Downsizing Study

Posted October 22, 1996


FOR IMMEDIATE RELEASE -- October 21, 1996
96-10-09-CO

Study suggests downsizing is a fad that does more damage than good

A study completed by a University of Saskatchewan commerce professor indicates that the decision to downsize is not always made for economic reasons and that downsizing cannot be depended upon to yield economic benefits.

Associate Professor Marc Mentzer analyzed data from 250 of the largest Canadian companies. The results of the study contradicted commonly held beliefs regarding the practice of downsizing.

First, it is frequently accepted that if a company is downsizing, it is because it is in poor financial condition and needs to become more efficient. The study shows that contrary to common beliefs, the decision to downsize is unrelated to past performance. Profitable companies are no more likely to downsize than less profitable companies.

Second, popular sentiment seems to be that downsizing, however painful, is necessary if a company is to flourish in the future. Yet the study results show that downsized companies are no more likely to be profitable than companies that do not downsize. Executives are mistaken if they assume that downsizing will automatically lead to improved profits.

These results imply that many organizations are downsizing even though it is not necessary, because it seems to be the popular -- and therefore the safe -- thing to do.

Sometimes downsizing is necessary, but often it seems to be some sort of sick fad, said Professor Mentzer. You have to wonder if companies, even very profitable companies, are laying off employees simply because everyone else is doing it. The idea has taken root among some executives that you need layoffs to show how macho you are.

Professor Mentzer's study has been published in the September issue of the prestigious Canadian Journal of Administrative Sciences.

For more information, please contact:

Dr. Marc Mentzer
College of Commerce
University of Saskatchewan
(306) 966-8458 (w)
(306) 665-1577 (h)
marc.mentzer@commerce.usask.ca