After more than two decades of research into corporate downsizing, there remains a fundamental question: “How can managers and employees rethink their organizations even as they confront the need to downsize?” More specifically, how can organizations support learning, innovation and creativity while at the same time finding effective ways to improve costs, quality and productivity? Some might argue that these goals are at odds with one another — that you can’t build a better and a leaner organization. We disagree. In our 1998 Sloan Management Review article, “Preserving Employee Morale During Downsizing,” we maintained that strong organizations need to develop resilience so they could take advantage of new opportunities that arise during periods of economic retrenchment.1 Our subsequent research, consulting and management coaching has reaffirmed our view that downsizing isn’t just about “doing more with less.” It is also about creating flexibility, innovation and better communication that lead to increased trust and empowerment between managers and employees. (See “About the Research.”)

In our original article, we presented four widely accepted goals of downsizing: reducing total costs; increasing labor productivity; improving quality; and enhancing the efficiency with which capital is employed.2 As we recommended then, downsizing programs should take place in four stages:

• Stage 1: the decision to downsize;
• Stage 2: planning the downsizing program;
• Stage 3: making the announcement; and
• Stage 4: implementing the downsizing program.

For each of these stages, we advocated openness and honesty about the state of the business, the reasons for downsizing, the process by which the downsizing program would take place and the future of the business. This type of open and honest communication is essential to building trust and empowerment among those who have been designated to leave the organization, but it is equally important for survivors of downsizing.