Investigating the Massive Layoff through the Lense of Customer Satisfaction

In this paper, I examine the organizational consequences associated with employee massive layoff (downsizing). More specifically, I invoke the service profit chain framework to investigate the implications of downsizing for customer satisfaction and, in turn, firm performance. In doing so, I adopted a two-step approach where I first test the core idea of the service profit chain framework in the service industry only and then use it as a major framework that explains the differential impact of downsizing on performance between service and the manufacturing industry. The results from hierarchical linear modeling (HLM) on a sample of 205 US firms and 1,804 observations indicate that: (1) customer satisfaction mediates the relationship between employee downsizing and firm performance in the service industry; and (2) this mediating process explains why downsizing is more detrimental in the service industry than the manufacturing industry. The implications of downsizing for customer satisfaction and firm performance are proposed, analyzed, and discussed. Study limitations are also presented.