Resizing The Organization 34 ppt

As a result, employee trust toward the or-ganization is undermined, job and oror-ganizational satisfaction plummet, and intention to remain even among valued members wanes, causing peopl

among a large number of employees that organizations are reneg-ing on their promises, and the terms of their psychological con-tracts are being violated (De Meuse et al., 2001; McLean Parks & Kidder, 1994; Morrison & Robinson, 1997; Sims, 1994)

This sense of violation, which carries a strong emotional com-ponent, leads to a range of feelings and reactions ranging from ini-tial disappointment, frustration, and distress to outright anger, resentment, and bitterness of betrayal by the organization (Morri-son & Robin(Morri-son, 1997) As a result, employee trust toward the or-ganization is undermined, job and oror-ganizational satisfaction plummet, and intention to remain even among valued members wanes, causing people to reduce their efforts, withhold contribu-tions, or exit the organization (Rousseau, 1995; Robinson & Mor-rison, 1995; Robinson & Rousseau, 1994) Especially in extreme cases of violation, research has shown that the underlying sense

of betrayal can induce employees to seek revenge or retaliation against their employer (Buono & Bowditch, 1989; Greenberg, 1990)

While explicit violations of the psychological contract can read-ily lead to such volatile reactions, there also are more insidious realities that reflect basic changes in the nature of the employer-employee relationship As companies increasingly focus on cor-porate goals that reflect short-term realities, such as daily stock prices and quarterly profit margins, organizational members too focus more and more on their immediate job needs and career possibilities (De Meuse et al., 2001; Hymowitz, 2001; Noer, 1997) The result is an organizational world in which employees come to believe that it no longer matters if they are “good” corporate citi-zens, looking out for their own self-interest rather than focusing

on broader organizational needs and realities Once such com-munal agreements are undermined, employee morale, dedication, and loyalty can rapidly decline Yet these employee attributes are the very essence of what is needed to guide leaner organizations through turbulent times

The Loss of Attachments

On a more subtle level, the resizing revolution also is linked

to changing psychological orientations and shifting attachments that we create as human beings Sociologist Richard Sennett (1998) suggests that while the capability to continually shift to

T HE H IDDEN C OSTS AND B ENEFITS OF O RGANIZATIONAL R ESIZING A CTIVITIES 311

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meet marketplace demands may be quite beneficial at the organi-zational level, the resultant breaks in attachments (what he refers

to as the “ability to let go”) have far more ominous repercussions

at the individual level Firms that are constantly in flux may be in-creasingly flexible and adaptable, but that also means that their members will have to constantly give up their attachments, whether

to a person, a place, or a company

The ideal of being flexible at the strategic level inevitably trans-lates into the need for flexibility at the individual level However, the ability to let go of an existing product, customer base, or work unit is far different from the ability to let go of personal attach-ments and links with those around us While transition manage-ment experts talk of the need to prepare us to let go of the old and embrace the new (Bridges, 1991), there still is a lingering sense that the new possibilities will be in existence for a foreseeable fu-ture With constant change envisioned for organizations, concerns reflect an emerging organizational nexus where people are part of ever-shifting coldly utilitarian networks rather than enduring, nur-turing organizational communities (Carr, 1999; Sennett, 1998)

As jobs themselves change to “fields of work,” a latent by-product is a shift away from a long-term perspective, focusing more fully on short-term realities (see Jacoby, 1999) Sennett (1998) sug-gests that the loss of such a long-term focus erodes our ability to view ourselves in a narrative, to see continuity in our lives While the ability to reinvent oneself is often played up as filled with op-portunities and invigorating changes, it also means that the con-text our experiences have provided us with is literally erased The result is an increasingly disconnected workforce that defines suc-cess on far more personal than organizational terms

Survivor Guilt

Researchers examining the effects of downsizing initiatives and lay-offs have found that one of the most painful losses that individu-als have to contend with is the loss of valued coworkers (Feldman

& Leana, 1989) The survivor syndrome among those who remain with the downsized organization is basically characterized by feel-ings of guilt for surviving the layoff and anxiety due to the insecu-rity created by the threat of future layoffs (Applebaum & Donia, 2000; Brockner, 1992; Brockner, Grover, O’Malley, Reed, & Glynn,

1993; Brockner, Grover, Reed, & DeWitt, 1992) As a result, the un-derlying sense of trust, empowerment, and control among orga-nizational survivors often suffers (Mishra et al., 1998), especially when downsizing activities occur gradually, leaving remaining em-ployees in a perpetual state of suspense (Feldman & Leana, 1989) Unless there is significant assurance and support given to these in-dividuals, these survivors wonder who will be next and if they will join the forced exodus Moreover, as research has indicated, with-drawal behavior among a person’s relevant others in a social net-work readily increases the individual’s propensity to leave as well (Krackhardt & Porter, 1986; Sandell, 1999) As a coping strategy, many of these individuals quietly begin looking for a position else-where, further undermining morale, organizational commitment and citizenship behavior, and productivity (Brockner et al., 1992, 1993)

Compounding the problem, due to overly severe cutbacks in personnel, organizations are often forced to place survivors in po-sitions that they are ill prepared to handle Although on-the-job training and trial-and-error approaches can ameliorate this prob-lem, it typically takes far more time for such adjustments than an-ticipated, mistakes are often costly, and downsized training programs typically mean that survivors are unlikely to get the sup-port they need in a timely manner (Hitt et al., 1994) Furthermore, research suggests that survivors frequently do not believe that top management sufficiently cares about employee needs, and trust in the competency of the senior management team often is called into question (Noer, 1995; O’Neil & Lenn, 1995) From an orga-nizational vantage point, the underlying perception is that con-tinuing employees are expected to work harder, being grateful that they still have their jobs (Applebaum & Donia, 2000) Unfortu-nately, the resultant organizational culture is one of looking after one’s own needs rather than a more collaborative one, focused on coaching, guiding, and assisting colleagues and coworkers

Stress and Health

Workplace transitions can be extremely traumatic, involving sig-nificant levels of stress on the individuals involved The lives of downsizing victims are literally turned upside down, as financial pressures, the loss of fringe benefits such as health insurance, the

breakdown of social relationships, and lowered self-esteem con-tribute to high levels of stress and health-related problems Those individuals keeping their jobs—the survivors—also experience significant tension and pressure While research suggests that man-agers can begin to ameliorate much of the stress and strain associ-ated with such changes by limiting the expansion of work demands and ensuring that organizational members perceive greater con-trol over their immediate environment (Moyle & Parkes, 1999), the reality is that in resized organizations, there are far greater psy-chological pressures on fewer employees to do the same amount

of, if not more, work The result is a culture of overwork, as cor-porations seem increasingly dependent on squeezing increased amounts of work from fewer people supported by fewer resources (Andresky Fraser, 2001), which further exacerbates the work-related stress, overload, and burnout that organizational members experience (Kets de Vries & Balazs, 1997; O’Neil & Lenn, 1995) The ramifications of such pressures are significant A recent study by the Families and Work Institute found that employee per-ceptions of being overworked are directly related to making mis-takes on the job, feeling anger toward their employers, resenting coworkers who may not appear to be working as hard, and looking for new jobs outside the organization Even more disconcerting is that these individuals also report being more likely to neglect tak-ing care of themselves, nottak-ing difficulties with sleeptak-ing and related

psychosomatic maladies (see “The Negative Effects of Overwork,”

2001) Similarly, other studies have found significant relationships between downsizing-based work pressures and increases in de-pression, sickness absence rates, the prevalence of smoking and al-cohol consumption, substance abuse, related ill-health symptoms (such as loss of appetite, fatigue, strokes, and heart attacks), mari-tal problems, and impaired social network support (Cartwright, 2000; Ferrie, Shipley, Marmot, Stansfeld, & Smith, 1998; Kivimaki, Vahtera, Pentti, & Ferrie, 2000)

While much of the attention during downsizing initiatives is placed on displaced lower-level organizational members and the need to recapture the trust and commitment of survivors, a hid-den problem concerns upper-level managers themselves, who often become withdrawn, abrasive, narcissistic, apathetic, or depressed (Kets de Vries & Balazs, 1997; Mishra et al., 1998; Perry, 1986) The

resultant health-related strains on this critical group can be signif-icant, especially if executives become increasingly isolated and de-tached as they wrestle with difficult decisions and develop a myopic focus on achieving short-term organizational outcomes Because supportive top management behavior—empathy, accessibility, and the ability to clearly articulate a vision—is suggested as one of the key determinants that guides successful downsizing initiatives, this concern goes well beyond the ramifications these problems can have for the health of these individuals Stressed-out executives, often seen as “executioners” by those around them (Kets de Vries

& Balazs, 1997), can unwittingly undermine the very qualities that they need for long-term competitive success and advantage by un-dermining trust and disempowering key organizational members

At the Organizational Level

Many observers argue that in today’s hypercompetitive environ-ment, a company’s human capital (that is, its intellectual assets) is the only truly sustainable source of competitive advantage and growth (Barney, 1997; Conner, 1991; Labbs, 1999) Yet in many in-stances, downsizing organizations find that they lose far more of the wrong people and critical institutional memory than they an-ticipated (Cascio, 1993; Mirvis, 1997) Although part of the attrac-tion associated with downsizing is to free the organizaattrac-tion of poor performance and inefficiency, it appears that talented, skilled employees—the ones with clear options and opportunities—are often the ones to bail out of a downsizing organization voluntarily

As Levine’s “free exiter” predicament (1979) underscores, the or-ganizational members most needed to tackle the challenges facing the new organization are the ones who tend to leave The prema-ture and early deparprema-ture of such qualified individuals exacerbates the problems that the organization is facing, often inhibiting re-covery and accelerating the firm’s decline (Bedeian & Armenakis, 1998)

While common downsizing tactics such as voluntary early re-tirement programs and across-the-board reductions often provide companies with a seemingly quick way out, the result often is the loss

of talented individuals whose knowledge, skills, and abilities are needed by the organization as it prepares itself for future operations

In fact, as some companies have found, it is problematic to control who takes advantage of early retirement offers due to legal con-straints Consequently, more people than are targeted frequently choose to leave, and companies are forced to rehire the people who just “retired” on a contract basis because of a shortage of crit-ical skills (Applebaum et al., 1987; Hitt et al., 1994) As a result, or-ganizations can unintentionally create significant voids in their overall talent pool and knowledge base if such tactics are poorly implemented and too many of the wrong people are eliminated These firms then find an unexpected increase in the use of tem-porary workers and overtime, often rehiring displaced workers as consultants, leading to higher costs, which are compounded by greater-than-anticipated severance payouts (Mirvis, 1997)

Declining Performance

Downsizing has become a fact of life even in financially healthy companies The underlying belief appears to be that despite longer, frenzied workdays, a new, lean regime will result in a sharper, more agile, highly competitive organization Yet while this cost-cutting mantra may result in more efficient organizations, they appear to

be far less effective (DeMarco, 2001) Although some research sug-gests that corporations that undertook workforce reductions during the past decade have experienced improved short-term fi-nancial performance (Wayhan & Werner, 2000), it appears that such improvements are difficult to sustain over the long term All too often, what might look like inefficiency on the surface (often referred to as downtime or organizational slack) may be a critical part of organizational members’ ability to innovate, adjust, and change Companies can become overly efficient, trimming so much slack that they risk losing the agility and ability to exchange important information and shift directions that were part of the strategic intent guiding the change Such downsizing, especially those using nonprioritized implementation tactics, often creates situations where key knowledge, skills, and abilities are lost, in-flicting undetected damage on the learning and functioning of the organization (Fisher & White, 2000)

The resultant danger is that many companies are becoming more efficient without really becoming better, with the overall size

of the underlying risk far more difficult to determine than the loss

of individual expertise and talent Survivors easily can become hes-itant to commit their energy to an organization that shows a lack

of loyalty to its members Yet even if attitudes among survivors are favorable toward the organization, research suggests that these in-dividuals often are so overworked and overburdened that they are unable to spare the effort required for new challenges and inno-vation (Thomson & Millar, 2001) As a number of studies indicate, productivity, profitability, and efficiency indicators suggest very lit-tle difference among downsizing and nondownsizing organizations (Cascio, Young, & Morris, 1997; De Meuse et al., 1997; Dougherty

& Bowman, 1995; Mentzer, 1996; Morris, Cascio, & Young, 1999), with some organizations even less profitable after downsizing than they were prior to the reductions (Cascio, 1998; De Meuse, Van-derheiden, & Bergmann, 1994; Palmer, Kabanoff, & Dunford, 1997)

An illustration of the loss of effectiveness and declining perfor-mance is reflected by trained hazmat professionals (that is, organi-zational members who handle and manage hazardous materials) Prior to September 11, 2001, the role these individuals played was not very visible, and they were particularly vulnerable to downsiz-ing initiatives, a reality that can compromise basic organizational safety and well-being (Currie, 1999; Perron & Shanley, 1999) The responsibilities and activities of these individuals are typically hard

to quantify in terms of productivity and cost-of-service delivery Rather than dealing with tangible outcomes, such as sales revenues

or return on investment targets, hazmat professionals are judged more on what does not happen (such as a spill or an industrial ac-cident) It is hard to quantify the cost of what might have hap-pened if a safety compliance manager was not assigned to a particular job Yet in downsizing, the issue of how a company should measure its exposure to risk against any budget allocations for ensuring compliance often is neglected Thus, effective resizing decisions must ensure that important organizational activities and outcomes (such as plant safety) are not compromised, so that ordinary process upsets do not significantly undermine organizational ef-fectiveness and become major catastrophic events (Perron & Shan-ley, 1999) While cutbacks and downsizing-based cost-containment strategies clearly shrink the organization, they do not necessarily make it more efficient or profitable over the long term

An Amoral Compass

Another repercussion from an overarching focus on efficiency and cost containment is an insidious subordination of organizational ethics to performance (McKinley et al., 2000), where the scope of moral judgment is reduced and an enhancing market value be-comes the all-encompassing organizational goal (Brockner et al., 1993) The results of such downsizing-related initiatives often man-ifest in short-term thinking and an impoverished sense of meaning (Solomon, 1999), which can readily undermine an organization’s ability to deal with the imprecise nature of moral dilemmas in an era of rapid globalization and change (Hosmer, 1995)

As employment relationships and their underlying psycholog-ical contracts are redefined as private contractual relationships, the accountability that employers and employees feel they have to-ward each other is reduced (Van Buren, 2000) Because the abil-ity of an organization and its members to determine and accept their accountability and responsibility lies at the foundation of eth-ical management (Toffler, 1986), this shift creates a void con-tributing to what might be thought of as an amoral orientation In essence, organizational members stop thinking (either intention-ally or unintentionintention-ally) about the ethics of their business decisions (Carroll, 1987) The problem is that most unethical and illegal acts emerge from incremental processes and decisions based on past practices and unforeseen future events and executed as part of the normal, everyday responsibilities of organizational members who spend most of their lives in entirely legal and ethical activities As downsizing reduces the accountability that employees and their or-ganizations have to each other, the resulting moral rules in use be-come sufficiently lax that the broader ethical ramifications of different decisions, policies, and activities are never explicitly ex-amined ( Jackall, 1988)

Declining Morale and Organizational Citizenship

Numerous studies indicate that most downsizing efforts fail to meet the basic goals of reduced costs and improved performance and profits One of the most significant factors associated with such fail-ure is the decline in employee morale and commitment (Allen, Freeman, Russell, Reizenstein, & Rentz, 2001; Glassberg, 1978;

Luthans & Sommer, 1999; Mirvis, 1997) and the resulting resistance

to change (Buono, 1995) In fact, a recent survey by the Carlson Marketing Group and the Gallup organization found that of the major changes faced by organizations, downsizing had the most negative effect on employee morale (Salopek, 2000) The resulting reactions can manifest in withdrawal behaviors ranging from pro-ductive high performers voluntarily bailing out of the organization,

to employees symbolically “resigning” while staying on the job (that

is, simply going through the motions of working), to countercul-tural wars where employees literally fight the organization’s plans and directions (Buono & Bowditch, 1989; Carpenter, 1995) While giving the appearance of a type of democracy of pain, across-the-board cutbacks tend to have a demoralizing impact on organizations and often cut into areas that should be expanding rather than contracting To organizational members, the underly-ing message appears to be that it no longer matters if the employee contributes to organizational goals or is a good corporate citizen

As loyalty, dedication, and hard work seem to be cast aside, the will-ingness of organizational members to work for the good of the or-ganization and support coworkers outside their immediate work unit similarly begins to erode (Chen, Hui, & Sego, 1998; Luban, 2001) Collegiality declines as employees see themselves as possi-ble competitors for existing jobs, and the willingness to go above and beyond the call of duty, one of the hallmarks of organizational citizenship behavior (Neuman & Kickul, 1998), quickly deterio-rates Thus, the level of dedication, commitment, and willingness

to take on additional responsibilities that downsized organizations require is lacking

Weakened Organizational Learning

Rather than viewing training and development as a priority in downsizing strategies, in many organizations training resources are typically the first budget that is cut Consequently, opportunities for organizational members to develop the requisite knowledge, skills, and abilities to deal with the challenges they will face as the organization moves forward are constrained (Weakland, 2001) However, the full dysfunctional impact of downsizing on organi-zational learning is far more extensive

Organizations can be conceptualized as a series of networks in which interrelationships across organizational members generate and disseminate information leading to knowledge creation and or-ganizational learning The loss of individuals, and the concomitant loss of knowledge they held, reduces the quality and value of in-formation held by the organization, especially tacit knowledge that

is rarely retained elsewhere in the organization (Fisher & White, 2000) Traditional downsizing efforts frequently disrupt a company’s network of relationships—between employees, between teams of employees, and between employees and key stakeholders—literally destroying the organization’s existing memory and memory ca-pacity, vital foundations for future growth and creativity (Dou-gherty & Bowman, 1995; Fisher & White, 2000; Mroczkowski & Hanaoka, 1997) Such downsizing decisions can unwittingly pre-cipitate dramatic changes in the informal organization, creating structural holes where links to unique sources of information are

no longer present (Susskind, Miller, & Johnson, 1998) and literally tearing apart deep-seated patterns of interaction and knowledge sharing among organizational members (Fisher & White, 2000)

A related factor undermining the level of information flow nec-essary for true organizational learning concerns the role that anx-iety and mistrust play in limiting knowledge sharing In situations where downsizing appears to be an ever-present reality, a latent threat exists that communicated information might strengthen the job-retention position of a colleague, often at the expense of the individual initially sharing the information (Thomson & Millar, 2001) As a result, organizational members are far more likely to guard rather than share important information as knowledge hoarding becomes intertwined with increasing one’s power and in-fluence base

Declining Customer Satisfaction

Especially for service companies, downsizing is related to signifi-cant reductions in customer satisfaction (Mroczkowski & Hanaoka, 1997) A growing body of research suggests that a significant rela-tionship exists between employee attitudes and important organi-zational outcome measures, including customer attitudes and related financial criteria (Lundby, Fenlason, & Magnan, 2001) The basic tenet underlying this causal link is that employee attitudes