Minding the Muse: The Impact of Downsizing on Corporate Creativity

HBS Professor Teresa Amabile's in-house study of creativity at a high-tech Fortune 500 firm took on new implications when the company began a significant reduction in the size of its global workforce. Expanding the research to measure changes in the creative environment during and after the layoffs, Amabile and colleague Regina Conti of Colgate University showed that downsizing can have surprising effects on the creativity of remaining employees and the company's strategic position in the marketplace.
by Peter K. Jacobs

Not long ago, the senior management of a leading high-tech company was surprised to learn that research showed their R&D groups' creative performance to be in a prolonged slump following a corporate downsizing. The company's executives fretted that many of the new products they had been counting on to drive sales over the next few years might not be forthcoming.

Corporate downsizing is hardly anything new. Indeed, in recent years it has often been management's tool of choice for improving competitiveness. Ironically, new research by HBS Professor Teresa Amabile suggests that creativity, a vital weapon in the competitive arsenal of most organizations, may be seriously handicapped by the very action intended to increase a company's competitive position.

Amabile has been studying creativity in the workplace for some 25 years. "It's not just the likes of high-tech and pharmaceutical firms that rely on creativity," she says. "Today's fast-changing global markets place increased pressure on companies of every kind to continuously create new products, services, and competitive strategies if they are to survive and prosper. I've come to realize that firms in any industry do better, all else being equal, when they are able to harness creativity."

During the course of her research, Amabile has discovered several factors that influence creativity in organizations, factors that either inspire or stifle the creative process. Stimulants include workplace autonomy, challenging assignments, adequate resources, supportive work groups, management that places a premium on creativity, and project leaders who understand the creative process and have strong communications skills. At the other end of the spectrum are a slew of barriers to creativity. According to Amabile, many organizations unwittingly construct impediments by fostering an atmosphere where turf battles are commonplace, where fresh ideas are negatively criticized, and where everything new is viewed with suspicion.

Since much of Amabile's research prior to 1993 had been done under controlled laboratory conditions, she was eager to confirm her findings in a real-world setting. That opportunity came when a Fortune 500 high-tech electronics firm agreed to an in-house study that would measure factors affecting creativity within their many R&D groups.

Amabile and Professor Regina Conti of Colgate University designed a study to compare the work environments surrounding two distinct sets of projects, one producing a much higher level of creativity than the other. Implementation of the initial research (which was funded by Lehigh University's Center for Innovation Management Studies while Amabile was on the faculty of Brandeis University) entailed a survey using a previously developed and tested questionnaire. In exchange for the company's willingness to open its doors to the project, Amabile offered to provide management with an assessment of the company's creative environment, a step that was to have unexpected significance later.

"Our primary findings confirmed what we had learned through controlled experimentation," Amabile explains. "The stimulants to creativity were significantly stronger among projects the respondents had categorized as 'highly creative,' while the factors that dampen creativity were found to be higher among projects classified as 'least creative.'"

Soon after completing this work, Amabile learned that the company was planning an 18 percent reduction in its global work force of more than thirty thousand employees. Hypothesizing that a downsizing of such magnitude could have a very negative impact on the firm's creative environment, Amabile and Conti obtained the company's permission to conduct three more waves of research to measure changes in the creative environment during and after the layoffs.

Extending over eighteen months, the downsizing changed the size of each work group differently, reports Amabile. While some units were decimated, others were only slightly affected, and still others expanded their ranks, perhaps the result of consolidation. "The additional research," she explains, "enabled us to distinguish between the effects of anticipated versus experienced downsizing as the event rippled through the firm's various work groups. Surprisingly, it was anticipated downsizing that proved more demoralizing to the creative process." In addition, work groups whose stability had been disrupted by substantial changes in membership during the downsizing had poorer work environments and lower levels of creative behavior than those that remained stable amidst the chaos. Overall, lower creativity resulted from the degraded work environment that followed the downsizing.

The study also found that the creative environment, and creativity itself, remained depressed four months after the layoffs had been completed. To corroborate this conclusion, Amabile and Conti compared how many invention disclosures had been filed by employees before and during the downsizing. They discovered that the numbers had declined significantly during the event. "Either creative thinking was in fact lower," Amabile says, "or employees were withholding the results of their efforts for possible use after leaving the company. Neither situation boded well for the organization's future." Caught completely off guard, the management team quickly implemented a series of corrective measures.

While more research remains to be done, Amabile believes that what has been learned to date has several important implications for executives. First, she says, if downsizing is a necessity, managers must understand the long-term impact on creative output and do everything possible to expedite the process and return the operation as soon as possible to a stable work environment. Second, while downsizing is under way, managers need to open and maintain wo-way communication with their employees, especially those in highly creative roles. Finally, it helps to keep work groups intact and informed of corrective procedures.

"We were fortunate to have had the chance to observe and measure changes in a real workplace during a very adverse period," Amabile concludes. "This opportunity was especially rare because, by coincidence, we had previously completed a company-wide assessment that later became a baseline for the next stages of our research. What amazed everyone was the long negative impact of the layoffs. Managers must recognize the implications of that for their employees and for their competitive position in the marketplace."