Date of Award


Degree Type


Degree Name

Doctor of Philosophy


Faculty of Business and Public Management

First Advisor

Professor Alan Brown


The objective of this research was to examine the relationship between loss and retention of key employees in downsizing organisations and organisational performance. The purpose of this was to develop an understanding of the organisational performance that results when downsizing organisations are unable to retain their key workers. The secondary objective of the research was to examine the factors that make up a downsizing organisation's employee selection process in order to determine how these factors affect loss and retention of key workers. The research was guided by a theoretical framework developed by Kozlowski et al (1993) and Thornhill and Saunders (1998) and utilised a multi-method research approach suggested by Creswell (1994) and Eisenhardt (1989). The contextual issues in downsizing employee selection were examined through analysis of seven Western Australian case study organisations. The case studies, through structured interviews and secondary data, provided insight into the complexity of the employee selection process, enabled a rich contextual base which aided in understanding the downsizing process, informed the development of a survey instrument, and provided for triangulation of the data. Each organisation was analysed as a unique site. Cross-site analysis techniques, based on pattern analysis, provided a better understanding of the selection process (Miles and Huberman, 1984). The downsizing process for each organisation was mapped as a process model in order to compare the employee selection process across the organisations. The survey sampling frame was based on the Kompass Australia (1999) data set, which included around 26,000 organisations. A random sample of the data set resulted in selection of 1860 Australian organisations for survey. The firms constituted a wide cross-section of Australian private and public sector organisations and varied in size as well as type of company. Some 422 organisations responded to the survey for a response rate of 23%. Firms provided demographic information as well as data on the process used for employee selection, whether or not the firm lost key employees and managers, use of redundancy packages, use of selection strategies, and organisational performance subsequent to the downsizing. Factor analysis was used to develop a simplified classification system for organisational performance. This resulted in a reduction of the performance variables to two categories: employee performance and financial performance. The two factors of organisational performance were then used for cluster analysis in order to classify the organisations according to the two performance dimensions. The results of this stage of the analysis suggested that the best fit for modelling the groupings of performance was based on a three-cluster solution. It was discovered that most of the organisations, 52%, exhibited declines in both employee and financial performance. Additionally only 33% of the organisations improved both financial and employee performance, and some 15% of the organisations improved financial performance despite declines in employee performance. The three groups of organisations were then examined for differences in loss and retention of key managers and employees. Using chi-square tests, it was discovered that 66% of the organisations that suffered declines in both financial and employee performance lost key employees during the downsizing process and that only 32% of those organisations that improved both financial and employee performance lost key managers. The results were statistically significant and supported the premise that loss and retention of key managers and key employees is closely associated with organisational performance in downsizing firms. The effects of the employee selection process on loss and retention of key managers and employees were next examined. It was discovered that larger organisations tended to lose a disproportionate level of both key managers and key employees, that the greater the proportion of staff that were shed the greater the probability of loss of key managers and employees, and that certain types of industries, such as mining companies, insurance and financial institutions, and utilities, demonstrated a high proportion of loss of key managers. The factors influencing loss of key managers included transfers to lower paying jobs as a downsizing alternative to cost reduction, the use of delayering as a downsizing target, and use of across-the-board staff .cuts to achieve cost reduction. Strategies that resulted in retention of key managers included the use of a competitive selection process that utilised selection criteria such as skills and experience. Key employees were lost to organisations that transferred workers to lower paying jobs, reduced the number of working hours, downsized as a result of merger or takeover, downsized in order to achieve economic turnaround as the primary goal, close specific work sites, and used voluntary redundancy as the primary downsizing strategy. It is argued that these results have significant implications for human resource management theory and practice, suggesting that employees must be valued as strategic assets not only in periods of expansion, but during organisational contraction.