The De-motivation and Demoralization of Employees - Essay Example

Downsizing is not a new management term. In the early 1990s, the term downsizing was devised to refer to the numerous ways by which management cut cost through workforce reduction. (Marks & De Meuse 2003) However, although downsizing is no longer new, debates on its efficacy are on going today because the magnitude it has reached for more than many years now left an impact that could no longer be ignored. One of the main concerns of this debate is the effect of downsizing on employees, who Wood (1991) stressed in her discussion of corporate social performance, are “the organisation’s lifeblood” (p. 693). Specifically, the debate on whether or not downsizing demoralises and motivates employees is the issue this paper would like to delve on. Downsizing: Management’s Usual Coping Mechanism against Today’s Economic Crisis Nothing is constant in this world except change. Change is progressive. It is inevitable that it has to be addressed, no matter what. The more you avoid it, the worse you end up, yet you should not also deal with it haphazardly. In a fast developing world, change is something you should always prepare for, because the faster development occurs and so is with change. This is the dilemma most companies, big and small, confront today especially so that in a continuously changing global economy, companies see their survival primarily on the displacement of employees. What initially was an American phenomenon has transcended national borders. Several European organizations (including Volvo, British Airways, Vivendi, and Alcatel), as well as Asian companies, such as Fuji, Sony, Toshiba, Nissan, and Daewoo, have experienced layoffs, divestitures, and closings in recent years. This downsizing is especially significant given the labour laws, worker councils, and national cultures that traditionally have supported lifelong relationships between employers and employees. In China, for example, mores were at one time so strong that this type of organizational activity was referred to as ‘taking away someones rice bowl’ (that is, the company would be removing an individuals means of income). (Marks & De Meuse 2003, p. 3) These downsizing practices have been gaining criticism from different sections of society in every part of the globe. This dilemma becomes more pronounced as the world economy worsens because competition among corporations becomes stiffer and harsher further sharpening the inherent contradiction between labour and capital. In their study of industrial relations systems in the UK, Turnbull, Blyton & Harvey (2004) observed that, adversarialism rather than partnership is preferred both by management and labour believing that they can pursue better their clashing interest under such relationship. But reality check shows that alterations of laws in regulating the process by which to determine wage and other similar socio-economic forms predominantly protect the employer’s stake. Particularly in the UK, efforts to coordinate wage determination were foiled in favour of capital-oriented reforms despite the resistance of trade unions. (Koch 2005) Not to mention the fact that a few decades ago, labour markets in Europe have been increasingly deregulated and flexed resulting to dangerously unstable employment relationships. (Golsch 2003) As corporations confront opposing demands and interests in an ever increasingly competitive market, they are obliged to choose which to satisfy and which to compromise (Rayburn & Rayburn 1998), especially in this era of globalisation. Globalisation has brought dramatic changes to world economy. It has transcended space and time. With a borderless market, the contour of competition has drastically changed and has forced organisations to restructure in varied ways possible. And with a diminishing consumer demand, a large part of the corporate world, starting from corporate America viewed that the best way to market recovery is to contract flexible resources, specifically its human resources. (Buono 2003) It has been repeatedly proven that in a declining global economy, despite managers claim as expressed by Henry Schacht, Chairman and CEO of Lucent Technologies that “The most difficult decision any executive has to make is to reduce the size of the company” (As cited in Marks & De Meuse 2003, p. 1), still the most common method companies do employ to survive is organisational downsizing, also known as the abolition of positions or tasks (Noronha & D’Cruz 2005), workforce reduction (Krake-Shalhoub 1999), or laying-off employees (Downs 2009). This, consistent with the economic theory many companies believed, would give way to cost-cut operating expenses, rationalise the organisation, modernise operations, select most productive employees and get rid of unproductive ones, improve overall performance, and eventually transform the company into a more competitive market force. In short, it is expected that downsizing would result to efficient yet economised operation of the organisation towards improved financial performance. (Collins and Rodrik 1991; Jensen 1986; McKinley et al. 1995; Neinstedt 1989, as cited in De Meuse, Bergmann, Vanderheiden, & Roraffs 2004). On the contrary, however, several studies conducted by De Meuse and Tornow (1990), Gombola and Tsetsekos (1992), Mishra and Spreitzer (1998), Noer (1993), Pfeffer (1998), Reich (1993), and Worrell et al. (1991) uphold that actually downsizing adversely affect organisations to the point of essentially negating its very intention. Among those negative effects stated were: lessened gain, sluggish dividend growth, lesser stock prices, demoralised and dissatisfied employee, intensified tardiness and absenteeism, increased turnover, more stressful workloads, and greater company health care expenses. (As cited in De Meuse, et al. 2004) Not to mention recent contentions that downsizing negatively affect informal communication network thereby interrupts or even worse, injures the capability of the organisation to become responsive to the changing needs of its environment. (Fisher & White 2000; Lei & Hitt 1995, as cited in De Meuse, et al. 2004) With its widespread practice, Heenan (1989) assumed downsizing is 1980s’ most remarkable change in business. It is a major phenomenon, that almost all organisation, be it private or public, resorts to downsizing even those, which prided themselves to be cognisant of employment security. (Karake-Shalhoub 1999) Because of this, downsizing has been an object of mockery, especially from among employees. With downsizing, people say that the rule of the decade is no other than constant change and insecurity. (Noronha & D’Cruz 2005) Believing that the great cost of downsizing is still lesser than the overall benefit it may produce on the organization, companies have frequently utilised downsizing in an attempt to reinvigorate a weakened business. Thus, despite the absence of solid evidence that may validate the efficacy of downsizing still, companies are too willing to compromise the most progressive part of production – the employees or labour, which human resource management considers most important. (Marks & De Meuse 2003; Buono 2003) This deficiency further puts the efficacy of downsizing into question, especially from the advocates of the psychological contract theory. Real Effect of Downsizing on Employees: Revitalising or Damaging? To begin with, it would be better to come up with a common understanding of downsizing as to its definition, attributes and strategies involved. For this, a rich body of literature would give us enlightenment. Varied literature defined corporate downsizing as a technique, a process, or a mechanism by which management economises through workforce reduction in an attempt to gain more and succeed in a stiff global competition. (Karake-Shalhoub 1999; Marks & De Meuse 2003; Wiley, Brooks & Hause 2003) Why is labour always the object of cost cutting? Because labour comprises the largest part in the organisation’s operating expenses. For further enlightenment, it would be relevant to look into Freeman and Cameron’s (1993) four attributes of downsizing: First, it is done purposefully; second, it primarily entails reduction of the workforce; third, it aims organisational efficiency; fourth, it inevitably affect, directly or indirectly, the organisation’s internal operation. (As cited in Karake-Shalhoub 1999) Moreover, companies have consistently utilised two main strategies by which to implement downsizing on their diversely aged employees: Old employees may have an early or forced retirement, and younger ones may be dismissed involuntarily such as be laid-off, be forced to resign or be displaced through outsourcing. Both see to it that the defined quota on hiring is met. (Perry, 1984 and Hardy 1987, as cited in Karake-Shalhoub 1999; Marks & De Meuse 2003) The ugly part however, is that, although the workforce is reduced, the tasks of the laid-off employees are left behind which most probably would be passed-on the survivors, who would then end-up multi-tasked. In principle, downsizing is meant to restructure the organisation for it to be competitive. However, worldwide experiences of downsizing illustrate its inevitable repercussions on the efficiency and effectiveness of the organisation and most importantly on the well being of its vulnerable employees – the victims of downsizing, whether they are dismissed or not. One observable unintended consequence is the violation of the traditional employer-employee relationship. If before, employee’s loyalty was being repaid with secured tenure and efficiency was being recompensed with incentives, today, that is no longer the case. Employee commitment and loyalty to the organisation no longer guarantee job security. With economic crisis at its worst, employees only see instability and bleak future. Job security suddenly becomes an obsolete agenda. Such is the predicament of labour. However, even on management’s side, the expected efficiency and cooperation of the remaining employees turned out the opposite – employees become distrustful, less fruitful and more apprehensive. (Karake-Shalhoub 1999) Several data would attest to this. Brandes, et al. (2008) stated that for the past 25 years the extensive layoffs have resulted to ‘organisational cynicism’ characterised by a supreme level of suspicion and dissatisfaction in organisations. Such could only bring about dysfunctional results, although there may be an exceptional case, where positive consequence may transpire given the favourable conditions. In a survey of insurance firms that had downsized, Karake-Shalhoub (1999) revealed that 80 percent of the respondents reported that their financial recovery is being slowed down by the low morale of their employees. Furthermore, activists of the social responsibility movement stressed that, “layoffs have devastated the industrial workforce, leaving workers with little hope for job security and improving economic prospects” (Karake-Shalhoub 1999, p. 14). The demoralisation of employees due to downsizing could be better understood from the perspective of the psychological contract theory. This theory asserts that a symbiotic relationship built on trust do exist between employees and their corresponding organisation. It is this trust that makes these opposing sides work together and be productive. Thus, understandably, any organisational change could potentially affect this relationship. In this regard, downsizing with its given nature and purpose could be possibly viewed by employees to be a breach of contract (De Meuse and Tornow 1990; Morrison and Robinson 1997; Rousseau 1995, as cited in De Meuse, et al. 2004), which may negatively affect not only the employee’s job performance, but consequentially the organisation’s financial performance. (Karake-Shalhoub 1999) Empirical research on organizational decline and downsizing supports the psychological contract theory with the following findings, that downsizing correlates with employee’s low morale (Billings, Milburn, and Schaalman 1980), employees’ loss of confidence on their leader (Kantz 1985), greater instability and confusion (Hall and Mansfield, 1971), intensified level of insecurity and doubt (Hardy 1987), and lesser employee participation but necessary greater control and supervision (Cameron et al. 1983). (As cited in Karake-Shalhoub 1999) With these, management has created more problems than solution. As Morrison and Robinson (1997) vividly described: “The erosion of the psychological contract, which carries a strong emotional component, leads to a range of feelings and reactions ranging from initial disappointment, frustration, and distress to outright anger, resentment, and bitterness of betrayal by the organization” (As cited in Buono 2003, p. 311). As a result, Rousseau (1995), Robinson & Morrison (1995), and Robinson and Rousseau (1994) furthered that “employee trust toward the organisation is undermined, job and organisational satisfaction plummet, and intention to remain even among valued members wanes, causing people to reduce their efforts, withhold contributions, or exit the organization” (As cited in Buono 2003, p. 311). Also, this leads to high level of individualism, constricted outlook, and short sightedness, where employees become much more concerned on their own needs and survival rather than on the broader need and situation of the organisation. This only proves that ignoring such common agreement would consequentially result to a lessened employee morale, loyalty, and devotion – the same qualities necessary for downsized organisations to get through hard times. (Buono 2003) Even more alarming is its extended effect wherein, demoralisation happens not only on the victims of downsizing but even on the so-called survivors. This, Buono (2003) referred to as “the survivor syndrome” (p. 312) is characterized by guilt and anxiety (Applebaum & Donia 2000; Brockner 1992; Brockner, Grover, OMalley, Reed, & Glynn 1993; Brockner, Grover, Reed, & DeWitt 1992 as cited in Buono, 2003) making them less attached and less committed to the organisation thereby less productive. Worse, this situation is further exacerbated by the company’s natural recourse to overload survivors, which results to the employee’s ill-preparedness, mediocre performance, stress and dissatisfaction, aggravating employee’s demoralisation and de-motivation. In the end, the result is contrary to what downsizing intended. On the other hand, Applebaum, Simpson and Shapiro (1987) argued that downsizing can be revitalising provided it is done in the framework of integrative human resource planning and strategic planning and that all other alternatives are exhausted. In case downsizing is inescapable, they suggested that the following should be carefully considered: there should be well-defined selection criteria; it should be conducted just in time; it should be discretely implemented; it should be clearly and responsibly communicated with the employees; and it should be combined with ‘outplacement assistance program’ not only to fulfil the company’s corporate responsibility, but most importantly, from the management perspective, to remain a reputable employer. This will not only give the company a positive image in the market, but most importantly, it will also contain the possible negative effects of downsizing on the survivors and on the organisation as a whole. (As cited in Karake-Shalhoub 1999) Essentially, corporate downsizing oftentimes fail because, as Karake-Shalhoub (1999) summed it up, “when companies downsize, they often focus their energies on the people who are to be dismissed. These organizations tend to ignore the problems experienced by employees who remain with the company” (p. 64). Varied literatures have corroborated on the damaging effects of downsizing, more so when employed irresponsibly. However, with downsizing an unavoidable painful reality in an economic downturn, it is also wise to consider its revitalising effect even how difficult it may be achieved. Against all these criticisms, it should be remembered that the first and foremost social responsibility of any business enterprise is to make the economy grow (Drucker 1974), ultimately to improve society and human lives. With downsizing as a mechanism to re-invigorate a staggering business, the corporation’s social responsibility is painfully subjected to a formidable test. (Krake-Shalhoub 1999) It is a great challenge to managers, because it is too complicated that success depends on how sensibly and sensitively it was implemented. In short, the challenge of downsizing lies in “maximizing gain while minimizing pain” (De Meuse and Marks 2003, p. 1). Conclusion The above discussion clearly illustrated that downsizing alone cannot bring about efficiency, improve the course of business, or further satisfy customer. These are incongruent to reality, because the result of downsizing pointed otherwise. It, instead, demoralised employees, wasted seasoned and well-trained employees, disturbed schedules of production, and ignited the possibility of union strikes. (Rayburn &Rayburn 1998) For the purpose of this paper, downsizing, most probably than not clearly demoralises and de-motivates employees on the following grounds: First, the employer-employee relationship rests on a mutual obligation beneficial to both parties. Although a legal contract sealed this relationship, it is actually the mutual trust that each would do the end of the bargain that would make this relationship binding and sacred. In the case of downsizing, job security is taken away from the employees, rocking the very core of this relationship because the employee is denied source of living, which could mean, in this deep crisis, taking away the employee’s life. In other words, the very thing that inspires and motivates employees is the thought that when they perform well, they would be treasured by the company and thus be insured for life. But, downsizing has eroded all these. It has taken out this (job security) very source of the employee’s motivation and inspiration. This demoralising and de-motivating effect is true not only to those laid-off but even to those survivors. If those laid-off were displaced physically and economically, those survivors were also displaced emotionally and psychologically. Everyday, they have to work even harder hoping that this would be enough for them not to be laid-off. Compounded with a stressful load, which is not remunerated justly, because the company has to economise, together with a changed atmosphere in the workplace, the survivor is continuously threatened and becomes dissatisfied with the job. And job dissatisfaction is a source of demoralisation and de-motivation, because on the contrary, “more satisfied employees have a stronger sense of organizational commitment” (Dennis 1998, p. 96). Second, if the downsizing is so big (20%), eliminating even those who are in fact productive will be inescapable. And losing someone productive would be detrimental to business progress. Even on the part of the survivors who are equally productive, this would bring demoralisation because if it happened to those similarly productive employees, then it may happen to them, too, because nothing could guarantee their job security. Third, downsizing causes employees to be cynical and cynicism breeds apathy consequentially de-motivation and demoralisation. “Cynicism develops when employees believe that their organization lacks integrity, is deceitful, and cannot be counted on to keep its word” (Dean, Brandes, & Dharwadkar 1998, as cited in Brandes 2008, p. 233). Fourth, knowing that downsizing is a result of economic crisis may create two differing attitudes in the survivors. One, they may work harder not because they are inspired and motivated, but because they are threatened. They know that they have to work hard for the company to survive the crisis, because this might also save their jobs. The effect of this may be positive if and only if, the company and the employee survived, but if not, it may result to frustration and total hopelessness. Two, knowing that the present economic crisis requires a deeper and wider solution to reverse its downward trend, then, the employee might only work for the sake of working while preparing for his/her turn to be laid-off. Whichever of the two, demoralisation and de-motivation would most likely to occur. Fifth, taking all the first four scenarios, massive downsizing would lead employees to question the reliability of their government. Why did the government allow companies to take away job security, which has been long fought by the labour movement? If the state does not safeguard the interest of labour, who will? The once cooled down conflict between labour and management would again be rekindled awakening the inherent conflict in the interest of labour (employee) and capital (employer). This thought would most likely push labour to reorganise, with the belief that they have nothing to hope from this government that they feed with high taxes of their life and blood of hard work and from this company that they serve well. Thus, employees are demoralised to work cooperatively with the company, because they were betrayed. Such demoralising thought would sharpen the once lightened dividing line between labour and capital. Instead of encouraging employees to work cooperatively for the betterment of the company, the detachment that downsizing has created will put labour to high morale ground against the company believing that indeed, cooperation between labour and capital is only temporary because when crisis strikes, employees are the sacrificial lambs. What labour needs to protect its lifetime interest is to strike. Even those survivors could share this view because employees share the same predicament: with downsizing, there is no longer job security and that the labour movement should again re-organise and strengthen itself to be able to stand and fight for its interest. To manage the seemingly irreconcilable interest of labour and capital in today’s economic context is far too complicated. But choosing the right approach after a thorough study of the problem would be a good starting point. The turning point lies in the process of the implementation. In the case of downsizing, it is true that it is more prone in causing demoralisation and de-motivation, which negatively affect production. However, the study did not say that it couldn’t help in reviving the economy. What it stressed is that downsizing is so delicate because it deals with people. So, if ever it’s the remaining solution, employ it with care, because people are fragile but the most productive. 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