Examining the impact of workforce reductions on firm performance

Abstract

Though workforce reduction strategies have been widely adopted to improve firm performance in the tourism and hospitality industry, empirical evidence of the effects of workforce reductions on performance has been inconclusive. Based on dynamic capabilities theory, this study develops a model and empirically analyzes the impacts of workforce reductions on firm performance across the lodging, airline, and restaurant industries. Further, this study examines whether an industry-specific business model could explain the relationship between workforce reductions and performance. Findings show that while the disruption of organizational processes due to workforce reductions could be detrimental to a firm's dynamic capabilities and financial outcomes, this relationship is moderated by the specific business model the firm adopts. Our study extends previous research by highlighting the important role of a specific business model in explaining the relationship between workforce reductions and firm performance.