal During the year Qantas completed a major restructuringor closure of a business of its activities. This involved signi®cant organizationalunit changes involving both voluntary and compulsory

retrenchments. In total sta� numbers were reduced by anet 26,222 positions during the year. (Qantas, 1992)

2. Cost reduction cost reduction and cost In 3 years we have reduced real cash operating costs bysavings a cumulative $760 million. The cost reduction was driven

by a fall in sta� numbers from 36,717 in 1987/88 to26.602 in 1990/91, a drop of 28 per cent. (NSW Rail,1991)

3. Productivity productivity, e�ciency, It also took account of the bank's objective ofe�ectiveness, improving productivity through operating procedurescompetitiveness and reviewing work practices. Our work to improve

productivity resulted in a reduction of approximately1000 in sta� numbers in 1987/88. (CBA, 1988)

4. Policies downsizing policies Issues addressed include sta� selection, the forms ofand procedures employment training and development, and redundancy

procedures. (ABC, 1992)

5. External recession, economy, There will inevitably be further job reductions within thebusiness technological change enterprise as but one of a series of responses to increasedenvironment commercial pressure. (Telecom, 1991)

6. Globalization global factors, An outcome of the company's drive for world class`world class' operating performance has been regrettably fewer

available jobs. Employment was reduced by 800 in theyear as a result of the above actions. (Tubemakers, 1991)

7. Concern e�ects of downsizing, I would like to add a special `thank you' to theconsideration/care or company's 20,000 employees worldwide whoseresponsibility towards contribution is never under-estimated. As the chairmanthose a�ected has said, it has been a year where reducing sta�ng

levels in some areas has been necessary, and we arealways mindful of the personal impact of this. We areparticularly grateful for the support given by all involvedin the changes in New Zealand. (Goodman Fielder, 1988)

8. Reasons why organization is The De®ance tradition of having a lean structure withfor not not downsizing as hands on management policy has made it possible fordownsizing much as others us to maintain our steady growth without the need to

reduce sta� numbers and add to the serious unemploy-ment problems facing Australia and New Zealand today.This group's performance is commendable in the lightof the current economic situation that exists throughoutAustralasia (De®ance, 1991)

9. Drawbacks costs, e.g. ®nancial costs A number of plants which were no longer economicallyof redundancies, future viable were closed and total employee numbers werecosts, increased reduced by some 700. While the cost of the associateddisputation, sta� trauma redundancy payments and write downs for the year was

substantial the company will bene®t from these moves in1992 and beyond. (ICI, 1992)



Results

The results are grouped into four major areas: extent of downsizing; dominance of downsizingthemes over time; relationship between themes and amount of downsizing; and factor structure ofdownsizing themes.

Extent of downsizing

The means (M) and standard deviations (S.D.) of the downsizing index for the three time periods1986±1988, 1988±1990, 1990±1992 were:M � 0:923 (S:D: � 0:217),M � 0:988 (S:D: � 0:371),M � 1:09 (S:D: � 0:297) respectively. Thus on average, the entire time period (i.e. the 7 years)can be characterized as follows: a period of growth in employee numbers averaging around 7 percent, followed by a period of little change, then a period of downsizing averaging around 9 percent. In a sense, downsizing activity for the sample as a whole seems to move from `reverse'through `neutral' to `positive'. The signi®cance of these di�erences in downsizing activity over thethree sub-periods was tested using t-tests to compare the mean of the downsizing index for eachperiod. These showed that time period 1 had a signi®cantly di�erent trend from time period2 (t�1; 85� � 1:68; p � 0:096) and was clearly signi®cantly di�erent from time period 3 (t�1; 85� �4:77; p � 0:000). Time period 2 also had a signi®cantly di�erent trend from time period3 (t�1; 85� � 1:81; p � 0:74). Thus t-tests con®rm the subjective impression of a signi®cant changein downsizing activity over the period.

What is of interest here is that these trends closely parallel broader economic changes occurringin Australia. Using the real gross domestic product (GDP) volume index (Australian Bureauof Statistics, 1995: 126), percentages changes in the GDP over this time period were as follows:1986/87 2.3 per cent; 1987/88 5.3 per cent; 1988/89 4.3 per cent; 1989/90 3.4 per cent; 1990/91ÿ0:9 per cent; 1991/92 0.5 per cent. As this information is reported in ®scal rather than calendaryears it does not match exactly the time periods used in this study. However, approxi-mate correspondences can be noted. Hence, the period 1986/87 to 1987/88 was one of economicgrowth (and approximates to the `reverse' downsizing period); 1988/89 to 1989/90 was a¯attening of economic growth (and approximates to the `neutral' downsizing period); and 1990/91 to 1991/92 was a recessionary period, with negative growth in the ®rst part of this time period(and approximates to the `positive' downsizing period).

Dominance of downsizing themes over time

The numbers of organizations making either some reference or no reference to each of the ninedownsizing themes in each time period are shown in Table 3. Di�erences over time in theproportion of organizations making some reference to each theme were compared using theCochran Q test. The Cochran test provides a method for testing whether three or more matchedsets of frequencies or proportions di�er signi®cantly among themselves (Siegel, 1956). Thematching in this case is, of course, based on the fact that these were the same organizationsobserved at di�erent times. The Cochran test is particularly suitable when the data are in anominal scale or, as in this case, are dichotomized ordinal information.

Table 3 shows that ®ve themes varied signi®cantly over time in terms of the proportion oforganizations that referred to themÐcost, drawbacks, globalization, productivity, and rational-ization. For the ®rst four themes the di�erence clearly is between the ®rst two and the last time



period with the proportion of organizations making reference to these four references beinghigher in the last time period. For rationalization/restructuring the proportion was higher in boththe ®rst and last time periods than in the middle period. The reason for this increase seemsevidentÐas downsizing activity increased so did the number of explanations and justi®cations,nevertheless it is important to note that not all of the themes increased in frequency. Theimplication is that four issues became more important in managerial discussion of downsizingactivity as downsizing among organizations increasedÐcost cutting, drawbacks of downsizing,globalization and productivity. Four other issuesÐthe general business environment, reasons fornot downsizing, policies and procedures, and concern and consideration did not increase inimportance, and relative to the total number of references to di�erent themes decreased in theirimportance in managerial discussion of downsizing.

Relationship between themes and amountof downsizing

We then examined which of the nine downsizing themes were correlated with the amount ofdownsizing activity organizations undertook in each of the periods. That is, were organizations

Table 3. Di�erences in proportions of organizations referring to downsizing themes over time

Theme Time period No references to One or more Cochran's Qdownsizing references to

downsizing

1. Rationalization 1986±1988 65 131989±1990 72 6 6.64�1991±1992 61 17

2. Cost reduction 1986±1988 76 21989±1990 75 3 14.8{1991±1992 65 13

3. Productivity/e�ciency 1986±1988 72 61989±1990 74 4 13.7{1991±1992 62 16

4. Policies/procedures 1986±1988 71 71989±1990 74 4 2.161991±1992 75 3

5. External business 1986±1988 73 5environment 1989±1990 75 3 2.7

1991±1992 70 86. Globalization 1986±1988 78 0

1989±1990 78 0 18.0{1991±1992 69 9

7. Concern 1986±1988 76 21989±1990 71 7 3.841991±1992 71 7

8. Reasons for not downsizing 1986±1988 77 11989±1990 77 1 3.01991±1992 74 4

9. Drawbacks 1986±1988 76 21989±1990 74 4 11.2{1991±1992 66 12

� p < 0:05; { p < 0:001; { p < 0:01:



that were doing the most downsizing more likely to be referring to all or some of the downsizingthemes, and did the themes associated with downsizing remain constant or change over time?Table 4 shows Spearman rank order correlations between organizations' downsizing index ineach period and whether they referred to a theme in that time period, for all three time periods.Table 4 suggests four main conclusions.

Table 4. Spearman correlations between downsizing themes and downsizing index inthree time periods

Theme 1986±1988� 1989±1990 1991±1992

1. Rationalization 0.19{ 0.30} 0.20{2. Cost reduction 0.15 0.23} ÿ0:023. Productivity/e�ciency 0.30} 0.06 0.104. Policies/procedures 0.01 ÿ0:07 ÿ0:015. External business environment 0.21{ 0.05 0.136. Globalization Ð{ Ð{ 0.25}7. Concern ÿ0:14 0.05 0.088. Reasons for not downsizing ÿ0:11 Ð{ 0.019. Drawbacks of downsizing 0.06 0.08 0.26}

Total references 0.23} 0.08 0.27}

�Ns for each period are 82, 82, 80. {Nil references in this period. { p < 0:10; } p < 0:05; } p < 0:01.

First, the themes related to organizational downsizing appear to have changed over theperiod. In the ®rst time period the themes signi®cantly associated with downsizing activity wereproductivity-e�ciency, the general economic environment, and rationalization/restructuring. Intime period 2, rationalization/restructuring and cost were the main downsizing themes, while intime period 3 globalization, which appeared as a theme for the ®rst time in this period, thedrawbacks and costs of downsizing, and rationalization/restructuring were the main themes.Second, the only theme that was signi®cantly related to downsizing in every time period was therationalization/restructuring theme, thus the rationalization/restructuring theme seems to be theonly theme that was consistently part of managerial discussion and explanation of downsizingamong organizations undergoing downsizing. Third, it is also evident that in the third period anew and important element emerged in managerial discussion among organizations undertakingdownsizingÐthe theme of globalization and global competition. Fourth, it is also noteworthythat, for two of the three periods at least, the total number of downsizing references wascorrelated with amount of downsizing, thus more downsizing activity was generally associatedwith more total discussion of downsizing themes.

Factor structure of downsizing themes

We also investigated whether the nine themes that had been identi®ed could be reduced to asmaller number of underlying dimensions or factors. Factor analysis is a statistical techniqueused to identify a smaller number of factors that can be used to represent relationships among aset of many interrelated variables. In e�ect the factor analysis asks whether the nine themes canbe reduced to a smaller number of more general or ìnclusive' dimensions because certain of thethemes tend to occur together in documents. Identifying a smaller number of factors suggeststhat some themes have a common construct or meaning underlying them.



It was only possible and meaningful to carry out the factor analysis on the theme data for the®nal time period because it was only in this time period that all nine themes were present (it willbe recalled that the globalization theme only appeared in the ®nal period) and factor analysis isonly meaningful, of course, if a variable has some level of occurrence. However, since the ®naltime period was also the most active in terms of downsizing activity it was also the mostinteresting period to examine for the existence of more general, underlying dimensions in man-agerial discussion of downsizing.

We carried out a standard, principal components factor analysis of the nine themes and thenperformed a varimax rotation of the factors extracted by the factor procedure. The purpose ofrotation is to achieve a simple, interpretable factor structure where each variable loads on(i.e. correlates with) only one factor so each factor can be viewed as uncorrelated with any otherfactor. An examination of scree plots, eigenvalues and the rotated factor loadings led us toidentify three, interpretable factors that accounted for a quite respectable 53 per cent of the totalvariance; in other words, the three factors captured the underlying structure of the nine themesquite e�ectively. In fact, the factor analysis identi®ed four factors but the fourth factor did nothave a meaningful interpretation, which is always a possibility with factor analysis. The rotatedfactor loadings are shown in Table 5.

Table 5. Rotated factor loadings for the nine downsizing themes

Theme Factor loadings1 2 3 4

1. Rationalization 0.01 0.65 ÿ0:04 0.332. Cost reduction 0.20 ÿ0:30 ÿ0:66 0.373. Productivity 0:73 ÿ0:04 ÿ0:09 ÿ0:104. Policies/procedures 0.01 0:82 ÿ0:01 ÿ0:085. External business environment 0:71� ÿ0:09 ÿ0:11 ÿ0:56. Globalization 0:69 ÿ0:03 0.29 0.127. Concern/consideration 0.06 ÿ0:22 0:79 0.218. Reasons for not downsizing ÿ0:02 ÿ0:12 ÿ0:04 ÿ0:869. Drawbacks of downsizing 0:77 0.30 ÿ0:11 ÿ0:05

Eigenvalue 2.22 1.38 1.16 1.06% of total variance 24.7 15.4 13.0 11.9Cumulative % 24.7 40.0 53.0 64.9

�Underlined themes are those having the largest loading on the factor and 40:40.

Following the convention that only variables with loadings greater than 0.4 should be viewedas loading on a factor, it can be seen in Table 5 that four themes load on factor 1Ðbusinessenvironment, drawbacks, globalization and productivity. Given this factor is concernedprimarily with issues of organizational performance and the external environment we labelledit a strategic factor. Factor 2 comprised two main themesÐpolicy/procedural issues andrationalizing/restructuring; given this pattern we labelled it a process factor. The ®nal factor hadan interesting pattern of loadingsÐthe concern and consideration theme loaded positively onthis factor while cost reduction loaded negatively, thus this factor re¯ected that the presence ofthe concern and consideration theme in ARs tended to be associated with the absence of the costtheme, and vice versaÐthus we termed it a consideration factor.



Discussion

As noted above, nine themes connected to the discussion of downsizing were found to be presentin the ARs. These themes emerged from analysis of the ARs and were not categories whichthe researchers imposed a priori upon the data. Subsequent factor analysis of these themesreveals that most of them could be understood in terms of three broader dimensions: a strategicdimension of why managers were engaged in downsizing; a procedural dimension of howmanagers were downsizing; and a consequence of downsizing dimension, giving attention to bothpositive (reduced costs) and negative (consequences for employees) themes. Each of these threedimensions will be examined.

Dimension 1: Why managers engage in downsizing:the `strategic' langauge

Four themes related to this dimension: theme 3 (productivity/e�ciency); theme 5 (businessenvironment); theme 6 (globalization); and theme 9 (drawbacks or costs of downsizing). The lasttheme may seem somewhat out of place here but it re¯ects the point that the costs of downsizingare a signi®cant strategic consideration in making decisions about downsizing. Indeed, as Table 4demonstrates for the third time period, those organizations which did downsize tended to bemore aware of the drawbacks of downsizing compared to those organizations which were notdownsizing. This suggests that as organizations gain more experience with downsizing, so do theyalso gain more awareness of the costs of downsizingÐincluding ®nancial, morale, commitment,innovation and risk takingÐwhich need to be weighed in taking a decision to downsize.

A trend in this dimension that appears over the three time periods is a move in the mid- to late1980s away from using the business environment as a rationale for engaging in downsizing to theuse in the early 1990s of globalization pressures as a rationale. This move away from the generalbusiness environment as an explanation of downsizing accords with other studies (Pond, 1995;HRM, 1995). However, the results expand on the results from these studies in identifying globaliz-ation as a `replacement' rationale for downsizing. It is interesting that both of these themesinvolve external `determinist' explanations for downsizing, that is, they can be used to de¯ect`blame' for downsizing away from possible poor management decisions and towards externalconditions and forces that managers do not control. As such these themes serve as potentialmanagement face-saving devices in justifying their use of downsizing. As previous research hasshown (Abrahamson and Park, 1994) there is a general tendency for managers, like other people,to attribute failure to causes beyond their control.

Dimension 2: How managers downsize:the language of `process'

Two themes relate to this dimension of how downsizing is conducted: theme 1 (rationalizing)included references to the sale or closure of business units and identi®ed how to achieve down-sizing through restructuring and redesigning; theme 4 (policy/procedures) addressed ways ofadministering the process of downsizing.

Two key results emerged in relation to these two themes. First, as noted above, theme 1(rationalization) was the only one which was signi®cantly (and positively) correlated in all time



periods to whether an organization was downsizing. As such it re¯ects, as Cascio (1993, p. 96) hasargued, the imposition of downsizing through èliminating functions, hierarchical levels, orunits'. This suggests that it was a popular method or process for reducing employee numbers.Second, mentions of theme 4 did not increase proportionally over time, and these mentions

were not signi®cantly related to the index of downsizing in any period. This is of interest since itmight be hypothesized that as downsizing increases, so might more time be spent on discussion ofinternal administrative processes for handling it. For example, it has been argued that since 1988Australian companies have increasingly formalized and documented their termination policies(HRM, 1995). However, process issues are not ones which companies have discussed to any greatdegree in their annual reports.The emergence of this procedural element in managerial discussion is also interesting from a

social justice perspective where two major themes have been identi®ed by researchersÐadistributive justice theme that concerns the nature of people's actual outcomes or allocations(what people get) and a procedural justice theme that concerns the process by which outcomedecisions are made and how they are explained (Greenberg, 1990). Both themes have beenfound to in¯uence people's judgments of how fairly they have been treated. The existence of thisprocedural theme may be seen as a tacit recognition by managers of the need to explain thefairness and appropriateness of their procedures for downsizing to external audiences such asgovernments and unions, and to employees as well to some extent.

However, the relative unimportance of this theme in the period of most active downsizing canbe interpreted in a number of ways. First, as suggested above, procedures may have becomestandardized and are viewed as no longer requiring explanation. Second, it may be the case thatmanagers have tended to direct most of their procedural explanations towards their most a�ectedaudienceÐemployeesÐthrough a variety of other communication outlets (meetings, memos,internal newsletters and the like). Third, the audience or consumers of annual reports may bedeemed by managers to be more interested in `strategic' issues rather than with internal opera-tional or process issues. Clearly, the extent to which these three possible explanations are validcannot be determined from the data and further research is needed to explore such issues.

Dimension 3: Consequences of downsizing:the language of `cost versus consideration'

Two themes relate to consequences of downsizing: theme 2 (cost reduction) and theme 7 (concernand consideration). As noted above, a negative relationship existed between these two themes,with the presence of mentions of one theme associated with fewer mentions of the other theme.With respect to cost reduction, Table 3 provides clear evidence of the increased attention given tothis theme in the third time period compared to the two earlier ones. However, as Table 4indicates, there was no signi®cant relationship between the discussion of cost reduction andwhether or not an organization was going through a process of downsizing. One interpretation ofthis is that, by the early 1990s, both downsizers and non-downsizers alike viewed as relativelyunproblematic the expectation of cost reduction being a consequence of downsizing. If thisinterpretation is correct then it is interesting in light of the view that, by itself, cost reduction failsto eventuate in enduring cost savingsÐparticularly where downsizing is not part of a broaderstrategic response to organizational problems.

As Tables 3 and 4 indicate, mentions of concern and consideration for employees were nothigh, did not change signi®cantly over time, and were not associated signi®cantly with whether anorganization was downsizing. This is of interest in light of recent arguments in regard to the



relationship between downsizing and issues of social responsibility and ethics which confrontmanagers (Dreilinger, 1994). Paralleling a position argued above, if managers are concerned withthe social and other consequences on employees of their downsizing decisions, then it may be thecase that these concerns are conveyed to them through alternative communication mechanisms;alternatively, these may not be consequences which they wish to draw to the attention of major(external) organizational stakeholders.

Overall it can be concluded that managers most likely to refer to the items which comprise thisfactor tend to have a single focusÐeither cost reduction, or sta� considerationÐneither of whichdisplay evidence of broad strategic thinking in relation to downsizing.

Implications

Three further implications emerge from this analysis. First, it was argued at the start of this paperthat managerial accounts of downsizing may be one method through which the meaning asso-ciated with this managerial activity is `managed'. If this is so, it would appear that there aremultiple meanings which managers attach to downsizing, this study identifying three broadaccounts or `languages': a `strategic' language, a `process' language, and a `cost versus considera-tion' language. Whilst it is not possible in this study to determine the relative strength orpervasiveness of each of these three languages, some observations can be made in this regardfrom Table 3. For the third time period there were a total of 85 references to all themes (excludingthe `not downsizing' references). (Obviously any organization may have commented on morethan one theme in this time period). A majority of references were to themes which comprised the`strategic' language (53 per cent) with the rest equally divided between the `process' language andthe `cost versus consideration' language. Whilst we cannot say that these ®gures provide ®rmevidence that the `strategic' language dominates compared to the other two, it does suggest thatmanagers are more likely to refer to the themes which make up this language compared to theother two languages. Future research is needed on the relationships among these three broadlanguages of downsizing, the meanings they convey about downsizing, and the extent to whichthey change as downsizing continues to grow.Second, what the data does not show in the analysis of these three languages is who has been

most a�ected by downsizing. For example, whilst it has been commonly assumed that one out-come of downsizing has been a lessening of the number of management layers, and the cor-responding laying o� of a disproportionate number of middle managers compared to otheremployees, more recently others have questioned this assumption. For example, Gordon (1996)argues that in some downsized organizations managerial numbers have actually grown and thatother employees have borne the brunt of the downsizing process. Clearly, a larger data set oforganizations is needed, along with more speci®c case study analyses, in order to contribute ®rmevidence to such debates.

Third, this study has focused on what Abrahamson (1996, p. 260) refers to as the ùsers' of newmanagement techniques or fashions, that is, on the rationales of managers who have beenengaged in using downsizing in their organizations. However, as Abrahamson (1996, p. 260) alsopoints out, the rhetoric of ùsers' can also be studied in relation to the `suppliers' of managementrhetoric, in particular to identify how management fashions are shaped. One such `supplier' ofmanagement rhetoric in relation to downsizing is the popular management literature which isreplete with suggestions to managers about organizational downsizing. For example, in theiranalysis of metaphors of downsizing in the popular management literature, Dunford and Palmer(1996) identi®ed ®ve major issues which metaphors addressed: external conditions facing



organizations, internal conditions of pre-downsized organizations, internal organizational condi-tions needed in order to cope with the external environment, the process of downsizing, and theunanticipated or negative consequences of downsizing. Excluding theme 8 (reasons for notdownsizing), strong parallels can be noted between Dunford and Palmer (1996) and the currentstudy. Èxternal conditions', and `the process of downsizing' were categories common to bothstudies, themes 5 (external business environment) and 6 (globalization) being equivalent to theèxternal conditions', and themes 1 (rationalization) and 4 (policies/procedures) to the `process'issue. Similarly, the ìnternal conditions needed in order to cope with the external environment'can be compared to themes 2 (cost reduction) and 3 (productivity), and `consequences of down-sizing' can be compared to themes 7 (concern) and 9 (drawbacks). The one notable point ofdi�erence concerns `the internal conditions of pre-downsized organizations', an issue which didnot emerge in the current study. This di�erence is perhaps not surprising: the ìnternal conditions'issue suggests that managers have allowed their organizations to become, as noted earlier, `fat' or`bloated', conditions which do not re¯ect well upon their past management decisions and oneswhich they are therefore unlikely to highlight to shareholders in an annual report. By contrast,the popular management literature was far more candid at identifying not just external condi-tions as necessitating downsizing, but also poor past management decisions and actions.

Conclusion

This study set out to investigate the themes or rationales that managers use to discuss downsizingto external and internal stakeholders, and the extent towhich a strategic approach can be detected.Data for this study were based upon an analysis of annual reports of 87 large, Australian organ-izations for the period 1986 to 1992.

First, nine downsizing themes were identi®ed to which managers referred. These were:rationalizing/restructuring; cost reduction; productivity; policy-procedural issues; the economicor general business environment; globalization; expressions of concern and consideration forthose a�ected; reasons for not downsizing; and drawbacks of downsizing.

Second, a factor analysis of the nine themes identi®ed three broad management languagesassociated with downsizing: a strategic language, a process language, and a cost versus considera-tion language. This suggests that the management accounts of downsizing fall into three`languages', only one of which provides any evidence of a strategic approach to downsizingbeyond simple cost reduction. Future studies are needed of the extent to which the `strategic'language dominates the downsizing discourse.

Finally, some recent writers have suggested from a `language game perspective' that meaningsdi�er in di�erent organizational and inter-organizational contexts. They argue that care needs tobe taken in transferring meanings from one organizational context to another particularly wherethis entails `the gross coding of open-ended discourse (content analysis)' (Mauws and Phillips,1995, p. 332). One approach to such a problem is to use a qualitative methodology which seeks toidentify di�erent management discourses within speci®c organizations (e.g. Watson, 1994).However, other studies show that common elements of management discourse can exist acrossmultiple organizations, and across time (e.g. Barley and Kunda, 1992). In regard to these twopositions, we acknowledge that there will always be an open question as to the meaning behinddi�erent words, expressions and languagesÐsuch as that related to downsizing. However, in thecurrent study we have adopted a position which suggests that content analysis and coding of



`discourse' need not be `gross' where the researchers are attentive to potential nuances and inter-pretations of text such as annual reports, retain an awareness of the way in which their conceptualcategories may in¯uence these interpretations, and where a high level of inter-rater reliabilityexists. We accept that this position may still trade-o� ®ner shades of interpretation andmeaningÐbut we argue that it provides the potential for greater systematicity and `mapping' ofdiscourses as they emerge and change over time.

References

Abrahamson, E. (1996). `Management fashion', Academy of Management Review, 21(1), 254±285.Abrahamson, E. and Park, C. (1994). `Concealment of negative organisational outcomes: An agency theoryperspective', Academy of Management Journal, 37, 1±37.

Appelbaum, S. H. (1991). `How to slim successfully and ethically: Two case studies of ``downsizing'','Leadership and Organization Development Journal, 12(2), 11±16.

Australian Bureau of Statistics (1995). Australian Economic Indicators December 1995, AGPS.Band, D. C. and Tustin, C. M. (1995). `Strategic downsizing', Management Decision, 33(8), 36±4.Barley, S. R. and Kunda, G. (1992). `Design and devotion: Surges of rational and normative ideologies ofcontrol in managerial discourse', Administrative Science Quarterly, 37, 363±399.

Buhler, P. (1994). `Downsizing', Supervision, 55(11), 24±26.Cameron, K., Freeman, S. J. and Mishra, A. K. (1991). `Best practices in white-collar downsizing:

Managing contradictions', Academy of Management Executive, 5(3), 57±73.Cascio, W. F. (1993). `Downsizing: what do we know? What have we learned?', Academy of ManagementExecutive, 7(1), 95±104.

Czarniawksa-Joerges, B. and Joerges, B. (1992). `Linguistic artifacts at service of organizational control'.In: Gagliardi, P. (Ed.) Symbols and Artifacts: Views of the Corporate Landscape, Aldine de Gruyter,New York, pp. 339±364.

Dougherty, D. and Bowman, E. H. (1995). `The e�ects of organizational downsizing on productinnovation', California Management Review, 37(4), 28±44.

Drielinger, C. (1994). `Building a high trust culture', Executive Excellence, 11(7), 17.Dunford, R. and Palmer, I. (1996). Ìnstitutional theory and naturalising analogies: An analysis of popularmanagement discourse of downsizing'. Paper presented to the Annual Conference of the Australian andNew Zealand Academy of Management, University of Wollongong, December 5±8.

Fiol, C. M. (1995). `Corporate communications: comparing executives' private and public statements',Academy of Management Journal, 38(2), 522±536.

Freeman, S. J. and Cameron, K. S. (1993). Òrganizational downsizing: a convergence and reorientationframework', Organization Science, 4, 10±29.

Gordon, D. M. (1996). Fat and mean, Free Press, New York.Greenberg, J. (1990). `Looking fair vs being fair: Managing impression of organizational justice'.

In: Cummings, L. L. and Staw, B. M. (Eds) Research in Organizational Behavior, Vol. 12, JAI, GreenwichCT, pp. 111±157.

Hamel, G. and Prahalad, C. K. (1994). Competing for the Future: Breakthrough Strategies for SeizingControl of Your Industry and Creating the Markets of Tomorrow, Harvard Business School Press, Boston,MA.

Holsti, O. R. (1969). Content Analysis for the Social Sciences and Humanities, Addison-Wesley, Reading,MA.

HRM (1995). `Management and executive job losses will continue, survey ®nds', HR Monthly, April,16±17.

ISYS (1990). Text Retrieval Software for IBM Compatible and Personal Computers and Networks, OdysseyDevelopment, Sydney.

Joinson, C. (1995). Èasing the pain of layo�s', HRMagazine, 40(2), 68±74.Kabano�, B. and Holt, J. (1996). `Changes in the espoused values of Australian organizations 1986±1990',Journal of Organizational Behavior, 17, 201±219.



Kabano�, B., Waldersee, R. and Cohen, M. (1995). Èspoused values and organizational change themes',Academy of Management Journal, 38(4), 1075±1104.

Kiedel, R. W. (1994). `Rethinking organizational design', Academy of Management Executive, 8(4), 12±30.Kitney, G. (1996). Àxe falls on easy targets', Sydney Morning Herald, 12 April, 13.Linstead, S. (1993). `Deconstruction in the study of organizations'. In: Hassard, J. and Parker, M. (Eds)

Postmodernism and Organizations, Sage, Newbury Park, CA, pp. 49±70.McKinley, W., Sanchez, C. M. and Schick, A. G. (1995). Òrganizational downsizing: Constraining,cloning, learning', Academy of Management Executive, 9(3), 32±42.

Mauws, M. K. and Phillips, N. (1995). `Crossroads: understanding language games', Organization Science,6, 332±334.

O'Neill, H. M. and Lenn, D. J. (1995). `Voices of survivors: words and downsizing CEOs should hear',Academy of Management Executive, 9(4), 23±33.

Pfe�er, J. (1994). Competitive Advantage Through People: Unleashing the Power of the Workforce, HarvardBusiness School Press, Boston, MA.

Pond, K. (1995). `Companies reveal downsizing strategies', HR Monthly, April, 19.Reich, R. B. (1993). Òf butchers and bakers: is downsizing good for the company?', Vital Speeches of theDay, 60(40), 100±102.

Scheiner, C. E., Shaw, D. G. and Beatty, R. W. (1992). `Companies' attempts to improve performance whilecontaining costs: quick ®x versus lasting change', Human Resource Planning, 15(3), 1±25.

Siegel, S. (1956). Nonparametric Statistics for the Behavioral Sciences, McGraw Hill, New York.Spitzer, T. Q. and Tobia, P. M. (1994). `Has cost cutting gone too far?', Across the Board, 31(4), 54±55.Stone, P. J. (1996). `Thematic text analysis: new agendas for analyzing text content'. In: Roberts, C. (Ed.)Text Analysis for the Social Science: Methods for Drawing Statistical Inferences from Text and Tran-scripts', Erlbaum Press, Hillsdale, NJ.

The Economist (1995). `Trust in me', 16 December, 61.The Economist (1996). Ànd now upsizing', 8 June, 80.Watson, T. J. (1994). In Search of Management: Culture, Chaos and Control in Managerial Work,Routledge, London.

Weber, R. P. (1985). Basic Content Analysis, Sage, Beverly Hills, CA.



Documents

Managerial accounts of downsizing