The Impact of Downsizing on the Corporate Reputation

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FACTA UNIVERSITATIS Series: Economics and Organization Vol. 5, No 1, 2008, pp. 51 - 62


Biljana Djordjević, Suzana Djukić
Faculty of Economics, University of Niš, Serbia
Abstract. This paper deals with the downsizing influences on the corporate reputation. In this paper we stress the importance of the corporate reputation as one of the most important firm's intangible assets. This kind of resources could be a significant source of the firm's competitive advantage. After the presentation of a brief review of downsizing literature, we investigate the downsizing influence on the corporate reputation. More precisely, we investigate how downsizing influences the eight dimensions that determine corporate reputation index. Our discussion is based mainly on the findings of a number of referent studies that investigate downsizing outcomes. Since we have found that there is a great possibility for downsizing to be an unsuccessful firm's strategy and therefore to decrease the corporate reputation, it is important before making the decision about downsizing to reconsider the necessity of such a decision. Key Words: downsizing, corporate reputation, corporate reputation index, employee.

INTRODUCTION Under the conditions of intensified competition and demanding consumers, corporate reputation is becoming a source of competitive advantage. Selection in purchasing on the part of consumers on the basis of brand, image and other intangible product characteristics is becoming dominant, thus inducing companies to invest more in the creation of reputation that will reflect the business of the enterprise. Favorable reputation which is a result of the long lasting favorable public perception of the enterprise can be transformed into added value and become valuable assets of the enterprise which are hard to copy. In today's competitive business environment, organizations are forced to realize different kind of changes. Previously, those changes were mostly incremental and adaptive, but recently, they have become radical and discontinuities. Consequently, changes that organizations realized nowadays produce more and more radical consequences for the employees.

Received March 30, 2008 This paper is a part of the research project number 149052, financed by the Ministry of Science and Technological Development of the Republic of Serbia.



One of the most popular strategies used lately for firm's restructuring is downsizing. It is a radical, discontinuities change, with significant influence on organizations, employees, and society1. Although we may find examples of downsizing in the 70s of XX century, this strategy became extremely popular in the 90s. It primarily affected blue-collar workers, but nowadays this strategy is spreading to all industries, regions, companies, and employees at all levels of skill and education [1, p. 260] and has, therefore, become a global phenomenon. Downsizing could be realized through several forms, but all of them include reducing the number of personnel. This has caused downsizing to become a painful experiences in the life of corporations and their employees. The main reasons for the adoption of this strategy is that the companies reported increased global competition, overstaff, increased costs, new technologies, preparation for privatization or strategic issues such as mergers, acquisitions, outsourcing, etc. In the attempt to examine the effectiveness of this strategy, numerous studies have been realized. However, despite the frequent use and popularity of this strategy, most of the empirical evidence fails to support the thesis that downsizing improves organizational performance. Some studies have investigated the impact of downsizing on the intangible firm's assets. They have found that downsizing had negative influence on many intangible assets, for example, social capital, organizational...
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