Downsizing in a Learning Organization: Are There Hidden Costs?

Business practice has been at odds with organizational theory: whereas one managerial “fashion”—downsizing—involves divestiture of human assets, another—learning—advocates investment in human assets. We use a social network frame to consider the impact of downsizing on organizational learning and propose that the effects can be viewed as a nonlinear function of learning network size. From this perspective the potential damage to a firm's learning capacity is greater than head-count ratios imply.