The Concept of Flexible Organization - Term Paper Example

Table of Contents Introduction 2 Work Force Flexibility 3 Employment Relations and Functional Flexibility 7 Psychological Contract and Functional Flexibility 8 Conclusion 10 Bibliography 11 Introduction With the introduction of the concept of flexible organization in early 80’s by Atkinson, the organizations have moved towards the flexible structure in order to cope with the emerging challenges in the market place such as the cut-throat operative environment, changes in the internal and external labour markets, alterations in the demographic and psychographic trends of the customers, the recently developed trends of the 24/7 customer service culture etc. Achieving the work force flexibility has become one of the most significant organizational objectives during the last two decades (Sarantinos, 2007). The adaptation of flexibility model has induced the discussion on the employment relationship (ER) and effects of flexibility on the relationship between employees and organization. Flexibility has lead towards the development of new types of employment which significantly differ from the past types of employment such as very short term contract jobs, work at home, outsourcing various assignments etc. Today’s organizations demand flexibility at workplace, various skills, ability to work in different environment and cultures on different assignments, proficiency and high level performance at work place from their employees while the past organizational structure demanded commitment from the employees in exchange of job security (Claydon and Collin, 2005). For achieving high level of functional flexibility, in addition to the high compensation packages organization provide their employees with the opportunities of developing their skills by conducting training programs. This allows the employees to enhance their competencies in various skills and become more marketable (Claydon, 2004). This essay focuses on the increasing flexibility at work place and its impact on the employment relationship and the psychological contract, a social contract between the organization and the employee. It will try to reveal if the implementation of flexibility on the organizational level has led towards the alteration of employment relationship or the reduction of level of commitment towards the organization. It starts with the introduction of flexibility and the flexible firm model proposed by Atkinson (1984) with special emphasize on the labour force and 21st century competitive climate in the markets. The different theories and mechanism adapted by the organizations in order to achieve flexibility and the role of human resource management in utilizing the human resources of the organization to improve financial performance will be discussed in order to comprehend the impact of flexibility on the employment relationship, especially the employee commitment towards the employer and psychological contract which are essential concepts in the employment relationship. Work Force Flexibility It was the 1980’s when crucial changes took place in the work place and employment relationship, the relationship between the employer and the employees. Osterman (2001) revealed that the past employment culture promised extreme job securities and the employees enjoyed relatively longer job periods. In contrast, the decision making process was wholly dependent on the supervisors; the employees had limited role in the organization and was restricted to successfully accomplish the task assigned to them. The trend changed during the last two decades of the twentieth century, the increased pressure of domestic competition and international competition, advances in the technologies, important financial change etc compelled the business organizations to look for the augmented flexibility in order to enhance the yield, rapid responsiveness to changing markets situations and innovation. The business organization have adapted the strategies to eradicate the permanent jobs not only for the periphery group of work force but also for the core group, the skilled workforce who enjoyed more security of jobs and relatively long term careers (Hiltrop, 1995). Claydon and Collins (2005) conducted a study on the flexible firm model and described that determination of wages and workplace environment were highly affected by external as well as internal labour markets. The wages as well as workplace environment is controlled by the organizations and the occupational groups such as labour unions instead of the forces of supply and demand as described by the literature. Therefore, a sort of biasness may be introduced in these factors which may be in favour of one group and disadvantageous for others leading towards the concept of market segmentation. Labour market segmentation in turn underlies numerous features of flexibility in employment and employment relationship. A brief overview of the Atkinson’s flexibility model is given below. He suggested that human resources of a business organization could be classified into two major groups, the core group of work force and the periphery group of work force. According to Dyer (1998), the workers who are skilled and play crucial role in the decision making process of the business organization are classified as the core group, they are provided with high compensation packages for their services and enjoy more job securities as compared to the peripheral group. The workers included in the peripheral group are unskilled, are offered low compensations for their duties and are provided with low job securities with limited autonomy in the organization. The human resource management theories and practices can help the business organizations to exploit core as well as peripheral work force in order to crack the rigidities that are associated with the phenomenon of labour segmentation and reduction in the costs incurred by providing various benefits to the permanent workers in addition to their compensation packages. This strategic management of the human resource allows the firms to reduce the employment costs and the pressure of the employees which they exercise through their collective representation in the shape of trade unions, in this way business organizations infuse a flexible work force model. Defining the workforce flexibility can be very complicated but Atkinson’s four main classes of employment flexibility may help in understanding the core concepts of this phenomenon. Functional Flexibility is the foremost type of flexibility described by Atkinson (1984), the modern organizations have different channels of production and functional flexibility allows the employees to improve their existing skills and learn new skills and competencies in order to enhance their mobility across different production channels. The only way to achieve this type of flexibility for the employees is to go through extensive training programs. It is more likely to be pursued when the employment relationship becomes unstable and unsecure. The second type of flexibility proposed by Atkinson was the numerical flexibility, it involves the ability of the business organizations to adapt the required number of work force in short term depending upon the tasks and the market conditions. The numerical flexibility allows the organizations to achieve varying number of employees by hiring peripheral workers on short term contracts and core group work force on fixed term contracts, relatively longer than the contract of peripheral workers. This type of flexibility is associated with reduced job securities for both the core and peripheral group of workers. The third type of flexibility was termed as temporal flexibility by Atkinson (1984). It allows the business organizations to shift the working hours in order to fulfil the current production demands. The firms ask their workers to work overtime, expand or reduce the working hours for different periods of time according to the fluctuation of the products and services in the market place. Another way to achieve temporal flexibility is to hire part time employees during the increased demand for production. Financial flexibility was the fourth type of flexibility described by Atkinson; it encompasses all the efforts of the business organization to improve productivity and financial performance that are targeted at reducing the labour costs. For the application of this type of flexibility, organization may use temporal flexibility in order to save the costs by adjusting the wage levels of the employees according to the workplace performance of the individuals or groups of individuals on organizational level. As is evident from the above discussion, all types of flexibility do affect the employment relationship to some extent which may in turn affect their performance at workplace and their commitment to the organizations. According to Claydon (2004), the flexible firm model have faced a lot of criticism about it application in the real business world. The basic assumption of this model is the liberty it allows to the management to shape the employment relationship and systems according to its wishes and ignores the importance of the workers in shaping the type of employment system. Moreover, Claydon (2004) also reported that flexible firm model did not account for the absence of resolution system often faced at the top management level which is essential for formulating and implementing strategic management of human resources in long run. Despite all the criticism, it is obvious from the above discussion that this model entails all types of flexibility at organizational level, strategies adapted by the business organizations to reach each type of flexibility and outcomes of adapting different types of flexibilities to some extent. The empirical researches show that management of business organizations pursues numerical flexibility rather than other types of flexibility in the recent past (Collins and Claydon, 2005). The following section of the essay describes the effect of introducing flexibility on the employment relations, especially the phenomenon of psychological contract between the employer and the employees and the commitment on the part of the employees for their employers. Employment Relations and Functional Flexibility The massive restructuring within the organizational structure has occurred due to the adaptation of flexibility, this restructuring have forced both the organization and the employees to revisit their relationship (Claydon and Collin, 2005). The new variables have been introduced in this relationship as depicted in Figure I. It clearly shows that past employees enjoyed a stable professional climate, this stability and job security motivated them and aroused the feelings of loyalty as well as commitment towards their organizations. In return for this loyalty and commitment, they shared the responsibilities (autonomy), enjoyed promotional opportunities, financial incentives and higher compensation packages steadily. They experienced augmented guarantee of their career development in the organization. Figure 1: Comparison of Old and New Variables in Employment Relationship Source: (Sarantinos, 2007) But in the present flexible structures of the organization, the workers no more experience all the advantages mentioned above. The organizations stress on the immediate success instead of long term performance, employees are assessed and evaluated on the basis of their day to day or task to task performance. The job security, which motivated the workers and induced commitment for better performance, has been compromised due to the adaptation of functional, numerical, temporal or financial flexibility. The new environment induces individualism, uncertain environment at workplace, reduced commitment and loyalty (Sarantinos, 2007). The job security has been exchanged with training opportunities which are associated with increased marketability of the workers. The employment relationship has changed in nature from stable to flexible, the workers have no or little commitment towards the organizational goals and they prefer their own motives as a consequence of this flexible employment relationship. The comparison clearly shows that the relationship between employees and employer has radically become materialistic in nature. These changes may lead towards the reduction in the productivity and overall profitability of the organization. Psychological Contract and Functional Flexibility Psychological contract, a crucial element of the employment relationship, is described as “Individual’s beliefs, shaped by the organization, regarding the terms of an exchange relationship between the individual employee and the organization” (Beardwell, Holden & Claydon, 2004). Functional flexibility has weakened the psychological contract due to development of perception among the employees that the firm may violate this contract, the consequence of enhanced job insecurity. As mentioned above, functional flexibility tends to induce uncertainty and insecurity among employers; this tendency varies from culture to culture and region to region. Functional flexibility is associated with the development of voice that there will be no life time jobs in the future and it is bound to induce negative impacts on the performance of the employees as well as negative reactions. Although functional flexibility promises the decline in the power of trade unions as well all other forms in which employers can represent them together yet the individual negative reactions become more evident. One of the most crucial features of employee’s relationship with the organization is the dedication which cannot remain unaffected in the unstable environment of functionally flexible organizations. It is the psychological contract which induces commitment and devotion in the employment relationship as described above. Simply, this phenomenon can be described in the words that employees put forward their skills, labour, loyalty, commitment etc to the organization and in return of all these, they expect the compilation of the certain set of obligations from the organizations such as financial incentives, rewards, job security, employment benefits etc. In other words the organization expects that workers will work with maximum commitment to increase the financial performance of the organization, show loyalty, and help to attain all the objectives set by the organization (Pointon, 2004). According to CIPD (2003), psychological contract operates in all societies but it is never in the written form as the standard contracts between employee and organization are. However, it entails most features of the employment relationship and is affected by the functional flexibility to great extent. This contract helps both the parties to observe the realities of the situation and it has more influence on the behaviour of the workers at work place or the overall employment relationship. The content of this contract is based on the fairness and trust felt by the workers at workplace. Guest and Conway (2004) reported that organizational climate and specific human resource management policies determine the features of the psychological contract and the perception of the employees depends on the workplace environment. If the psychological contract is constructive, it leads towards the enhancement of the contentment and commitment and improved performance. If this contract is violated by the organization, it will induce negative impact on the overall performance of the workers. Adaptation to functional flexibility causes severe changes in the organizational structure as mentioned above, this changed workplace environment induces some workers to feel that organization has failed to fulfil its obligations in the psychological contract. This perception causes reduction in the loyalty, commitment and performance for achieving objectives set by the organization; this was termed as ‘breach of psychological contract’ on the part of business organization by Rousseau (1995), which affects the employment relationship and psychological contract pessimistically. Conclusion It is obvious from the above discussion that the organizations are conducting extensive efforts to achieve functional flexibility mainly with the motive of securing organizational interests while a little magnitude is given to interests, commitment and loyalty of core and peripheral work forces. Commitment is essential for any flexibility systems to work for the organizations (Hudson, 2002) but the changes in the organizational structure introduced for the development of functional flexibility certainly create the beliefs of job insecurity, pressure and uncertainty among the employees. The employment relationship as well psychological contract is adversely affected by the induction of these feelings among the workers, either skilled or unskilled. It is evident from the above discussion that flexibility is achieved on the expense of the employment relationship and psychological contract between the workers and the employer; it also causes negative impacts on the commitment level, satisfaction level and overall performance level of the workers. Bibliography Atkinson, J., 1984. ‘Manpower strategies for flexible organizations’, Personnel Management (8), 28 – 31. Beardwell, I., Holden, L. & Claydon T., 2004. Human resource management: A contemporary approach. 4th ed. Essex: Prentice Hall. CIPD staff, 2003. Managing the psychological contract, CIPD, [Online] http://www.cipd.co.uk/subjects/empreltns/psycntrct/psycontr.htm?IsSrchRes=1> [Accessed 23 August 2011] Claydon, T. & Collin T., 2005. Restructuring employment: Rigidity or flexibility, in Critical Perspectives on the employment relationship, DeMontfort University, Graduate school of business, pp. 29-39. Dyer, S., 1998. ‘Flexibility models: A critical analysis’. International Journal of Manpower, 19 (4). Pp. 223 – 233. Guest, E.D. & Conway, N., 2004. Employee well-being and the psychological contract: A report for the CIPD, Research report. London: CIPD publication. Hiltrop, J-M., 1995.The changing psychological contract: The human resource challenges for the 1990s. The European management journal. 13 (3). P. 286. Osterman, P., 2001. ‘Flexibility and commitment in the U.S labor market’. Employment paper 18, for the International Labor organisation, Geneva. Pointon, J., 2004. The individual and the organization, module notes. School of Business: De Montfort University. Rousseau, D. M., 1995. Psychological Contracts in ogranisations : Understanding written and unwritten agreements. Newbury Park, CA: Sage. Sarantinos, V., 2007. ‘Flexibility in the work place: What happens to commitment?’ Journal of business and public affairs, 1 (2). Pp.1 – 10. Read More