Downsizing by Design: A Guide for Nonprofits
Nonprofits across the country are facing the task of quickly downsizing to match their reduced budgets. The social sector is necessarily pulling back as we enter the era of slashed government contracts following a couple years of decreased philanthropic funding.[1] How organizations go about downsizing will have long-term implications for their organizations and the field.
Restructuring v. Downsizing by Design
There are two methods to downsizing an organization: restructuring and downsizing by design. Restructuring focuses on reducing headcount. In nonprofit organizations, from direct service to performing arts, headcount reduction often means doing the same work (if not more) with less staff. This leads to people having multiple roles (dual hatting) and, eventually, burnout. It also does not take into account the likely need to pivot strategy to reflect the loss of funding, leaving the organization vulnerable to further trouble.
?Downsizing by design takes a more holistic approach to organization change. It starts with acknowledging loss of funding as a moment of organizational trauma. According to Vivian and Hormann,[2] loss of funding is a traumatizing event that can challenge an organization’s sense of identity and contribute to ongoing instability by eroding the processes and systems that underpinned previous ways of working. ?
Downsizing by Design, therefore, takes a holistic approach to organization change that is meant to set the new, smaller organization up for long-term success. It follows Jay Galbraith’s Star Model, adapted here this topic (Figure 1).
The Process
Downsizing by design starts with a culture-forward approach to shrinking, addressing any necessary strategic changes that result from funding loss. It then designs the underlying structure, process, and governance of the work to be done in the newly downsized organization, an action that works to mitigate the trauma. Finally, it ties the new strategy to metrics and the necessary people practices that will help the organization thrive for the long term. Table 1 outlines the differences between restructuring and downsizing by design.
Case Study*
A direct service organization focused on youth economic mobility had experienced steady growth over the last ten years, with a large influx of funding following the murder of George Floyd. However, philanthropic donors had been pulling back dramatically over 18 months and the organization could no longer sustain its headcount, which constituted 75% of budget annually. There was a restructuring proposal on the table that would slash almost half the staff when the client reached out to 11A Collaborative to seek alternative solutions.
11A started the engagement by working with leadership and a diverse cross-section of the organization to align its strategy to the realities of the funding landscape. At the time of the restructuring proposal, the strategy was still growth-based – reaching more people in more cities. After engaging in strategy discussions – both short-term and long-term – the organization decided to cease growth and reduce site count all while improving service delivery. The strategy went from reaching as many people as possible to providing sustained support for those they could afford to help. Should funding improve in the future, they would then have the chance to scale the improved service delivery to more sites. ?
The next step involved translating this strategy into an organization model, a visual that represents the new strategic groupings of work and how they fit together. This is a critical step before building a cost-reduced organization chart because it shows the big buckets of work necessary to run the future organization. Further, the organization model guides personnel investment, telling us what areas need fewer staff and what need more, making the overall downsizing intentional and strategy aligned.
11A then took the leadership team and a representative cross-section of the current organization through a process of creating a variety of organization models. The people closest to the work often have incredible insights, and often offer ideas for the organization models that leadership would not come to on their own. With the final organization model in hand, the leadership team drafted the organization chart, first drawing just the necessary roles, and then filling those roles with individuals, weighing tenure, experience, and cost in choosing who stayed (many in new positions) and who departed. ?
Though layoffs were expected and accompanied by a generous severance package, there was still significant emotion when the new organization was announced. This is where the work of “creating the new” began. All remaining staff were engaged in designing the processes and governance that would bring the newly structured organization to life. We included all staff to mitigate the organizational trauma caused by the downsizing – the loss of an organizational identity and the workflow and management processes that underpinned that. We rebuilt trust in the organization (identity), the strategy (goals and metrics), and ways of working (processes and governance), helping the remaining staff transition from the organization they knew to the new organization.
Conclusion
While restructuring will quickly reduce headcount cost, it will often do damage, both in strategy misalignment and the creation of organization trauma. Downsizing by design offers a trauma-informed approach to collective change. It engages the organization in intentionally designing a new path forward in the face of lost funding. By aligning the challenge of reduced funding to some change in strategy and then intentionally developing a structure to meet this, downsizing by design offers a clear decision framework for staff reduction and realignment that set the organization up for renewed success through an inclusive process. ?
[2]https://ovc.ojp.gov/sites/g/files/xyckuh226/files/media/document/os_traumatization_nonprofit-508.pdf
*This case study is a composite of multiple organizations experiencing similar issues.