The goal of some organizational structures we’ve described is to improve agility by creating a lean, focused, and flexible organization. Downsizing is a systematic effort to make an organization leaner by closing locations, reducing staff, or selling off business units that don’t add value. Downsizing doesn’t necessarily mean physically shrinking the size of your office, although that’s been happening, too.

Some firms downsize to direct all their efforts toward their core competencies. American Express claims to have been doing this in a series of layoffs over more than a decade: 7,700 jobs in 2001; 6,500 jobs in 2002; 7,000 jobs (10 percent of its workforce) in 2008; 4,000 jobs in 2009. The 2013 cut of 5,400 jobs (8.5 percent of the remaining workforce) represented “its biggest retrenchment in a decade.” An additional layoff of 4,000 jobs was slated for 2015. Each layoff was accompanied by a restructuring to reflect changing customer preferences, away from personal customer service and toward online customer service. According to CEO Ken Chennault, “Our business and industry continue to become transformed by technology. As a result of these changes, we have the need and the opportunity to evolve our organization and cost structure.”31

Despite the advantages of being a lean organization, the impact of downsizing on organizational performance is not without controversy. Reducing the size of the workforce has an immediately positive outcome in the form of lower wage costs, and companies downsizing to improve strategic focus often see positive effects on stock prices after the announcement. An example is Russia’s Gorky Automobile Factory (GAZ), which realized a profit for the first time in many years after President Bo Andersson fired 50,000 workers, half the workforce.32 On the other hand, among companies that only cut employees but don’t restructure, profits and stock prices usually decline. Part of the problem is the effect of downsizing on employee attitudes. Employees who remain often feel worried about future layoffs and may be less committed to the organization. Stress reactions can lead to increased sickness absences, lower concentration on the job, and lower creativity. Downsizing can also lead to more voluntary turnover, so vital human capital is lost. The result is a company that is more anemic than lean.

In short, companies that make themselves lean can be more agile, efficient, and productive—but only if they make cuts carefully and help employees through the process through investing in people, communicating more, inviting employee participation, and assisting dislocated employees.