Topic: Change Management, Off The Wall
Publication: The Academy of Management Journal
Article: Character, conformity, or the bottom line? How and why downsizing affected corporate reputation.
Author: E.G. Love, M. Kraatz
Featured by: Benjamin Granger
In a recent study, Love and Kraatz (2009) attempted to identify how corporate downsizing might affect a firm’s reputation Prior to presenting the results of their study, Love and Kraatz outlined three broad perspectives, each offering predictions for how and why organizations’ reputations might change. The authors then tested each perspective using a sample of Fortune 100 companies during the years of 1985-1994. Specifically, Love and Kraatz used rankings of Fortune’s “Most Admired Companies” (annual survey of several thousand analysts and executives) as an indication of organizational reputation.
The three perspectives differ in their explanations of how organizational reputation changes. For instance, the first perspective stresses character, such that reputation reflects how others’ view the overall character of the firm. The second focuses on how well organizations adhere to widely accepted norms and practices (organizations that comply with norms have better reps!). Finally, the third perspective stresses technical competence and overall firm performance (i.e., We give financially successful organizations their due).
Overall, corporate downsizing had a negative effect on organizations’ reputations. Specifically, corporate downsizing appeared to signal low character, at least in the early years (1980s). This trend is supportive of the first perspective suggesting that corporate reputation is influenced by the character of the organization (low character = low reputation).
Interestingly, however, Love and Kraatz mention that toward the end of study year band (1994) when downsizing became much more commonplace, that it did not have such a negative effect on organizational reputation. This lends support to the second perspective which suggests that firm reputation depends on the organization’s adherence to widely accepted norms and practices.
Another interesting finding, which is in support of the third perspective, suggested that the damage to an organization’s reputation was mitigated if the practice (i.e., downsizing) helped the firm’s overall performance. The organizations that suffered the most were those whose performance continued to decrease after downsizing.
Overall, there seemed to be at least some support for each perspective. From a practical standpoint, however, these findings clearly suggest that downsizing can have a negative influence on outsiders’ perceptions of the organization. And remember, if reputation falls, then so may firm performance.