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 organization 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 expectations 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. RESIZING AND THE PSYCHOLOGICAL CONTRACT 101 TEAMFLY Team-Fly ® 102 RESIZING THE ORGANIZATION 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. 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RESIZING AND THE PSYCHOLOGICAL CONTRACT 107 CHAPTER 6 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). DOWNSIZING AND EMPLOYEE FULFILLMENT AND ORGANIZATIONAL CAPABILITY 109 110 RESIZING THE ORGANIZATION 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. . 61, 1055–1064. RESIZING AND THE PSYCHOLOGICAL CONTRACT 103 104 RESIZING THE ORGANIZATION Huseman, R., Hatfield, J., & Miles, E. (1987). A new perspective on equity theory: The equity sensitivity. 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. RESIZING. FULFILLMENT AND ORGANIZATIONAL CAPABILITY 109 110 RESIZING THE ORGANIZATION It is clear from the description provided that Rucci et al. (1998) relied on measurement systems focused on the extent to