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Although downsizing has become an integral part of organizational life in the U.S., there is little serious theoretical or empirical work on this issue. Nearly all of the completed work addresses the effects of downsizing, which usually are negative. Therefore, an important yet unanswered question is: Why do organizations downsize in the first place? In addressing this question, I offer some systematic thoughts on the causes of downsizing. Specifically, I develop a conceptual framework for studying organizational innovation that draws on two overlooked dimensions associated with this phenomenon, the basis of social action (rational versus arational) and social context (organizational versus extraorganizational). I then characterize downsizing as an organizational innovation and develop propositions that explain why organizations downsize. Finally, I emphasize that empirical evaluation of these propositions will help us to understand a pivotal organizational development of recent decades.
Art Budros (Mon,) studied this question.