Resizing The Organization 12 potx

tions and behaviors are driven by their emotions. Once an organization has decided that resizing is the only feasible response to com- petitive pressures on the organization, management must identify the specific actions it will implement to maintain a sound psychological contract between the organization and its employees. We believe that organizations will have a better chance of up- holding their psychological contracts and achieving the goals and objectives of their resizing initiative by honestly addressing four key questions: 1. Why is resizing necessary? 2. What processes should be in place to address employee perceptions of justice? 3. How will resizing affect the various positions and responsibilities throughout the company? 4. How will resizing modify the personal outcomes that organizational members will receive? Communicating this information should greatly increase employee satisfaction and performance levels during (and after) resizing. If the issues are effectively addressed, a more positive psychological contract will exist between the employee and the employer, and resizing efforts will be facilitated. The Importance of Open Communication Perhaps the most important component when resizing an organization is to have an effective communication system. When change is implemented, managers obviously are concerned about what types of information need to be communicated to employees to ensure that change activities run as smoothly as possible. A longer- term concern is how human resource practices can be used to ensure open communication persists over time in order for future change initiatives to be effective. Organizations that are successful in their resizing efforts need to have good communication throughout the organization. We describe why communication across multiple levels of the organization is an important part of resizing efforts by introducing the concept of a communication triad. Table 5.2 summarizes how each triad member contributes to effective communication during resizing. RESIZING AND THE PSYCHOLOGICAL CONTRACT 91 TEAMFLY Team-Fly ® 92 RESIZING THE ORGANIZATION Table 5.2. Communication Strategies of Triad Members During Resizing Initiatives. Key Organizational Communication Roles Strategies Chief executive Discuss with all employees why the organizational officer (CEO) change initiative was necessary to improve the organization’s performance and ability to compete. Maintain constant dialogue to answer questions and provide additional input to meet employee expectations and needs. Communicate with organizational members about their role in the organization’s ability to achieve the leader’s vision for the future. Human resource Monitor employee attitudes and needs to staff determine when future public forums between the CEO and employees are needed. Facilitate many of the resizing benefits provided to employees who are being displaced (for example, schedule outplacement services, coordinate employee severance packages, and provide counseling services). Engage in activities such as providing counseling, updates on new compensation packages, and additional job training to those who are remaining with the organization. First-line Serve as the change liaison between top supervisors management and employees on a daily basis. Provide information and answers to questions that arise as the organizational change effort evolves. Correct inaccurate rumors that are traveling along the corporate grapevine. Allocate time to respond to questions concerning what is now expected from employees in the organization over the short and long terms. Due to today’s constantly changing business environment, organizations may alter the nature of the psychological contracts they have with their employees. Obligations that the organization previously acknowledged may no longer be fulfilled as previously promised. During these dynamic times, employees become more focused on whether they feel the organization is treating them fairly. In other words, employees take time to process the information being presented to them by the organization and its agents (the supervisors) and assess whether they perceive the change initiatives as necessary responses to a dynamic business environment or violations of psychological contract obligations regarding fairness. Therefore, this is a time where it is important for organizations to communicate more (not less) with their employees. The employer and employee may not always share a mutual understanding of the psychological contract obligations that are being offered. Open communication is a vital mechanism for in- creasing the chances of mutual understanding. It is important to remember that whether employees’ perceptions of psychological contract breach are accurate does not matter. Perceived breaches still will lead to negative attitudinal and behavioral responses. The development of an effective communication network is an essen- tial element of an organization’s resizing strategy. The Communication Triad It is important that the organization develop a truly integrative communication team to deal with both employees who are being laid off and those who are being relied on to execute the new organizational strategies. There are three key levels that must be highly involved in this communication process. The chief executive officer (CEO), the human resources staff, and the first-line supervisors all must be sensitive to the uncertainty in this changing environment. Chief Executive Officer Although employees may look to their immediate supervisors first when assessing levels of psychological contract fulfillment, they are likely to focus more attention on top executives when making RESIZING AND THE PSYCHOLOGICAL CONTRACT 93 94 RESIZING THE ORGANIZATION attributions as to why psychological contract breaches are occurring. The CEO’s role is to meet with all employees to explain why resizing is necessary and how the action will improve the organization’s performance and ability to compete in the marketplace. It is important that the CEO remain visible throughout the change period (De Meuse, Vanderheiden, & Bergmann, 1994). If the CEO is not willing to interact with employees and answer difficult questions during these transitional times, employees are likely to perceive that the organization does not value them. This inference will lead to barri- ers in the implementation of resizing activities and possibly have a negative effect on perceived psychological contract fulfillment. Other writers have suggested that in the interest of effective time management, CEOs should communicate only to supervisors and managers (Larkin & Larkin, 1996). Although we acknowledge this may be prudent for routine business activities, it is important for employees to hear directly from executives when major change initiatives are under consideration. Resizing organizations must work hard to gain their employees’ commitment to their vision for the organization’s future. Often this becomes an issue of leadership. Successful leaders are able to communicate a vision of success to their followers (Conger & Kanungo, 1987). Leaders also can inspire higher performance levels by communicating to each organizational member how he or she will play a pivotal role in the organization’s ability to achieve the leader’s vision for the future. In other words, organizations need to go beyond merely explaining why resizing and other change initiatives are necessary and communicate why their employees should expect to be successful in the new business environment. If employees comprehend the potential benefits of the changes, they will be more likely to perceive that they have been treated justly. These perceptions of procedural and interactional justice will lead to higher levels of psychological contract fulfillment and increase organizational commitment. Human Resource Staff Resizing organizations must have a good idea of where they want to go and ensure to the best of their ability that they will be able to convince employees that this new direction is desirable for all parties involved. First, organizations need to gather information concerning what psychological contract obligations employees perceive as being most valuable. Probably the best way to do that is to gather feedback from an employee survey. In essence, organizations need to know what employees want if they hope to retain and motivate the key people in their workforce. Understanding what employees value most will allow an organization to be more prudent in the implementation of its resizing efforts, because organizational leaders will be better equipped to minimize the number of employees who perceive serious psychological contract breaches. The organization must constantly monitor the changing need structure of its employees. This process should be tied to the strategic direction of the organization. Human resource managers need to be aware that as the strategic direction of the organization changes, the operational design of the total reward package and its method of implementation (performance assessment) also must change in order to increase the likelihood that it will satisfy the needs of employees. By looking at all of the total reward dimen- sions (for example, pay, benefits, and employee development), the organization may be able to satisfy the needs of a larger number of employees during resizing. In addition, human resource managers are facilitators for many of the resizing benefits provided to employees who are being displaced, as well as to employees who remain with the organization. For example, the human resource staff should schedule outplacement services, coordinate employee severance packages, and provide counseling services to assist layoff victims. To respond to the needs of surviving employees, the human resource staff should engage in activities such as providing counseling, updates on new compensation packages, and additional job training. When there have to be changes in the psychological contract, employers should seek to modify it in terms that are reflective of the new employment conditions. Both procedural and interper- sonal remedies may be used to reduce some of the adverse consequences that may arise for the organization when changes to the psychological contract are made (Morrison & Robinson, 1997; Rousseau, 1995). Remedies to reestablish a relationship may in- clude instituting communication mechanisms that inform employees how decisions are made and implementing procedures that allow employees to challenge or appeal job decisions made by the firm. Human resource managers should ensure that employees RESIZING AND THE PSYCHOLOGICAL CONTRACT 95 96 RESIZING THE ORGANIZATION understand how the organization is trying to meet their multiple needs. In addition, they should give employees the opportunity to express any new changes in their expectations of what they believe their organization should provide to them. By focusing on their needs, in conjunction with organizational capabilities and resources, the manager may enable the company to retain key talent. First-Line Supervisors First-line supervisors are an integral part of a successful change initiative, because they serve as the change liaison between top management and employees on a daily basis (Larkin & Larkin, 1996). Although companies are very cognizant of the detrimental impact of layoffs on those who lose their jobs, they often forget about the struggles of those who remain with the organization. Noer (1993) labels these struggles “layoff survivor sickness” and identifies the debilitating symptoms that may accompany this sickness, such as anger, guilt, fatigue, stress, anxiety, and fear. Noer recognizes a major reason for the long-term suffering of layoff survivors is that they feel violated by changes in the psychological contract. Employees are dependent on supervisors to provide information and answers to questions that arise as resizing evolves. By keeping employees informed, these individuals can increase the likelihood that employees will view the changes in a more positive light. Man- agers need to be sensitive about correcting inaccurate rumors traveling along the corporate grapevine and set aside time to respond to questions concerning what is now expected for the company in the short term and the long term. Social Accounts During Resizing Efforts From a theoretical perspective, social accounts have been defined as managerial justifications used to explain the actions undertaken by an organization and its representatives (Sitkin & Bies, 1993; Rousseau & Tijoriwala 1999). These social accounts are intended to address employees’ questions concerning who is responsible for the actions taken, what the motives are for the action, and how un- favorable this action might be for employees (Sitkin & Bies, 1993). Previous research has demonstrated that social accounts can play an important role in facilitating a variety of desirable outcomes, such as helping to socialize new employees into an organization, managing conflict among a wide variety of parties (Sitkin & Bies, 1993), and avoiding retaliatory behaviors when employee pay has been cut or budget proposals have been rejected (Greenberg, 1990; Bies & Shapiro, 1988). Cobb and Wooten (1998) discuss why social accounts may have a significant effect on perceptions of fairness and consequently perceptions of psychological contract fulfillment in the midst of organizational change. They conclude that “social accounts can address the full range of justice issues that emerge in change” (p. 77). The full range of justice issues are distributive justice, procedural justice, and interactional justice. Distributive justice deals with the fairness of the outcome itself (such as job loss during a downsizing), procedural justice addresses the fairness of the procedures that guided the action (such as what the layoff criteria were and how they were determined), and interactional justice is the extent to which employees were treated with respect and dig- nity (for example, whether managers were empathetic when in- forming layoff victims of their job loss). Because social accounts can address all these issues, they are versatile and powerful justice interventions (Cobb & Wooten, 1998). Managers who effectively use social accounts during change initiatives are more likely to convince their followers that the changes taking place are fair, because they were caused by matters beyond the organization’s control (mitigating responsibility), implemented in order to facilitate the achievement of shared goals (exonerating motives), or far more desirable than any of the other feasible alternatives (reframing; Sitkin & Bies, 1993). In summary, reactions to changes in the psychological contract will be more positive when social accounts are taken at face value. Human Resource Practices That Increase the Likelihood of Resizing Success Previous research has demonstrated the adverse consequences of a poorly implemented downsizing effort. Negative effects can range from financial losses to reductions in employee morale and satisfaction to increased absenteeism and turnover (Mishra & Spreitzer, RESIZING AND THE PSYCHOLOGICAL CONTRACT 97 98 RESIZING THE ORGANIZATION 1998; De Meuse, Bergmann, & Vanderheiden, 1997). In recent studies that have examined the longitudinal effects of downsizing on an organization’s financial performance, the results are incon- clusive. There is a lack of strong data to support the belief that downsizing will solve the financial woes of an organization (Cascio, 1998; De Meuse et al., 1994; Vanderheiden, De Meuse, & Berg- mann, 1999). Downsizing is only one type of resizing strategy. Nev- ertheless, this strategy highlights the reality that organizations can no longer promise lifetime employment. Figure 5.1 summarizes and illustrates the value and importance of the human resource strategies discussed in this section as they relate to resizing and the psychological contract. Figure 5.1. The Value and Importance of Human Resource Strategies During Resizing. Continual Organizational Change Process • Change can be viewed as an opportunity for employees to acquire or update their skill set • Employees learn how to successfully adapt to change initiatives Employee Training and Development • Employees are aware of their job, role, and position within the organization through realistic job previews • Opportunity to target highly valued psychological contract areas in job previews Recruitment and Selection • Opportunity to align organizational and departmental strategies with employee needs • Better understanding of expectations and future organizational changes Performance Appraisal Employee Training and Development Without the promise of job security, employees frequently con- ceptualize other inducements they receive from the organization as part of the organization’s total rewards system. Employee training and development is a key facet of this reward system (Berg- mann & Scarpello, 2001). Employees expect that if they do not have job security with the new psychological contract, their employer should at least guarantee that it will provide them the training needed to maintain their marketability ( Jaffe & Scott, 1998). Although future employment may not be with their current employer, the employee will have a positive perception of the employment relationship because the employer is assisting the employee in two important ways. First, organizations allow the employee to view change as an opportunity by ensuring that they are able to acquire and update their skill sets. Second, organizations enable the employee to learn how to adapt to resizing initiatives successfully. In the context of downsizing, a critical piece to managing layoff survivors effectively is to communicate what, if any, changes to their jobs will occur as a result of the downsizing. In addition, management must allay their fears by providing training programs to employees who will experience significant changes in their responsibilities. If employees are confident that they can be successful in the resized organization, they will not be as inclined to resist the change. Resizing efforts also can bring about new opportunities for employees. A crucial aspect of managing a resizing process is to make sure that the remaining employees are clearly informed of the opportunities that exist in the changed work environment (Brockner, 1992). Performance Appraisal Supervisory and managerial personnel within organizations should receive guidance on giving employees adequate explanation of all job and role changes. Many of these recommendations may be in- tegrated within the performance appraisal process where employee expectations can be aligned with organizational and departmental strategies and objectives. Roles and responsibilities that are defined and delegated in conjunction with an employee’s needs and RESIZING AND THE PSYCHOLOGICAL CONTRACT 99 100 RESIZING THE ORGANIZATION development may provide them with additional motivation and en- couragement toward the common goals of the organization. For example, supervisors should assess how their subordinates’ needs and values may have changed during the year. Relational as- pects of the employment relationship, such as relations with coworkers, growth and development issues, and work-family as- pects, should be examined within the context of the performance appraisal process. Rewarding employees’ contributions in terms of their needs and expectations may give them additional incentive to achieve their job and role requirements, as well as engage in organizational citizenship behaviors (Organ, 1988). Recruitment and Selection Given that employee attitudes and behaviors are generally negative following a psychological contract violation, organizations may want to reexamine policies and practices that directly influence how employees formulate and create a psychological contract. One practice that can be applied to manage promises that the organization makes is to give realistic information (such as realistic job previews; Wanous, 1980). This information should be made salient to employees throughout their tenure in the organization, begin- ning during the recruitment and selection process. From an organizational cost-saving perspective, the implementation of realistic job previews can be quite substantial. In a recent meta-analysis, Phillips (1998) found that employees who were given realistic job previews prior to hiring were less likely to leave the organization. Given these findings, organizations should reeval- uate their recruitment policies and procedures and ensure they allow the applicant to fully understand the type of job, work group, organization, and employment relationship they are entering. The costs associated with using realistic job information are minimal and could be used by a business to reduce turnover, as well as increase employee satisfaction and performance (Wanous, 1980; Phillips, 1998). Furthermore, organizations may enhance their ability to fulfill psychological contract obligations by targeting highly valued psychological contract areas in their job previews. In other words, re- cruiters could gather information about an employee’s most valued outcomes (early in the process) and then specifically address what . by the firm. Human resource managers should ensure that employees RESIZING AND THE PSYCHOLOGICAL CONTRACT 95 96 RESIZING THE ORGANIZATION understand how the organization is trying to meet their. previously promised. During these dynamic times, employees become more focused on whether they feel the organization is treating them fairly. In other words, employees take time to process the information. addition, they should give employees the opportunity to express any new changes in their expectations of what they believe their organization should provide to them. By focusing on their needs,