The Downside of Downsizing

The reasons for downsizing are usually good ones–the company is losing money, the stock value is way down, market share is dropping.  Of course, it’s brutal for the people who get let go, but it’s supposed to make the company leaner and better able to survive.  But I’ve just read a research article* that shows there’s an unexpected downside to downsizing: product innovation drops dramatically.  And that usually spells more pain down the road, because without innovation no company can save itself.

Why does downsizing reduce innovation?  One guess is that, there are fewer people to have good ideas.  Another guess might be, the creative people in R&D get let go so that the company can focus on making production more efficient.  The real reason is more intriguing, and more surprising, than both of these.  It’s because downsizing blocks the collaborative webs that innovation emerges from.  As the researchers write, new product innovation depends on what they call strategic linking : “linking the product to the firm’s resources, structure, and strategy…. Innovators must compete with other innovations and with established products for money, people, and access to major resources such as time in the plant and space in the salespeople’s bags. New products also need to become part of the organization’s structure, either as a separate venture unit or as part of an existing division.”

Downsizing blocks innovation because it reduces the effectiveness of strategic linking.  In this study of 12 firms, the ones with the least downsizing solved 48% of strategic linking problems; the ones with the most solved only 23%.  As the authors write, “downsizing breaks the network of informal relationships used
by innovators to work out strategic linkages”–what I call the collaborative web.  Successful innovation depends on entrepreneurial networking and after downsizing, networking is blocked because the people that you’d network with are no longer there.

Part of the problem was that in the firms that downsized, management paid almost no attention to product innovation.  The take-home message?  If you have to cut staff, make sure that the network, the collaborative web, stays strong and survives after the layoffs.  “Managers also must keep the network itself alive in the short run, saving as many of the existing pathways as possible.”  This takes hard work and close attention from senior management.

*Deborah Dougherty and Edward H. Bowman, 1995, “The effects of organizational downsizing on product innovation.”  California Management Review, Vol. 37 No. 4, Summer 1995, pp. 28-44.

How Teams Work Together

I’ve just read a wonderful research article called “Team implicit coordination processes”.*  Most studies of how team coordinate have focused on planning and communication; these are both explicit coordination, meanint that everyone is consciously aware of what they’re doing, they’re trying to do it, and they’re talking about it.  The authors of this article claim that explicit coordination only explains relatively static teams, when the situation isn’t changing very rapidly.  Implicit coordination happens “when team members anticipate the actions and needs of their colleagues…and dynamically adjust their own behavior accordingly, without having to communicate directly with each other or plan the activity” (p. 164).

That’s exactly what goes on in a jazz ensemble or an improv theater group, the super-creative groups that I’ve spent years studying (see my book GROUP GENIUS).  Teams have to implicitly coordinate to handle rapidly changing environments when their tasks are highly interdependent; teams that are implicitly coordinating talk a lot less about what they’re doing and what they should do next.  (This reminded me of a conversation I had at Harvard recently with Professor Rob Huckman, who has studied surgical teams.  Surgeons say that in the best teams, no one is talking…that’s implicit coordination!)

Teams that have this down do four things: (1) each member provides task-relevant information even before they are asked for it; (2) team members share the workload without being asked; (3) everyone is monitoring the progress of the activity and the performance of their teammates; and (4) each person adapts behavior to what they expect the others will do.

The authors argue that implicit coordination can only work if the group creates an “emergent team-level knowledge structure” that they call a team situation model.  The model includes shared knowledge like the team’s goal and the roles of each participant.  Because of my own studies of social emergence, I agree when the authors claim that the situation model is “an emergent group property characterizing the team as a whole” (see my 2005 book SOCIAL EMERGENCE for more details).

*Ramon Rico, Miriam Sanchez-Manzanares, Francisco Gil, and Cristina Gibson.  2008.  “Team implicit coordination processes: A team knowledge-based approach.”  Academy of Management Review, Vol. 33, No. 1, pp. 163-184.