Decreasing Organizational Size: Untangling the Effects of Money and People

Literature on declining organizations focuses on two indicators of decreasing size—loss of financial resources and work force reduction. This effort to integrate the decline and size literatures combines psychological and sociological perspectives to distinguish between the effects of these two variables. Following the psychological threat-rigidity thesis, loss of financial resources is proposed to cause mechanistic shifts in organizational structures and jobs. We advance a more complex model about the influence of work force reduction that combines psychological and sociological perspectives. In the short term, the threat provoked by work force reduction brings about mechanistic shifts in structures and jobs. In the long term, however, the threat wanes and, following sociological theory, a second set of shifts occurs, in which less mechanistic means of coordination and control are used for the smaller work force.