Exploring the relationship between downsizing and market orientation: The effect of mediating variables

Market orientation has been explored extensively since the 1990's, however, further study is needed to more fully understand marketing's place in the firm as the firm experiences structural changes. The 1990's saw a vast number of firms engaging in downsizing---a business practice aimed at reducing overhead expenses with the goal of enhancing performance. In most cases, however, downsizing has failed to produce the anticipated improvements. Toward this end a model was developed that examined the mediators between downsizing and market orientation; ultimately offering an explanation for the performance of downsizing as a performance-enhancing practice. Understanding how downsizing can positively and negatively affect a firm's ability to create and maintain market orientation is vital for both academics and practitioners. This study identified two distinct types of downsizing, convergence and reorientation, as well as several variables that have been recognized as both consequences of downsizing and as antecedents of market orientation. The results suggested that several variables partially mediated the relationship between downsizing and market orientation though none fully mediated it. Specifically, evidence suggested that convergent downsizing was a significant predictor of formalization and conflict within organizations, and reorientation downsizing was a significant predictor of organization commitment, communication, and formalization. Evidence also suggested that organizational commitment and communication were predictors of market orientation. Together, these results suggested that reorientation downsizing may be a means by which management can effectively alter an organization's culture and increase market orientation. The results also suggested that reorientation downsizing may be a reliable predictor of market orientation.