Herd Behaviour in Downsizing

DECEMBER 28, 2004

Thus the initial interest in 'downsizing' of firms has been accompanied by rhetorical flourishes such as the quest to be 'lean and mean' and to accomplish the process of 'right-sizing'. Vonk's empirical analysis (1992) of thirty-one large American corporations indicates that their reductions in workforce do not appear to be tailored to any calculations of the marginal costs of labor in production or to targeting particularly expensive parts of the labor process; instead, the cuts seem to be carried out in similar ways across large numbers of firms in quite different circumstances, suggesting a process of imitation or institutional isomorphism (Dimaggio and Powell, 1983) in which firms adopt practices that become standard in their reference group so as not to appear backward or out-of-touch (see Meyer and Rowan, 1977).

Source: Coase Revisited: Business Groups in the Modern Economy; Granovetter, Mark in: Technology, Organization, And Competitiveness: Perspectives on Industrial and Corporate Change. ed. Dosi, Giovanni; Teece, David, Chytry, Josef; OUP 1998; p.78.