Restructuring On the matter of absolute size, adaptable companies strategically restructure their business units. For example, rather than making broad-based cutbacks, Tenneco adopted a strategy of shrink-and- grow, reducing head count aggressively in units and functions where opportunities for growth were limited and maintaining and often adding staff in areas with brighter prospects. Firms that have followed the dictums of reengineering typically streamlined work flows, reduced staff in noncore work areas, and outsourced in func- tions where human capital was not a distinct source of competitive advantage for the firm. American Express, Hewlett-Packard, Micro- soft, Procter & Gamble, and many other large organizations out- source activities that in the past would have been accomplished by their human resource and public relations departments. Siemens Business Services, a wholly owned subsidiary of Siemens AG, has an- nounced an outsourcing agreement whereby AT&T will manage its information technology network. Strategic alliances and joint ven- tures between firms are more dramatic means of resizing and re- shaping organizational structure to gain competitive advantage. Another structural change involves delayering. General Elec- tric, as one storied example, successfully eliminated between three and eight layers of management in its various businesses and saw its rates of productivity grow. Atlas Copco, the parent company for Rental Service Corporation, plans to remove layers of management that are reportedly slowing the company’s ability to react to change. The rationale for delayering is that it forces upper management to focus on strategic, longer term needs and empowers subordinates down the line to take charge of their work. We also believe that companies can more successfully resize when they have an adaptable organization structure. One such structure, identified by Handy (1989), is in the form of a shamrock with three “leaves” of employees. The first leaf consists of full-time core employees who are committed to the organization and its suc- cess. It is essential for organizational survival. Managers, techni- cians, and professionals populate this leaf. The second leaf encompasses people who fulfill specific needs of the organization. They typically are outside contractors that perform tasks that are not a primary focus of the organization. This saves firms some ORGANIZATIONAL ADAPTABILITY 351 TEAMFLY Team-Fly ® 352 RESIZING THE ORGANIZATION funds and gives them more flexibility to change contractors or eliminate the work. The third leaf is composed of contingent and temporary workers. These part-time or temporary workers perform a variety of tasks, such as clerical and technical support, and act as a buffer for the core employees of the organization. This shamrock structure rearranges a firm’s labor force into in- ternal and external labor markets. These two workforces meet dif- ferent organizational needs. The internal employees (first leaf) provide for stability and continuity and are seen as firm-specific re- sources. The external labor pool (the second and third leaves) in- creases organizational flexibility. An organizational structure composed of these distinct yet complementary labor forces offers new options for resizing. Typically, companies want to increase the human capital of core employees, imbue them with the firm’s vi- sion, and draw on their historic knowledge and familiarity with past practices. By comparison, external work assignments and arrange- ments can be altered more quickly and with less disruption than internal ones (Davis-Blake & Uzzi, 1993). And because employ- ment contracts with external contractors and contingent labor are typically short term, these workers can be let go without threaten- ing the company’s reputation or stability (Osterman, 1988). How commonplace is the three-leaf structure? It depends on the industry segment. Fortune 500 companies, for example, often spend liberally on specialized high-end consultants and outsource many of their back-office functions. They also maintain a large pro- portion of core employees. High-tech firms and dot-coms, by com- parison, keep their core relatively small and rely more on contracts, alliances, and joint ventures to get the work out. It is clear that a labor market is developing in line with this new organizational form. One new form of contract employment is the interim manager, who typically provides clients with short-term cov- erage for a functional area or a specific project (Inkson, Heising, & Rousseau, 2001). Organizations using these self-employed man- agers gain the skills needed for an activity or temporary role with- out making a longer-term employment commitment. On a broader scale, temporary employment agencies like Manpower can literally rent a workforce to a firm to produce a product or deliver a ser- vice. Manpower has been among the fastest-growing employers in the United States. Retraining People Adaptable firms resize effectively by retraining their surviving em- ployees, as well as by reorienting their overall training philosophy. Hall and Mirvis (1995) argue that training employees for a specific position is not appropriate in today’s turbulent business environ- ment. Resizing, when accompanied by restructuring, often changes the mix of work in a firm and the knowledge and skills that an em- ployee needs to be successful. Continuous learning enables em- ployees to more effectively perform the changing assignments often associated with a shakeup of roles and responsibilities. Continuous learning gives employees confidence to constantly acquire new skills. Firms like Corning, Kodak, and Dow Chemical maintain skill banks that track employee development and en- courage employees to learn by challenging them with special proj- ects and varied work assignments. This model of continuous learning increases the adaptability of the organization because em- ployees can be successfully moved in and out of different positions as a firm changes its size and shape. Furthermore, employees who are let go in the process should be more attractive job candidates given their ability to acquire new skills. Interestingly, the case has been made that continuous learning also may prevent some downsizing in companies. The argument is that firms gain a competitive advantage based on the broader skills of their workforce and ability to redeploy human assets more rapidly and at less cost. Although few companies provide lifetime employment security today, Hewlett-Packard, Herman Miller, and selected others have made a commitment to regularly relocate dis- placed employees rather than hire in from the outside as long as employees develop and maintain a broad skill set. These firms have implemented smaller reductions in force than other comparable firms in their industry and have become a magnet for top talent. Retaining Talent Although all employees contribute to an organization’s total human capital, certain workers are more valuable than others, and during a resizing, these key employees are critical to the success of the ORGANIZATIONAL ADAPTABILITY 353 354 RESIZING THE ORGANIZATION firm. However, they also are often the most marketable and may be easily attracted to employment opportunities elsewhere. Adapt- able companies make a point of holding on to top talent even as less valuable employees are let go. Organizations have managed to differentiate and retain top tal- ent through a variety of practices. For example, large firms like PP&G, Unilever, and Honeywell have special programs aimed at high-potential employees and groom them with key assignments and senior mentors. IBM, Compaq, the Big Five accounting firms, and other leading high-tech and professional firms have technical career ladders that provide individual contributors with recogni- tion and pay increases commensurate with those offered to people moving up the managerial career ladder. Taking a different tack, SAS Institute focuses on helping its people balance the competing pressures of work and family. It provides flextime, part-time em- ployment options, low-cost day care, and on-site fitness facilities (Stein, 2000). These efforts help to ensure that a company retains the talent needed to cope with problems and exploit opportunities as they arise—at least more so than competitors. Other Forms of Adaptable Restructuring New kinds of career ladders and flexible work arrangements are themselves a form of adaptable restructuring. Indeed, studies find that companies that develop them also are likely to retrain their employees and restructure themselves regularly in the light of changing circumstances (Mirvis, 1997). At the other end of the workforce, companies are resizing and reshaping themselves through ranking systems. General Electric, Ford, and other firms now rate their employees as A, B, or C per- formers and insist that the bottom segment either improve or leave. This rank-and-yank system, while in principle aimed at in- creasing a firm’s human capital, has experienced less satisfactory side effects. At Ford, for example, older workers are more likely to be ranked as C, and the company has been hit with several lawsuits. Other firms have seen rankings marred by bad judgment and petty politics. Organizational Culture Adaptable organizations use the 3Rs to maintain and productively use human assets even as units shrink and grow. However, flexible structures are only part of the answer to adaptability. Companies also need adaptable cultures and employees. Schein (1992) defines culture as “a pattern of shared basic as- sumptions that the group learns as it solved its problems of exter- nal adaptation and internal integration, that has worked well enough to be considered valid and, therefore, to be taught to new members as the correct way to perceive, think, and feel in relation to those problems” (p. 12). For our purposes, an adaptable orga- nizational culture does not emphasize change for its own sake; adaptability is not the equivalent of changeability. Rather, an adapt- able culture carries learnings and experiences that guide correct changes. One characteristic is a predilection for proactive, not re- active, responses to the marketplace. Denison and Mishra (1995) stress the importance of an orga- nization’s ability to make necessary changes while maintaining the core identity of the firm. They define an adaptable culture as one that balances the need for making changes and trying out new ideas with maintaining the organization’s core values and goals. A body of research demonstrates a positive, significant relationship between an adaptive culture and organizational performance (Christensen & Gordon, 1999; Kotter & Heskett, 1992; Denison & Mishra, 1995). It may help to think of structure as the anatomy of a firm and culture as its physiology. Culture is what animates structure and brings the organization to life. For example, even as differentia- tion moves activity to an organization’s boundaries, it is the culture that dictates whether a firm sees problems or opportunities. In the same way as integration pulls things together, culture influences whether action is cooperative or conflictual. An organizational structure can be no more or less flexible than is deemed valid and acceptable in a company culture. Company cultures are modified from the outside in as a chang- ing environment dictates new actions, and the business either adapts or not. However, cultures also are changed from the inside ORGANIZATIONAL ADAPTABILITY 355 356 RESIZING THE ORGANIZATION out as people depart along with organizational memory. One pro- found kind of reshaping in organizations relates to the demographic makeup of the workforce. When members leave a company, its corporate culture and subcultures are affected. This is especially true when older employees who have a long and deep knowledge of the organization and its history and lore are let go (Mirvis & Hall, 1996). Sometimes a disproportionate segment of older workers de- part a company because of its type of business (such as downsizing in a mature industry) or because of actions taken relative to roles and positions (such as delayering or outsourcing). In other situa- tions, older employees are specifically singled out for early retire- ment. Some companies facing a reduction seem to view younger employees as more valuable than the stereotypical inflexible, slow, older worker. It should be noted, however, older employees are cul- ture carriers and play an important role in an organization’s abil- ity to use corporate culture as a source of competitive advantage. Using our frame of reference, adaptable organizations recognize this culture-carrying function and are cautious about losing older employees. Resizing affects an organization’s culture. When employees are let go, they carry the company culture out the door. Employees who remain (the survivors) often develop more negative attitudes about their company, whose culture may be changing as a result of downsizing activity. Organizations with adaptable cultures are able to deal suc- cessfully with survivor sickness and maintain at least some cultural continuity (Noer, 1993). They do so not only by retraining and re- tention programs, but also by rebuilding and strengthening their culture during and after the resizing process. This means revisit- ing and revising basic assumptions about how things work in the company and transmitting and inculcating new messages, values, and norms. This process might be called reculturation. Dealing with Survivor Sickness Organizations with adaptable cultures recognize that before they can begin to rebuild a new organization, the anger, sense of loss, and uncertainty felt by the remaining employees must be ad- dressed. Mirvis and Marks (1991) recommend that employees be allowed to grieve the loss of valued coworkers and customs aban- doned as a result of cutbacks. This grieving process allows not only for mourning but also for venting anger, expressing cynicism, and challenging more senior managers on whether they have “walked the talk.” In turn, there may be a need to resocialize employees in new ways of doing business. Organizational socialization, which en- compasses the processes through which an employee learns about and adapts to a new situation (Chao, O’Leary-Kelly, Wolf, Klein, & Gardner, 1994), is most pronounced for newcomers in a company. However, socialization can occur whenever an individual takes on a new role or responsibility or experiences life changes that alter how he or she works (Feldman, 1989; Morrison & Hock, 1992; Van Maanen, 1976, 1984). Schein (1992) suggests that socialization is necessary whenever an employee experiences change on any of three specific dimen- sions: (1) functional, which involves moving from one area of an organization to another; (2) hierarchical, representing a change in power or status; and (3) inclusion, which concerns how central an individual is to the workings within his or her work unit or team. Employees involved in resizing may face changes in all three of these dimensions. Mergers and acquisitions and other combinations often join companies with different business models and organizational struc- tures. Employees who previously worked in a staff function, for in- stance, may have to move into a line-of-business function following a merger. In turn, some individuals may be further removed from the perceived power center, as when companies institute dual head offices or find that their formerly decentralized position has been centralized. Finally, acquired employees may find themselves part of a combined team that operates according to the rules and regi- mens of their acquirer. Organizations with adaptive cultures use a myriad of accultur- ation methods to combat survivor sickness and cope with changes in work designs and norms (Noer, 1993). Relevant techniques range from creating mission statements and new employee con- tracts to enacting new cultural stories and rituals. For example, when AT&T’s Communications and Information Systems divisions ORGANIZATIONAL ADAPTABILITY 357 358 RESIZING THE ORGANIZATION internally merged, the head of the newly created Network Oper- ating Group was concerned about survivor sickness and how to de- velop cooperation and a sense of group identity among the employees (Marks & Mirvis, 1992). He arranged for a reorienta- tion retreat in which employees from both of the combined units openly discussed their different approaches to conducting busi- ness and participated in team-building exercises. The retreat ended with an exercise in which the employees ceremoniously let go of their worries and fears about the merger and graduated to membership in the new work team. By taking the time to discuss employees’ concerns and feelings about organizational changes, companies can increase the likelihood that their employees will re- main committed, loyal, and productive. Reculturation Organizations with adaptable cultures recognize the importance of reculturation as they change their size and shape. Reculturation takes on special significance when members of task forces or work groups are chartered with rebuilding their business and cultures. Many companies have empowered task forces and work teams to manage changes in their business. Marks (1993), for example, cites several instances where teams planned and executed downsizings and then developed practices to help heal the sense of loss and re- build the work culture. Changes in strategy are another occasion for reculturation. Companies that turn work over to suppliers to form joint ventures or alliances or that choose to distribute through franchisers change their size and shape, as well as experience change in their corpo- rate culture. Typically, this involves a turnover in management and often a changeover in staff. Techniques such as a goals-and-roles exercise, where business units redefine their goals in the light of new strategies and employees renegotiate their roles and respon- sibilities, help in building a new organizational culture. Changes in the composition of a workforce also require atten- tion to culture. The entry of many more women into companies and increasing numbers of nonwhite workers at all levels in com- panies influence the prevailing company culture. Many firms like to think of themselves as multicultural and as valuing diversity. This message is communicated to employees and external stakeholders regularly in companies like IBM and businesses like Benetton. Changes in image and identity contribute to changes in organiza- tion culture (Hatch & Schultz, 2001). Employees Structure and culture concern macrolevel dimensions of an orga- nization. We propose that it is time to consider how individual em- ployees affect an organization’s ability to cope successfully with the changes associated with resizing. In this regard, Champy (1995) suggests that many restructuring efforts are troubled because they fail to pay attention to the needs and capabilities of employees. We next consider what makes for adaptable employees and how their adaptability bears on company resizing. Resizing often challenges employees with new tasks and dif- ferent roles within their organization. An adaptable organization is composed of flexible structures and a responsive culture. It also has a workforce that copes effectively with ambiguity and uncer- tainty and is capable of responding quickly to change. Research has demonstrated that certain personality variables affect people’s ability to cope with change and are brought into play in resizing (Kobasa, 1982; Judge, Thoresen, Pucik, & Welbourne, 1999). One personality characteristic associated with coping skills is an internal locus of control. People with an internal locus of con- trol believe that they have control over their work environment and are responsible for their success in that environment (Rotter, 1966). This feeling of control increases their self-confidence and helps them cope with the stress associated with the change ( Judge et al., 1999). More broadly, research demonstrates a strong rela- tionship between an internal locus of control and successful adap- tation to change (Kobasa, 1982; Lau & Woodman, 1995; Callan, Terry, & Schweitzer, 1994). Psychological hardiness is another personality trait associated with adaptability. Hardiness is a composite of three dispositions: a sense of control, commitment, and challenge (Kobasa, 1979). Within this framework, control represents a feeling of being an in- fluential participant in life events rather than a helpless, passive observer. Commitment is a feeling of involvement as opposed to ORGANIZATIONAL ADAPTABILITY 359 360 RESIZING THE ORGANIZATION alienation in life events. And challenge is described as an aware- ness of continual change throughout one’s lifetime and a belief that these changes are not to be feared or avoided but rather to be seen as opportunities for individual growth. Research shows that hardy individuals feel more in control and optimistic when faced with a stressful experience than their less hardy counterparts (Rhodewalt & Agustsdottir, 1984). Hardy individuals also appear to be less stressed by changes in their work environment (Rush, Schoel, & Barnard, 1995). Various other personality variables also appear to influence the adaptability of an employee. For instance, open-mindedness is as- sociated with adaptability, as is self-esteem (Folkman, Lazarus, Gruen, & DeLongis, 1986; Ashford, 1986; Callan et al., 1994). Self- efficacy or the faith in one’s capabilities to organize and execute a course of action also appears to play a role in how employees re- spond to critical career experiences such as job loss and career changes (Holmes & Werbel, 1992; Stumpf, Brief, & Hartman, 1987). Judge and his colleagues (1999) reported a positive rela- tionship between people’s self-esteem and self-efficacy and their ability to cope with organizational change. Based on these personality traits, Lau and Woodman (1995) contend that an individual’s change schemata shape perceptions of and reactions to organizational changes. Three dimensions form a change schema according to Fiske and Taylor (1984). Beliefs about causality, the first dimension, provide a frame of reference for why the changes are occurring. The second dimension, va- lence, refers to the importance placed on changes. And inferences, the third dimension, refer to predictions made about how the changes will affect an individual. Through a change schema, per- sonality characteristics such as locus of control, self-efficacy, and hardiness factor into how people perceive a resizing effort in their companies, gauge their vulnerability and the consequences, and develop a coping strategy. Recruiting and Selecting for Adaptability Because one factor affecting the success of resizing is the workforce, organizational leaders are well advised to pay attention to individ- ual adaptability when recruiting and selecting employees. Psycho- logical measures of locus of control, hardiness, self-efficacy, and . than others, and during a resizing, these key employees are critical to the success of the ORGANIZATIONAL ADAPTABILITY 353 354 RESIZING THE ORGANIZATION firm. However, they also are often the most. (Mirvis, 1997). At the other end of the workforce, companies are resizing and reshaping themselves through ranking systems. General Electric, Ford, and other firms now rate their employees as. ADAPTABILITY 355 356 RESIZING THE ORGANIZATION out as people depart along with organizational memory. One pro- found kind of reshaping in organizations relates to the demographic makeup of the workforce.