Resizing The Organization 13 pps

These perceptions carry major implications for organizations, since recent research suggests that the relational component of the psychological contract contains obligations that employe

the candidate can expect in that area of the employment rela-tionship If the company is confident in what it can offer in that area, the chances of a successful relationship are good On the other hand, if an employee prioritizes outcomes that the organi-zation will have difficulty providing, the organiorgani-zation may be bet-ter off not to hire that individual

Conclusion

At the most basic level, organizations have responded to competi-tive pressures by implementing business strategies (like resizing) that alter the nature of the psychological contract between the organi-zation and its employees As the psychological contract continues to

be transformed, employees frequently perceive their organization

as failing to live up to its psychological contract obligations Resiz-ing efforts make employees more likely to perceive that the rela-tional or socioemotive component of the psychological contract has been violated (Cavanaugh & Noe 1999; De Meuse, Bergmann,

& Lester, 2001) Relational elements of the psychological contract focus on the benefits of a long-term relationship built on trust, re-spect, and loyalty For many employees, resizing denotes a viola-tion of their expectaviola-tions of job security For others, it means a violation of the expectation that organizational members will be treated with respect These perceptions carry major implications for organizations, since recent research suggests that the relational component of the psychological contract contains obligations that employees value most (Lester & Kickul, 2001) If organizational leaders do not address these perceived psychological contract breaches, their organizations are likely to suffer detrimental con-sequences Previous research has demonstrated that psychological contract breach can adversely affect employee attitudes and be-haviors (Robinson, 1996; Robinson & Rousseau, 1994)

Fortunately, organizational change and psychological contract breach do not have to be inescapably tied to one another Man-agement can take a number of steps to reduce the occurrence or magnitude of perceived psychological contract breach Most of these steps revolve around efforts to improve the communication occurring among executives, human resource staff, supervisors, and the employees who may be affected the most by the changes

R ESIZING AND THE P SYCHOLOGICAL C ONTRACT 101

Team-Fly®

Organizations must build norms of open, honest, and ongoing communication

Resizing organizations cannot avoid resistance to change com-pletely Organizations that have made the effort to build cognition-based trust over time with their employees will be more successful

in dealing with employee concerns during times of organizational change and likely will face less opposition to the resizing effort The reason that cognition-based trust has a significant effect on the suc-cess of change efforts is that it influences the employees’ willing-ness to accept the social accounts given by organizational leaders Organizations that are suffering from low levels of cognition-based trust likely will encounter more difficulty in managing their resiz-ing efforts, because change agents within the organization lack credibility By improving communication networks and more closely aligning human resource practices with organizational strategies, these organizations will build trust In so doing, they will possess greater capabilities for achieving resizing objectives because their employees will perceive higher levels of psychological con-tract fulfillment

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The Impact of Corporate Downsizing on Employee Fulfillment and

Organizational Capability

Jack W Wiley

Scott M Brooks

Emily L Hause

A new wave of holistic models of organizational performance has emerged during the past decade These models share a common framework that explicitly acknowledges the interrelationships among management strategy and leadership practices, employee satisfaction, customer satisfaction, and the financial outcomes for

a business firm Models such as the Service-Profit Chain, Balanced Scorecard, and High Performance Model provide explanations of how organizations become successful; these models help organi-zations understand, track, and manage their resources This chap-ter focuses on a key message of these models: carefully selected employee opinions are leading indicators of future business suc-cess In other words, we suggest that promoting a performance-oriented work environment today will generate greater bottom-line performance tomorrow

Corporate downsizing is a technique designed to promote or-ganizational success by reducing labor cost, generally an

organi-108

zation’s largest expense Many authors (Cascio, 1998; Vander-heiden, De Meuse, & Bergmann, 1999) have questioned the gen-eral success of layoffs in achieving these goals Indeed, as De Meuse, Bergmann, and Vanderheiden (1997) and Lester and

De Meuse (1998) and others illustrate, badly managed layoffs are associated with negative employee opinions and negative implica-tions for financial performance Armstrong-Stassen (1994) points out that the impact of downsizing on survivors may well be a key element in determining long-term organizational survival Given these findings, it is the purpose of this chapter to examine how holistic models of organizational performance can help us more effectively understand and manage the impact of layoffs on orga-nizations More specifically, if certain employee characterizations

of the workplace predict success, how do layoffs affect those criti-cal employee opinions?

Models of Organizational Performance

One holistic model of organizational performance, based on a rig-orous review of multiple case studies, is the Service-Profit Chain (Heskett, Jones, Loveman, Sasser, & Schlesinger, 1994) Analyzing data from several different services industries, these researchers closely examined the connection of internal management prac-tices, employee satisfaction and loyalty, productivity, value, cus-tomer satisfaction and loyalty, growth, and profit The model they developed to describe these relationships comprises a cause-and-effect series of sequential links: internal service quality practices lead to employee satisfaction, which leads to employee loyalty and productivity, which leads to externally perceived value, which leads

to customer satisfaction and loyalty and ultimately to sales growth and profit

The Service-Profit Chain was subsequently tested at Sears (Rucci, Kirn, & Quinn, 1998) The authors, using a time-series research design, present strong evidence regarding how improvements in employee opinions (descriptions of their work environment as measured through employee surveys) drive specific levels of in-crease in customer satisfaction, which in turn generate specific lev-els of revenue growth (see Figure 6.1)

It is clear from the description provided that Rucci et al (1998) relied on measurement systems focused on the extent to which key elements of Sears’s management strategy were successfully opera-tionalized and visible for all three critical stakeholder groups: em-ployees, customers, and investors The authors concluded that management’s strategic focus was working In other words, the more compelling Sears became as a place to work, the more com-pelling it became as a place to shop As sales and revenue grew and store profits increased (as a result of increased customer satisfac-tion and loyalty), the more compelling Sears became as a place to invest

Figure 6.1 The Employee-Customer-Profit Chain at Sears.

Attitude

about the

company

Return

on assets Operating margin Revenue growth

Attitude

about

the job

Employee

behavior

Employee

retention

Customer retention

Customer impression

Customer recommendations

Merchandise Value

Service Helpfulness

5 Unit Increase

in Employee

Attitude

1.3 Unit Increase

in Customer Impression

0.5 Percent Increase in Revenue Growth

A Compelling

Place to Work

A Compelling Place to Shop

A Compelling Place to Invest

Drives Drives

Source: Reprinted by permission of Harvard Business Review From Rucci, A J.,

Kirn, S P., and Quinn R T “The Employee-Customer-Profit Chain at Sears.”

Harvard Business Review, January-February 1998: 91 Copyright © 1998 by the

Harvard Business School Publishing Corporation, all rights reserved