The psychological contract is a little difficult to define because as George (2009, pg3) states it ‘is implicit in that it is unspoken, unwritten and often only becomes apparent when it is breached, causing feelings of violation’ none the less it is extremely important part of the business and can be what ‘binds the employee and the employer together’ (Robinson and Rousseau, citied in George 2009 pg4) ‘through the mutual expectations of input and outcome’ outlined by Businessballs (2010) CIPD (2004, p5) outlines some of the things that people look for in a psychological contract: Employee attitude surveys undertaken by the CIPD since 1996 have been analysed by David Guest, Kings College London, and Neil Conway, Birkbeck College.
The surveys have consistently focused on a number of key issues, including: satisfaction, motivation, fairness, trust, job security, loyalty, work–life balance, commitment.
Downsizing is the process of removing layers from the company, sometimes known as retrenchment, involving potential redundancies, wage cuts and other general cut backs (Rollinson p41).
In this text I will be looking at the effects downsizing can have on the psychological contract whether it can reduce the likelihood of a violation, with particular interest in what makes this ‘contract’ so important, what both the employer and employee are looking for within it and how other factors such as age and social media can have an impact. Businessballs(2010)back up the fact that ‘the psychological contract refers to the relationship between an employer and its employees’ and, in employment terms, it is about finding the balance between how the employee is treated by its employer, and what the employee puts into the job. CIPD (2004) surveys show that ‘90% of HR managers think the psychological contract is a useful concept for helping to manage the employment relationship’ this is brought by the, increasing, realisation that employee motivation, satisfaction and commitment can be very influential in the overall business performance, and if an employer can establish and maintain a positive psychological contract with its employee a sustainable business value is more likely to be met (CIPD 2004).
So essentially it is a form of guarantee where ‘if each does his or her part, the relationship will be mutually beneficial’ (Robinson and Rousseau, citied in George 2009 pg4). This brings me to my first reason supporting the fact that Downsizing could reduce the likelihood of a psychological contract violation. In a recent survey it showed that staff given an adequate voice are more likely to be engaged and satisfied (CIPD 2009, p2). With downsizing likely to result in the removal of layers of supervision and middle management, the employee voice is more likely to be expressed as those remaining are likely to have more responsibilities and a say in day to day decisions through the process of empowerment (Rollinson 2008, p522) all things likely to strengthen the psychological contract, as if the employee is working harder the employer will be pleased and the employee will enjoy having more of a say and new responsibilities.
In addition to this (CIPD 2009 p7) survey showed that ‘Direct’ channels of voice between employees and line managers/senior leaders are both more common and seen as more important than ‘indirect’ or ‘representative’ channels’ their surveys also showed one to one meetings with line managers to be ‘the most important facilitator of voice’ so again this is likely to be made easier through the process of downsizing as they will have the time to deal with less people and with the hierarchy likely to be ‘flatter… and lateral rather than vertical communication is much more common.’ (Rollinson 2008, p522).
However there is a lot of evidence to suggest downsizing is likely to have a negative effect on the psychological contract represented by ‘a number of rigorous empirical studies has shown that many empowerment initiatives fail to deliver their expected advantages and that employees can end up less committed than before’ (Rollinson 2008, p 522) as well as ‘a leading British survey has noted, taken overall, the combined effects of work reorganisation and downsizing have led to an extraordinary intensification of work pressure’ (Thompson and Mchugh 2002, p189). This is due to the additional work load and burden left for the employees that remain at the business and often just using a more flattering term such as empowerment will not have the desired effect (ibid.) as well as the apprehension caused by initiatives like downsizing which inevitably leads to the reduction of commitment and loyalty (Savery et al. 1998, citied in Rollinson 2008, p42). With 3 key aspects to the psychological contract, mentioned at the start (motivation, loyalty and commitment), likely to be lacking after downsizing the business performance could potentially take more damage ‘because headcount reductions tend to occur across the board… quite frequently, the very people who will be needed to ensure future organisational success disappear as well’ (Rollinson 2008, p50) with performance slacking the employer won’t be satisfied and if the important employees leave then clearly they are not satisfied with the way things are being run and therefore there must have been some break down in the psychological contract.
Downsizing can bring other negative aspects to your business in the form of ‘politicking’ which happens in all business to a certain degree, through the form of complaints, adherence to rules etc. but is more likely to happen when resources are reclining or changes are taking place (Robbins et al. 2010, p380/382). With the aim of politicking often being to ‘block or inhibit another group (or individual) from achieving goals’ (Rollinson 2008, p414). Political behaviour is more likely to happen when there is a lack of trust within the organisation (Robbins et al. 2008) and therefore is another suggestion that the psychological contract has been breached, due to downsizing.
This argument if backed up in (ibid.) which states ‘there is very strong evidence that perceptions of organisational politics are negatively related to job satisfaction. The perception of politics also tends to increase job anxiety and stress’. Although this shows strong evidence that downsizing could lead to violations in the psychological contract it is not guaranteed, as business balls stress, the outcome of change relies strongly on how it is sold to whoever is concerned (2010) by sold they are referring to how well ‘the use of persuasion, influence or incentive, in causing someone or a group to do something they would probably not otherwise do’ If done properly it is likely the psychological contract will be strengthened as ideally you will meet some sort of compromise and both parties will be happy as ‘persuasion can produce mutually positive outcomes in some situations’ (ibid.).
However if a lot of persuasion is involved when trying to implement change on someone it is usually because they are unlikely to accept the situation otherewise, and if pushed too hard it is possible to put off those being persuaded and is unlikely to produce a good outcome for the persuader either (business balls 2010). This is extremely relevant to the psychological contract because it involves a lot of trusted. The transition is always likely to go more smoothly, and the psychological contract can remain strong if the leader is open with his employees giving them all the information and an honest explanation ‘People need to know what lies ahead, and to be consulted and supported in dealing with it.’ (ibid.) There are many things that can affect the psychological contract at an organisation, but it is not the same for everyone. Generation diversity has a huge impact on modern business with organisations having to counter for the different age groups who are unlikely to have the same needs and expectations, for example ‘older, mid- and late career employees were more likely to believe that their psychological contracts are unreplicable’ (Ng Feldman 2008, citied in George 2009 p125) potentially making them a safer option to employ as they will have less concerns when their contract is breached.
The importance in taking all the different generations into account is outlined in a recent study (CIPD 2008): The speed of communications, the pace of change to meet mass markets, economic migration and more rigorous Public sector accountability, make this a unique time in the workplace. These have all placed greater emphasis than ever before on the need for organisations to be agile and harness different capabilities. Skills in digital technology, information management and entrepreneurialism are mixed with longstanding wisdom, change management and customer service ethos. The four generations in the workplace are bringing divergent skills, learning styles and expectations around reward. These four generations consist of the veterans, baby boomers, generation x and generation z, as well as the start of generation Z which consist of 16 year olds and younger soon to be a part of modern day business. They develop their different approaches to business through social trends, education, and technology (CIPD 2008). When looking at the psychological contract it is going to be more positive if there is a common goal (George 2008, p4) and therefore it is important to look at what each generation can offer you.
Studies in the United States found that ‘(65+) are hardworking, conservative and conforming… mid-40 to mid-60… achievement, ambition and dislike of authority. Late-20s to early 40’s value work/life balance, relationship, dislike of rules… under 30s value financial success, confidence and loyalty to self and relationships’.(Robbins et al. 2008, -95) ‘By understanding what motivates its employees, an organisation can develop a compelling value proposition to engage and reward them.’ (CIPD 2008, p10). Not only does it point out the differences between the generations but it can also help employers recognise ‘generic values’ (Ibid.) with only 4% of people feeling that a competitive deal and job security was not important when being offered a job, all with the exception of a few veterans looked for personal development as well as there being a significant demand for people management skills, technology development leadership training and knowledge about their organisation. (CIPD 2008, p11) Essentially it is finding the right mix to suit each individual that makes up the psychological contract, ‘Proactively managing the organisation’s employer brand and reflecting generational differences in job design, will be fundamental drivers of attraction and engagement’ (CIPD 2008 p35) Google are an example of an organisation who have got this balance right and have been rewarded with the reputation of number 1 place for graduates to work.
This is due to the combination of internal rewards, a consistent recruitment process, a variety of social and professional interest groups, a consistency globally in terms of technology and a personal recruitment process and other benefits which keep the employee happy which makes them want to keep the employer happy and thus an extremely positive psychological contract is built (CIPD 2008) In addition to keeping up with the modern generations it is also important for companies to show an interest in modern technology. However the introduction of social media sights have shown a recent concern amongst employers as CIPD 2009 survey suggest ‘most either forbade (21.1%) or discouraged it (45.5%)’ this is due to the things people might say about their company with (Robbins et al. 2010) recording that ’39 per cent of individual bloggers say they have posted comments that could be construed as harmful to their company’s reputation’ realistically this is a breach in the psychological contract and the reason employers are reluctant for their employees to use them. On balance it is clear that the psychological contract can play a key role in the success of the business and any violations to it can be extremely costly.
However with reference to the question it is hard to say whether or not downsizing reduces the chances of the contract being violated, because although if managed carefully people could feel the benefits through empowerment and if the employer is fair and open with the employee it could help build a stronger relationship (business balls 2010), I feel the evidence to suggest your staff are likely to feel increased stress and pressure from the work load and as shown in (CIPD 2004, p17) list of top fifteen ways to develop a good psychological contract number one is ‘Avoid redundancies whenever possible: redundancies lower morale’ which suggests you are starting on the back foot by downsizing.
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