The effect of downsizing on innovation outputs: The role of resource slack and constraints

Ramdani, Boumediene; Guermat, Cherif; Mellahi, Kamel

Abstract

Although the practice of downsizing is prevalent, its effects on organisational outcomes remain poorly understood. This article examines how and when downsizing affects organisational innovation. Using a unique data set of UK firms over a period of 22 years, we test the effect of downsizing on innovation outputs by considering the moderating role of resource slack and constraints. We argue and empirically demonstrate that downsizing has a dual effect on innovation, contingent on the firm’s level of resources. Our results reveal that downsizing affects innovation outputs positively in firms experiencing resource slack and negatively in firms experiencing resource constraints. We also show that the effect is more immediate in resource-constrained firms. Theoretical and managerial implications of these results are discussed.

• Journal Article Type: Article
• Acceptance Date: Aug 31, 2020
• Online Publication Date: Nov 30, 2020
• Publication Date: May 1, 2021
• Deposit Date: Dec 1, 2020
• Publicly Available Date: Jul 7, 2021
• Journal: Australian Journal of Management
• Print ISSN: 0312-8962
• Electronic ISSN: 1327-2020
• Publisher: SAGE Publications
• Peer Reviewed: Peer Reviewed
• Volume: 46
• Issue: 2
• Pages: 346-365
• DOI: https://doi.org/10.1177/0312896220970609
• Keywords: General Business, Management and Accounting, Constraints, Downsizing, Innovation, Layoffs, Patents, Resource, Slack
• Public URL: https://uwe-repository.worktribe.com/output/6913119