Downsizing With a Strategy: What the Board Should Ask

A reduction in workforce can protect a life sciences or healthcare organization, or it can quietly remove the capabilities the organization will need next. The difference lies in whether the reduction follows a strategy or substitutes for one.

In Brief

The Problem. Most downsizing is reactive: it follows a missed forecast or a failed program, takes the same share from every function, and removes capability the strategy still needs.

Why It Persists. Across-the-board cuts are easy to explain and fast to execute, and AI now offers a new reason to cut work without a clear account of who will oversee the systems that replace it.

What Boards Should Do. Require that any reduction start from the strategy, protect the capabilities it depends on, confirm notice and automated-decision obligations, and report on service levels and on the AI systems that take over the work.

Plan the Reduction Before the Market Forces It

Life sciences and healthcare organizations face downsizing more often than their growth narratives suggest. My argument is that a reduction can be a deliberate strategic choice rather than a defensive reaction, but only if it is planned before conditions force it. A planned reduction builds on the organization's strengths and on the opportunities that fit its objectives. A reactive reduction does neither.

Most organizations downsize in reaction to a missed forecast, a failed trial, a lost contract, or a cut in reimbursement. A reactive reduction usually takes the same percentage from every function. That approach is simple to explain and rarely right. A planned reduction starts from the strategy. It identifies the capabilities the organization will compete on in three years, those it can buy or partner for, and those it no longer needs.

Planning also changes the timeline. An organization that reviews its cost structure on a schedule can act in steps. An organization that waits for a cash shortfall must act all at once, on the terms of its lenders and investors.

Learn From Each Exit

Withdrawing from a program, a market, or a facility is not only a setback. Every exit holds information about why the effort fell short, and about the organization's customers, its partners, and its own decisions. Used well, that information helps the organization reposition for the trends it can see now and those it expects. A short, candid review after each reduction helps the organization avoid repeating the decisions that led to it. In my experience, the reviews that matter most are the ones nobody wants to write.

Keep the Larger Context in View

During a downsizing, attention narrows to individual cuts and individual failures. The board's role is to keep the larger context in view: whether each decision aligns with the organization's long-term objectives, and whether the sum of the decisions leaves an organization that can execute its strategy. A list of reductions that each make sense can still add up to an organization that no longer does what its strategy requires.

AI Has Changed the Question

Workforce reductions are no longer driven only by revenue. They are increasingly driven by automation. In a 2026 survey of 226 healthcare executives, about half said their organizations had cut headcount because of AI or planned to within six months, with reductions averaging eight to 13 percent of the affected labor (Guerra & Kraus, 2026). Revenue cycle functions show the pattern. CoxHealth eliminated 53 revenue cycle roles, mainly manual medical coding entry, citing "strategic advances in technology," and Novant Health eliminated 31 revenue cycle positions (Cass, 2026).

When AI replaces work, two things leave with the people. One is capability: the judgment and institutional knowledge that never appeared in a job description. The other is oversight: the people who noticed when something went wrong. The board should ask who will monitor the systems that replace them, and how the organization will know if performance declines.

Know the Legal Obligations

Reductions carry obligations that the board should confirm management has met. The federal Worker Adjustment and Retraining Notification (WARN) Act generally covers employers with 100 or more employees, which must give at least 60 calendar days of advance written notice before a plant closing or a mass layoff (U.S. Department of Labor, n.d.).

State law is also beginning to govern how automated systems are used in employment decisions. California's SB 947 takes effect on July 1, 2027. Under it, software output alone cannot justify firing or disciplining a worker, and a human must verify the decision against other evidence (Montano & Tran, 2026). An organization that uses AI to score performance or select positions for elimination should expect that process to be examined.

Disclosure has begun as well. In March 2025, the New York State Department of Labor added a question to its WARN filing system that asks whether technological innovation or automation contributed to a layoff, and requires an employer that answers yes to name the technology. In the first year, none of the more than 160 employers that filed notices attributed a layoff to AI or automation (Quackenboss & Meyer, 2026). That result sits uneasily beside the survey evidence above, and a board should know how its own organization would answer the question.

Sustain Innovation During the Reduction

A reduction tends to make people cautious at the moment the organization most needs new solutions. Leaders should make clear that new ideas are still expected, and protect the small teams and budgets that test them. An organization that stops experimenting during a downsizing falls behind on the trends and technologies it will need to adopt afterward, AI among them.

Use Partnerships, and Govern the Dependencies They Create

Partnerships can fill some gaps. Academic institutions, contract research organizations, patient advocacy groups, and service vendors can supply resources and expertise the organization no longer keeps in-house. Each partnership creates a dependency, and the contract should address it: who owns the work product, what happens to the organization's data, and how the arrangement ends.

Organize Work in Shorter Cycles

Agile methods, which organize work in short cycles with defined measures and frequent review, can make a smaller organization more responsive. Their value in a downsizing is less about speed than about visibility. Short cycles show management, and the board, early whether the remaining teams can carry the work, and whether quality or patient outcomes are slipping, before a quarterly report would reveal it.

Keep Investing in the People Who Remain

A reduction and an investment in people are not contradictory, although they can look that way. The organization that cuts staff must still develop the people who remain, because they now carry more responsibility. Skill development and clear paths for advancement help retain the people the strategy depends on. The reconciliation is in the selection. The organization should invest in the capabilities its strategy depends on, and withdraw from those it does not.

Keep the Patient and the Customer in View

Patients, clinicians, and purchasers notice reductions before the organization announces them: in slower responses, missed follow-ups, and turnover among familiar staff. The lesson is not confined to healthcare. In February 2024, the payments company Klarna claimed that its AI assistant could do the work of 700 customer service agents. By May 2025, its chief executive said that the AI had produced lower-quality service and that the company was recruiting human agents again (Shibu, 2025). Keeping their needs at the center of decisions preserves the trust and relationships the organization will need when conditions improve. A reduction plan should state which service levels must hold and how management will measure them. The board should receive those measures for at least the following year.

The Strongest Objection

The strongest objection is that this is too much process for a decision that must be made quickly. When cash is short, the argument goes, a board that insists on strategy reviews, legal confirmations, and service-level reporting delays the cuts and deepens the problem. Speed does matter, and some reductions cannot wait. But the planning I describe is meant to happen before the crisis, as part of the regular review of the cost structure, so that the decision under pressure draws on work already done. The legal obligations apply whether or not the board asks about them. And when AI is the reason for the reduction, the organization is not only cutting cost. It is transferring work to systems that someone must still oversee.

For the Board

• Which capabilities does the strategy depend on, and how does the proposed reduction protect them?
• Where AI replaces work, who will monitor those systems, and what performance measures will the board receive?
• Has counsel confirmed compliance with federal and state notice requirements, and with state rules on automated employment decisions?
• What did the review of our last exit or reduction conclude, and what have we changed because of it?
• Which service levels to patients and customers must hold, and how will management report on them?

For monthly board questions on AI and the workforce, subscribe to Oversight Rounds, from Avancer.

References

Cass, A. (2026, July 23). 3 health systems cutting revenue cycle roles. Becker's Hospital Review. https://www.beckershospitalreview.com/finance/revenue-cycle-management/3-health-systems-cutting-revenue-cycle-roles/

Guerra, S., & Kraus, S. (2026, September 30). The 2026 healthcare AI ROI scorecard. Bessemer Venture Partners. https://www.bvp.com/atlas/the-2026-healthcare-ai-roi-scorecard

Montano, M., & Tran, S. (2026, October 8). Newsom approves 3 health care AI bills, vetoes 2. California Health Care Foundation. https://chcf.org/blog/2026/10/08/newsom-approves-3-health-care-ai-bills-vetoes-2

Quackenboss, R. T., & Meyer, M. (2026, May 18). New York WARN Act: No AI-related layoffs reported in first year of adding AI-related disclosure to the system. Hunton Andrews Kurth. https://www.hunton.com/hunton-employment-labor-perspectives/new-york-warn-act-no-ai-related-layoffs-reported-in-first-year-of-adding-ai-related-disclosure-to-the-system

Shibu, S. (2025, May 9). Klarna is hiring customer service agents after AI couldn't cut it on calls, according to the company's CEO. Entrepreneur. https://www.entrepreneur.com/business-news/klarna-ceo-reverses-course-by-hiring-more-humans-not-ai/491396

U.S. Department of Labor. (n.d.). Plant closings and layoffs. Retrieved October 21, 2026, from https://www.dol.gov/general/topic/termination/plantclosings