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Organizational Linkages: Understanding the Productivity Paradox 11 Organizational-Level Productivity Initiatives: The Case of Downsizing David A. Whetten and Kim S. Cameron Taken together, the preceding chapters have shared two distinctive features: (1) They have examined the productivity paradox from a bottom-up perspective. That is, they have examined various explanations for the observed fact that increased productivity at the job or unit level does not readily accumulate into productivity gains at the firm level. (2) They have examined this form of the productivity paradox primarily within the context of information technology (IT) applications. This chapter focuses on alternative forms and contexts of the productivity paradox. Specifically, it examines a top-down form of the productivity paradox—organizational downsizing—in a broad range of settings, primarily in the manufacturing sector. The intent is to urge a broader examination of this troubling organizational phenomenon. Throughout this chapter we use the traditional definition of productivity: output divided by input. Our observations about downsizing apply to partial factor productivity (the only input is labor) and total factor productivity (inputs include labor, capital, energy, and so on). Cameron and colleagues (1991, 1993) have found that managers involved in downsizing tend to plan in terms of partial factor productivity (most downsizing plans focus only on projected labor savings). The most successful downsizing they found, however, involved total factor productivity; that is, downsizing tended to be associated with a wide array of cost factors, as well as an aspiration to regain the nimbleness and spontaneity typical of younger, smaller organizations. Because no conclusive evidence exists that downsizing alone improves an
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Organizational Linkages: Understanding the Productivity Paradox organization's culture, our discussion centers on the widely shared belief that downsizing will generate cost and labor savings. DOWNSIZING AS A PRODUCTIVITY INITIATIVE As noted in Chapter 1, between 1973 and 1990, the hourly output of U.S. workers grew only 0.7 percent. In contrast, hourly output had grown at a rate of 2.5 percent from 1948 to 1973 (Sawhill and Condon, 1992). This slowdown in productivity significantly affected the quality of life of the American work force. A major cause of the decline in productivity in the United States has been the ''bigger is better" ethic that permeated management thought from the end of World War II until the mid-1980s. Alfred P. Sloan, Jr. (1963:xxii), the legendary former chairman of General Motors, argued that "growth is essential to the good health of an enterprise. Deliberately to stop growing is to suffocate." It is telling that the Fortune ranking of companies (Fortune 100, 500, 1000) is in terms of size, not profitability. Given this passion for growth, it is not surprising that in many large firms, the unrelenting pursuit of large size has often exceeded that which can be justified by economies of scale. "The biggest companies are the most profitable—on the basis of return-on-equity—in only 4 out of 67 industries in the Top 1000 firms. Well over half the time, the biggest corporate player fails to attain even the industry average return on invested capital" (Business Week, March 27, 1989:92). This pattern is a product of a number of important liabilities of size (Cameron et al., 1993), among them the cumbersomeness with which new products are developed and new market opportunities pursued. For example, Compaq Computer, less than half the size of the International Business Machines (IBM) Corporation, can develop a new computer three to five times faster than can IBM, and Bethlehem Steel produces a ton of steel with one-third the labor its larger competitors use (Henkoff, 1990). Unfortunately, it has been traditional for more employees and larger units to be used as rewards for successful managers, and they became treated as measures of managerial power and status (Whetten, 1980a). As a result of the prevailing view of growth, organizational downsizing traditionally was treated as an aberration from the norm. Shrinking, retrenching, or consolidating the organization was viewed as a last ditch effort to thwart organizational demise or to adjust temporarily to cyclical downturns in sales. It was almost always targeted at blue-collar or hourly employees, and it was customarily defined negatively (Hirshorn et al., 1983). For example, of all the firms that eliminated blue-collar jobs in the first half of the 1980s, 90 percent did not elimi-
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Organizational Linkages: Understanding the Productivity Paradox nate a single white-collar job (Thurow, 1986). The seriousness of this strategy is highlighted by the fact that across all U.S. manufacturing firms, the percentage of nonproduction employees (i.e., managerial overhead) grew from 19 percent in 1950 to 32 percent in the mid-1980s (Tomasko, 1987). The recent economic recession, coupled with the decade-long deterioration in global competitiveness among American businesses, exposed a serious weakness in U.S. organizations, namely, that many firms had become overstaffed, cumbersome, slow, and inefficient. At the beginning of the 1990s, for example, American automakers had more than twice the number of hierarchical levels in their organizations as their Japanese counterparts. Moreover, it became clear that American businesses had developed a significant cost disadvantage compared to their Asian competitors in almost every head-to-head product competition (Cameron et al., 1993). Swollen managerial overhead rates, for example, are an important contributing cause of U.S. auto manufacturers carrying a cost disadvantage in excess of $1,000 per car compared to their Japanese rivals. The newly recognized weakness in U.S. organizations led managers and theorists to consider downsizing in a different light. In order to increase productivity, enhance competitiveness, and contain costs, fundamental ways of organizing and managing had to be reexamined. A transition was made from merely reacting to downturns in the economy to trying to improve internal efficiency. Whereas downsizing had been synonymous with blue-collar layoffs, it became an overhead reduction strategy affecting mainly white-collar employees. Instead of focusing on job redesign, working harder, and tightening up rules and procedures, downsizing became more focused on bottom-up participation by empowered employees, team coordination, and working smarter through redesigned work processes. In brief, downsizing was redefined as a productivity improvement strategy rather than as a last-ditch survival effort. These changes in the definition of downsizing in the 1990s are reflected in Table 11-1. The recent change in philosophy about downsizing is evidenced by the fact that nearly all the Fortune 1000 firms engaged in downsizing between 1985 and 1990, and a majority indicated that they would engage in downsizing in the future (Henkoff, 1990). In 1990, for example, three times more employees were laid off in the United States than in 1989. Large reductions in work force have occurred in virtually every large, name-brand firm in North America in the past 5 years, and not a single week in 1992 passed without an announcement in the business press that some firm had initiated a downsizing program. Between one-third and one-half of all medium-and large-sized firms have downsized each year since 1988 (Henkoff, 1994). Cameron et al. (1991)
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Organizational Linkages: Understanding the Productivity Paradox TABLE 11-1 Alternative Approaches to Productivity Improvement Organizational Goal Recovery Performance Improvement Organizational environment Downsizing (1970–1980s) Downsizing (1990s) Reaction to downturns Reaction to inefficiency Blue-collar layoffs White-collar layoffs Elimination of plants or units Organizational restructuring or realignment Alignment focus Job redesign (individual) Automation of work (individual) Specialization of work (group) Coordination of work through teams (group) Increase work hours and effort (work harder) Improve processes (work smarter) Adherence to policies and rules Empowerment and participation (e.g., suggestion systems) reported that more than half of the managers displaced from 1989 through 1991 took pay cuts of 30 to 50 percent to obtain new jobs. Overall, it is clear that organizational downsizing (focused on employee headcounts and hierarchical levels) has been one of the major initiatives undertaken during the past decade to increase the productivity of American firms. Unfortunately, however, there is mounting evidence that the anticipated effects have not been realized. In a 1990 survey of 909 downsized U.S. firms, Right Associates, an outplacement firm interested in downsizing, found that 74 percent of senior managers in downsized companies thought that morale, trust, and productivity suffered after downsizing (Henkoff, 1990). A survey by the Society for Human Resource Management found that more than half of the 1,468 firms that downsized indicated that productivity had deteriorated as a result of downsizing (Henkoff, 1990). This conclusion is further substantiated by a survey conducted by the Wyatt consulting firm and
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Organizational Linkages: Understanding the Productivity Paradox published in the Wall Street Journal (Bennett, 1991). The survey found that 71 percent of the firms involved in downsizing did so to increase productivity, but only 22 percent of those firms thought that goal had been accomplished. The director of research for Wyatt, John Parkington, succinctly summarized the experience of downsizing during the 1980s, "Lots of bullets were fired, but few hit their targets. Sometimes companies did it three, four, and five times, but still didn't hit their expense-reduction targets. Something is wrong" (quoted in Bennett, 1991:B1). It should be noted that limited amounts of systematically gathered or published financial data are available to support these retrospective, subjective assessments. Nonetheless, the consistency of these observations regarding the fate of downsizing initiatives is sobering. The several investigations revealing that downsizing initiatives frequently do not yield commensurate gains in productivity appear to have identified another form of the productivity paradox. Indeed, this is an especially troublesome version of the paradox because it would naturally be expected that removing sizable amounts of overhead or slack from an organization's balance sheet would lead to increased organizational productivity. The optimistic view that a reduction in organizational capacity will not result in a proportionate reduction in organizational productivity is simply not substantiated by the experience of many firms. One primary purpose of this chapter is to explore alternative explanations for the downsizing form of the productivity paradox. Specifically, we address two questions: (1) Given a substantial downsizing initiative, what factors might account for the apparent lack of anticipated productivity gains? (2) To what extent are the attenuating factors embedded in organizational linkage issues? Before proceeding to address these questions in detail, we briefly point out how downsizing fits into the broader discussion of organizational linkages and productivity in this report. Most examples of the productivity paradox discussed in earlier chapters are based on the assumption that by increasing the productivity of the constituent elements of an organization, the organization as a whole will become more productive. Such an assumption is not necessarily embedded in commonly practiced downsizing. Like other change efforts, downsizing can be applied at any level of analysis—from subunit to organizational network. But the downsizing initiatives most frequently pursued by organizations in the hope of affecting productivity are at the organizational level. Specifically, the approach is to cut costs (the denominator in the productivity equation) by reducing the size and configuration of the overall organization. These "demassing" decisions affect people at all levels in the organization, but the intent of most
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Organizational Linkages: Understanding the Productivity Paradox downsizing programs is not to increase the productivity of a specific individual or work unit so much as the entire organization. Thus, the role of organizational linkages in this form of the productivity paradox is different from that discussed in previous chapters. When productivity enhancements are initiated within subunits of an organization, there is generally an implicit assumption (and often an explicit declaration) that local gains in productivity will benefit the organization as a whole. Consistent with the well-known justification, "What is good for General Motors is good for the U.S.," internal organizational improvements are often justified on the basis that, "What is good for the finance department (e.g., increased productivity) is good for General Motors." In the case of downsizing, cross-level organizational effects play an equally important role in determining the long-term "success" of the initiative. However, in the typical cost-cutting-oriented, top-down-initiated downsizing program, insufficient attention has been paid to the effects (intended or unintended) of downsizing on the productivity of individuals and work units. Questions about whether (and if so, how) aggregate cost savings can be disaggregated into subunit productivity gains are seldom considered by downsizing strategists. We believe that this lack of attention to cross-level effects helps explain why organizational productivity typically suffers from downsizing. When an organization cuts costs but does not realize an overall productivity gain, we suspect that the organization's ability to transform inputs efficiently into outputs has been seriously diminished. Figure 11-1 provides a sample of commonly occurring, unintended dysfunc Personal Organizational Priority: self-protection, self-absorption Loss of innovation Uncooperativeness (lack of teamwork) Loss of long-term vision Erosion of commitment Loss of company loyalty Secretiveness Increased conflict Skepticism and cynicism Politicized decision making Mourning of losses—preoccupation with past guilt feelings Resistance to change Inaccessible, unavailable leaders Loss of self-confidence Sabotage Anxiety and apprehension Increased bureaucratization Increased burnout Destruction of informal networks Blaming—search for scapegoats System slowdown Rise in invisible (unmeasured) costs FIGURE 11-1 Unintended negative consequences of downsizing.
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Organizational Linkages: Understanding the Productivity Paradox tional outcomes from flawed downsizing initiatives that can reduce the productivity of individuals, work units, and the organization as a whole. EXPLANATIONS FOR THE DOWNSIZING PRODUCTIVITY PARADOX Several plausible explanations exist for the lack of productivity gains from downsizing efforts. First, consistent with the American preference for the "one-minute quick fix" (Blanchard and Johnson, 1983; Kilmann, 1984), many firms may have had unrealistic expectations regarding the productivity gains to be realized from downsizing. The requisite patience and broad-based approach to downsizing have often been replaced by announcements of quick headcount reductions in the hope that immediate results will accrue. Yet, the fact is that the overhead rates and cost structures for most U.S. firms continue to remain significantly above those of their best global competitors (Cameron et al., 1993). Thus, U.S. executives may be administering the right medicine, but at insufficient dosage or without sufficient duration to produce the desired results. Second, the downsizing process may not have been managed competently in many firms, and thus the intended productivity gains have not been achieved (Whetten, 1981). In fact, in one set of studies the process by which downsizing programs were implemented was found to be more important than the actual downsizing strategies applied (Cameron et al., 1991). That is, unanticipated dysfunctional outcomes may result from poor implementation. Implementation mistakes include removing the wrong people, levels, or functions from the firm; eroding trust and morale to the point that employees lose loyalty and commitment to the firm and reduce their work efforts; restricted communication from top management, lack of information sharing, and poorly communicated plans that cause confusion and misunderstanding, which results in wasted or uncoordinated efforts; and an escalation of long-term costs because a crisis mentality emanates from pressures to achieve immediate bottom-line results. It is our experience that both obstacles to increased productivity have plagued most downsizing efforts. Indeed, they are interrelated factors. In many firms, downsizing has been managed so poorly that managers have encountered enormous resistance and hostility from internal and external constituencies. A pattern emerges of plans conceived at the top being derailed at lower levels. As a result, downsizing programs must be repeated, escalated, and revised over and over again. One large company we studied, for example, has initiated 18 downsizing programs in the past four decades (Cameron et al., 1993).
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Organizational Linkages: Understanding the Productivity Paradox Downsizing Implementation Mistakes One of our intentions in this chapter is to identify implementation mistakes commonly made by organizations engaged in downsizing. Our concern is that these mistakes are so pervasive they represent the norm. Further, it appears that this is more than a statistical norm, in the sense that lots of managers independently have made poor downsizing choices. Instead, we believe that a pattern exists in these mistakes that reflects three fundamental social dynamics. First, we believe these mistakes are buttressed by an underlying belief system regarding the central role of management in problem-solving settings. Our concern is that this paradigm is both anachronistic and dysfunctional in downsizing situations. Second, evidence exists that the managers of poorly performing firms are highly susceptible to social contagion. That is, because of the extreme pressures and erosion of credibility they often experience, they are likely to adopt readily available and accepted problem-solving processes and options. Third, the nominal decision-making process in such organizations is truncated during a period of decline by the strong pressure to act quickly. This time constraint limits the search for alternatives and reduces the time allocated for planning and implementing changes. We briefly discuss each of these underlying causes of downsizing management mistakes in turn. Paternalistic Management The ineffective downsizing initiatives we have observed are indicative of a paternalistic management paradigm that was repudiated during the expansion era of the 1960s and 1970s, but that appears to be reemerging during the period of contraction that began in the 1980s. Our research suggests that the highly participative approach to managing "positive" organizational change (i.e., expansion) has been replaced with a much more closed, authoritarian approach to managing "negative" change (i.e., contraction). Information acquired and monitored by managers that may portend a downsizing decision tends not to be shared with lower-level employees when the implications are negative. This restricted information flow from the top, however, often leads to rumor, fabrication, and faulty decision making at lower organization levels. This dynamic is based on the assumption that sharing bad news with lower-level employees will produce resistance and self-protection instead of enhanced participation and commitment. This philosophy may reflect an underlying, even unconscious, lack of trust, a high level
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Organizational Linkages: Understanding the Productivity Paradox of suspicion, and a skepticism regarding the motives and skills of subordinates. This conclusion is consistent with the threat-rigidity effect observed by Staw et al. (1981). When an organization is threatened by a major crisis, managers tend to restrict the flow of information. This action is supported by the belief that current practices and routines are sufficient to handle the problem, so additional information is not only unnecessary but costly in terms of impeding response time. The belief that the organization's existing repertoire of responses is capable of handling a crisis is paternalistic in the sense that management's deference to institutionalized definitions, philosophies, and problem-solving routines drives out novel inputs from subordinates. Following Accepted Practice It is a well-established fact that decision makers are susceptible to social influence (Deutsch and Gerard, 1955). They are as likely to select solutions on the basis of their perceived social acceptability as their inherent merits (e.g., cost, speed of implementation; Scott, 1987). Organizations require two forms of support in order to be successful: resources and legitimacy (Aldrich, 1979). Common resource needs include revenues, personnel, technology, and physical space. Legitimacy stems from the perception that the organization's actions are congruent with accepted norms and social values. Another term for legitimacy is reputation. Resources and legitimacy are interrelated in that when an organization's resource stream (e.g., sales revenues) significantly decreases, its legitimacy often suffers. Put simply, cash-flow crises are generally associated with confidence crises (D'Avani, 1990). Thus, it is quite natural for managers of poorly performing organizations to prefer remedies that enhance legitimacy. Their goal is to prevent further erosion of their organization's reputation by using problem-solving processes and solutions that have the stamp of "accepted practice" (Galaskiewicz and Wasserman, 1989). Truncated Decision Making The tendency to mimic the behavior of other highly visible downsizing firms is reinforced by the extreme time pressure generally associated with a performance crisis. Managers think they simply do not have the time to experiment with new options and, instead, opt for off-the-shelf packages. They rely heavily on problem-specific consultants (e.g., experts in fighting off unfriendly acquisitions, downsizing, increasing productivity or quality), who strengthen the credibility of their recommen-
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Organizational Linkages: Understanding the Productivity Paradox dations by identifying other organizations that have adopted their programs. Linkage Insensitivity The three social dynamics often combine to create a decision-making process that is "linkage insensitive." That is, top-level executives make decisions about the whole, without adequately considering their effects on the parts. This oversight results in implementation problems in most downsizing programs that substantially inhibit or diminish the anticipated productivity gains. Indeed, some downsizing initiatives are so disruptive at lower levels that organizational productivity is impaired (Cameron et al., 1993). How is it possible that such practice can occur, much less become the norm? Why is it that downsizing programs are particularly afflicted by flawed decision-making processes? It has been our observation that the social dynamics identified above create a decision-making climate dominated by "myth." A myth is a belief that may or may not be true but whose truth, or reality, is accepted uncritically. It constitutes the prevailing commonsense practice. Common Myths about Downsizing In the case of downsizing, decision makers appear to rely heavily on prevailing myths regarding common practice because (1) the myths are congruent with an underlying management paradigm, (2) they reduce the time necessary to announce a crisis management plan, and (3) they bestow badly needed legitimacy on the proposals. Top management teams understand that credibility is a key to overcoming resistance to painful downsizing proposals. Thus, they shroud their plan in the espoused virtues of "making a timely response," "doing what's best for the organization as a whole," "rising above self-interest," "having the courage to make tough decisions,'' and "following the lead of highly reputable firms." From our research we have identified seven common myths about the best way to design and implement a downsizing program (Cameron et al., 1993). We have found that these myths about accepted practice create a socially constructed reality that entraps managers in faulty decision-making processes. These defective premises produce a common outcome: linkage-insensitive decisions. We briefly discuss each of the seven common downsizing myths and point out why it frequently produces dysfunctional outcomes. We then examine the combined set of strategies and contrast it with a more effective approach to downsizing.
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Organizational Linkages: Understanding the Productivity Paradox We illustrate the prevalence of the seven myths with findings from the survey of 909 U.S. businesses by Right Associates (Henkoff, 1990). Myth 1: Act Quickly—Don't Prolong the Agony of Downsizing According to this myth, uncertainty and anxiety are reduced and organizational life can return to normal if downsizing is done with dispatch. It is quite natural for managers to want to minimize the disruptive effects of downsizing. Change is inherently stressful, and negative changes are especially traumatic. In their haste to minimize pain, however, managers often inadvertently prolong and intensify it by inadequate planning and forced execution. In the Right Associates survey, for example, 35 percent of the firms that downsized announced and implemented downsizing in less than one week. More than 50 percent announced and implemented downsizing in less than a month. A broadly published comparison between decision making in U.S. and Japanese firms (Imai, 1986) shows that Japanese managers spend more time making a decision than their American counterparts. The American penchant for action, however, actually lengthens the overall time required to plan and implement a program because the truncated planning (decision-making) cycle leads to a protracted implementation process often marred by multiple false starts. The contrast between Japanese and U.S. firms is especially pronounced under crisis conditions. Eastern philosophy argues that crises contain two elements: threat and opportunity. Those who subscribe to this perspective are less likely to rush the downsizing process in hopes of minimizing its pain. Instead, they are more likely to take a longer-term, more holistic, approach to solving the problem—accepting pain and inconvenience as a necessary, but acceptable, element. This approach obviously requires more time up front. But the resulting increase in understanding and acceptance of the proposal substantially speeds the implementation process. This leads us to myth 2. Myth 2: Minimize the Involvement of Subordinates One of the most widely held tenets regarding the management of downsizing is that, as potential targets of cutbacks and reductions, subordinates cannot make objective decisions and will not initiate cost-saving ideas that negatively affect their own jobs and functions. Many managers argue forcefully that their subordinates are not in a position to decide what is best for the organization because their self-interests will cloud their judgment. They further argue that it is an abrogation
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Organizational Linkages: Understanding the Productivity Paradox lows logically that the more serious the organization's performance problems, the broader and deeper the decapitation process will be. While a radical approach to change has apparently been successful in several cases (e.g., Bankamerica, Columbia Broadcasting System, USF&G, Chrysler, UNISYS), it also appears to have failed in even more organizations (Wilkins, 1989). One reason is that radical change frequently shakes the foundations of organizational culture and core corporate competencies. Wilkins (1989) argued against such revolutionary approaches, citing numerous examples in which the failure to "honor the past" stripped a firm of its distinctive character and thereby created confusion, alienation, and cynicism. His research supports an incremental, evolutionary approach to change, in which managers of poorly performing organizations return to the past for inspiration and instruction, find current examples of success within the company, and promote hybrids (combinations of old and new approaches). This is consistent with the "small wins" approach to change advocated by Weick (1984) or the ''logical incrementalism" change promoted by Lindblom (1959). These noted scholars have argued that the most effective organizational change occurs as a result of the cumulation of tiny changes built on the foundation of current organizational culture. Building momentum to accomplish broad-scale change and establishing a climate that can tolerate transformation best occur by accomplishing small changes, advertising their success, and then building on the energy they create. Our research corroborates this viewpoint. In the successful downsizing firms we have observed, it is clear that they have not confused a timely response with a radical response. One of the best predictors of whether declining firms can be successfully turned around is the length of the delay between a significant performance downturn and the initiation of remedial action (Whetten, 1980b). While in some cases, current management's unrelenting commitment to an unsuccessful course of action is the cause of the delay (requiring it to be replaced before any change can be initiated), premature removal of the top management team can also cause a substantial delay in the firm's response. Our concern is not that the revolutionary approach is never warranted, only that it is too often invoked as a myth without sufficient consideration of the long-term consequences. Two Approaches to Downsizing The core argument thus far has been that prevailing myths about downsizing represent not ideal, but flawed, practice. The purpose of the downsizing initiatives characterized by these myths is too narrowly focused on cutting costs. Efforts to increase efficiency are proposed
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Organizational Linkages: Understanding the Productivity Paradox without sufficient consideration of their implications for effectiveness. Moreover, the accompanying process for planning and implementing downsizing programs is too narrowly focused on top management's perspective. Downsizing is treated as something that management is doing "to" subordinates, rather than "with" subordinates. The result of flawed purposes and processes is that a downsizing program yields myriad decrements in productivity as the effects of downsizing "trickle down" through the organization. Each of these decrements is small enough that it can easily be dismissed as an unfortunate specific outcome of an important general initiative. However, their cumulative effects are often so great that the anticipated gains in organizational productivity fail to materialize. What we have characterized as the flawed approach can be summarized as top management treating "subordinates as victims" of a massive cost-cutting plan. This perspective is portrayed as model A in Table 11-2, where it is contrasted with model B, which we have observed in highly successful downsizing firms. Model B can be characterized as top management treating "subordinates as partners" in an organizational improvement program. An examination of the differences between model A and model B leads to the paradoxical conclusion that the more management concen TABLE 11-2 Comparisons Between Two Models of Downsizing Model A Model B Purpose of downsizing Cost Containment Performance Enhancement Process Subordinates treated as victims Subordinates treated as partners Speed of implementation Immediate Immediate; continuous long-term Scope of involvement Limited Extensive Extent of communication Minimal Substantial Target Spread pain Maximize gain Scope of decisions Focused on costs Focused on costs and performance Model of change Revolution Evolution and revolution Organizational redesign Structure Structure and processes
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Organizational Linkages: Understanding the Productivity Paradox trates on using downsizing to accomplish the objective of increasing productivity, including using a highly resource-efficient design and implementation process (low involvement, low communication, and so on), the less likely it is to achieve its goal. Although Table 11-2 is useful for representing the general contrasts between the two models, it does not do justice to the dualistic philosophy underlying model B. That is, model B's purpose is to improve performance and cut costs. Its process is neither mandated by top management nor driven by involved employees from the bottom up. It is neither exclusively short term in focus nor exclusively long term. In other words, instead of simply selecting a set of polar opposites, managers of effective downsizing programs combine seemingly opposing elements into a hybrid strategy. Specifically, effective downsizing is characterized by four seemingly incompatible practices (see Cameron et al., 1991, for an elaboration). First, effective downsizing is implemented from the top down and also from the bottom up. Effective downsizing is managed and monitored by top managers; it requires hands-on involvement and energy that originate at the top of the organization. This top-down direction, however, is augmented by bottom-up recommendations and suggestions from lower-level employees. In effective downsizing, employees themselves analyze the operations of the firm job by job and task by task. This can be done by cross-functional groups, blue ribbon committees, or self-designed task forces. Members identify redundant jobs and official tasks, find ways to eliminate organizational fat and to improve efficiency, and help plan ways in which changes can be implemented with minimal disruption. This win-win approach to problem solving was evident in one firm we observed. Employees were told that if their jobs were eliminated, they would still receive full pay for a year. If they required retraining in order to find a new job (either inside the firm or outside the firm), it would be paid for, but they would have to justify the expenditure in a proposal. Employees were encouraged to find ways to begin new businesses or to improve current products and processes within the firm (i.e., to add to the bottom-line revenue stream). Some employees used the time to find jobs outside the firm, others found ways to try out ideas that improved bottom-line (cost control) and top-line results (new processes or products). A large number voluntarily recommended the elimination of their own jobs because they were treated as resources for organizational improvement, not liabilities to the bottom line. A second paradoxical characteristic of effective downsizing is that across-the-board downsizing processes are used in conjunction with selective downsizing processes. Both approaches to downsizing have merit.
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Organizational Linkages: Understanding the Productivity Paradox Across-the-board cuts are an effective way to highlight the seriousness of conditions facing the firm and mobilize the energy of all the organization's members. Broad cutbacks make it clear that the status quo is no longer acceptable. In successful firms, however, deep cutbacks are made using a selective approach. One such approach is a "value analysis" of all tasks in the organization, in advance of any downsizing. The question asked is, what value does this task provide for the final product or service for which we are in business? In one firm, the employees themselves identified the individuals, tasks, and jobs that needed not only to be protected, but to be strengthened. Following this value analysis, investments were increased in some areas, but in areas adding less value, jobs were redesigned or eliminated and individuals were reassigned or let go. One very successful firm eliminated the quality control and work area maintenance functions. This work was reassigned to operating employees as part of a job enrichment program. Investment in advanced training for all employees focused on preparing them for the changes that were to take place. Discussions were held regarding a proposal to change the work week from five 8-hour days to four 10-hour days to generate savings in maintenance, security, and energy costs (Cameron et al., 1993). A third paradoxical characteristic of effective downsizing is that the transition is managed for employees who lost their jobs as well as for survivors. The best downsizing practices include outplacement services, personal and family counseling, relocation expenses, and active sponsoring of employees whose positions have been eliminated. They also provide generous severance pay, extended benefits, and retraining opportunities. Several top managers in the firms we have studied have proudly announced that none of their white-collar employees was without a position someplace else. In short, these firms took responsibility for the transition created by loss of employment. Successful downsizing firms pay equal attention to the transition experienced by the survivors. For example, one company held regular "forums" in which data were shared on the performance of the company and its major competitors, and it conducted sessions with blue-and white-collar workers. In addition, the company posted data that were previously confidential in several locations so that employees felt included in downsizing planning and implementation. It also held special events to signal the end of the degeneration phase and the beginning of the regeneration phase of the company's turnaround plan. The latter included "launch lunches," a new company logo, new signs, and new colors in the production areas. Finally, the company involved survivors in redesigning and rationalizing the firm's new work processes,
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Organizational Linkages: Understanding the Productivity Paradox and it gave teams of employees input on the front end of major decisions and planning exercises. In short, it made the survivors feel trusted, valued, responsible, and involved. The fourth paradoxical characteristic is that downsizing is defined as a means to an end as well as an end in itself. The most successful firms treat downsizing as an opportunity to accomplish multiple objectives. They simultaneously strive to cut costs and bolster performance. "Taking out headcount" and "trimming the fat" are clear, consensual objectives. Top management uses cost figures to demonstrate that this is essential, not elective, surgery. At the same time, management focuses members' attention on proposed constructive improvements. In the midst of a severe headcount reduction period, for example, one organization instituted a "Build with Pride Week." Family members were invited to the firm on one day, customers on another, suppliers on another, local government officials on another, and so on. Special events, refreshments, and decorations were used throughout the week to signal the beginning of a new era in the firm. Nonmanagement employees served as hosts and guides, and outsiders were permitted to question and observe workers as they performed their jobs. Dramatic improvements in productivity, product quality, and a sense of corrective teamwork were outcomes of this event. Other firms have used name changes to spur improvements, such as renaming the quality control department the customer satisfaction department, or generated names and slogans for subunit teams (e.g., one product design team became Delta Force: "Seek and destroy errors before customers catch them"). The intent of such novel, even playful, initiatives is serious: To create a different mind-set among employees about downsizing and redesign efforts—to define downsizing as an opportunity, as well as a threat. This philosophy is reflected in one manager's comment to us, "We're not getting smaller, we're getting better. It just happens that having fewer employees is a way to accomplish that." Relationship between Model B and Productivity To date, few studies have investigated the relationships between the ways in which downsizing is implemented and organizational performance, and organizational-level productivity has not been included in any such assessments. The question is as yet unaddressed, therefore, regarding whether model B represents a superior method of downsizing as supported by rigorous scientific analysis. That is, the question remains, do model B strategies have a more positive impact on productivity than model A strategies?
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Organizational Linkages: Understanding the Productivity Paradox Cameron and colleagues (1993) conducted an investigation of the strategies implemented by manufacturing organizations when downsizing and the impact of those strategies on organizational effectiveness. They chronicled firms over a 4-year period in terms of how downsizing was implemented and how it affected organizational performance. Many of the observations made in this chapter were drawn from that work. In a related study, Freeman (1992) investigated the extent to which certain patterns could be identified in the strategies used by firms engaged in downsizing. She also investigated the relationship between those patterns and indicators of organizational performance. In neither study was productivity measured as an outcome variable, however. Instead, both studies assessed perceptions of organizational effectiveness and compared the performance of each firm with that of its competitors (i.e., was the firm performing better or worse than its competitors?). In both studies, model B downsizing strategies were associated with superior organizational performance compared to model A. The most important predictors of effective downsizing in the Cameron et al. study were multifunctional coordination and teamwork among managers and between managers and lower-level employees; a combination of gradual and immediate execution of strategies; broad participation in the formulation and execution of downsizing strategies by employees and outside stakeholders; a high degree of communication and information sharing; and systematic analysis in advance of downsizing so that the downsizing strategies could be applied differentially. In each case, these predictors are consistent with the attributes of model B. On the other hand, factors that were negatively associated with organizational effectiveness (i.e., led to declines in effectiveness as a result of downsizing) included failure to redesign the work being done in conjunction with downsizing, top-down mandated downsizing with little chance for input by employees, limiting downsizing to eliminating employees to cut costs without supplemental improvement strategies, and the failure to include organizational advancement as a strategic outcome of downsizing. Each of these variables is consistent with the attributes associated with model A. In the Freeman study, two major approaches to downsizing were identified in 30 manufacturing organizations. In one approach downsizing took precedence over organizational redesign (a "downsizing drives redesign" strategy). In the other approach organizational redesign took precedence over downsizing (a "redesign drives downsizing" strategy). Freeman found that a cluster of managerial actions and downsizing strategies characterized each approach to downsizing. That is, managers tended to engage in a predictable set of strategies when pursuing one of the downsizing approaches. The two approaches differed from
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Organizational Linkages: Understanding the Productivity Paradox one another in the following ways: compared to the former approach (downsizing drives redesign), the latter approach (redesign drives downsizing) was characterized by more communication, more extensive organizational changes, more emphasis on improving effectiveness (doing the right things) in addition to efficiency (doing things right), more involvement of internal and external constituencies, more changes in technology and structure, and more challenges to the status quo and current operating procedures in the downsizing organizations. In analyzing the relationship of these two approaches to organizational performance, the organizations typified by the redesign-drives-downsizing strategy performed significantly better in terms of productivity, quality, and competitive position than those typified by the downsizing-drives-redesign strategy. Once again, model B is closest to the most effective approach (redesign drives downsizing) and model A to the less effective one (downsizing drives redesign). The findings of these two studies imply that organizational-level productivity is also likely to be associated with the downsizing approach characterized by model B. It is reasonable to assume that high organizational productivity is closely associated with assessments of organizational effectiveness and with competitive superiority. Hence, it does not require a large leap of faith to make at least an indirect connection between model B downsizing strategies and enhanced productivity. This suggests that when organizations downsize, paradoxical management strategies, as typified by model B, help resolve the productivity paradox discussed elsewhere in this volume. Implications for Research As downsizing becomes increasingly accepted as an essential productivity improvement tool in American industry, a greater understanding of the relationship between the process of downsizing and its effects is needed. Our contention is that faulty design and implementation of downsizing often result in unintended, dysfunctional outcomes (e.g., diminished organizational productivity). Although the observations and propositions in this chapter are based on our examinations of many downsizing and downsized organizations, we believe that more information is needed on the following research questions: Are the effects of downsizing on organizational productivity the same as those on organizational profitability, or on quality? Do effective downsizing strategies differ depending on the primary organizational outcomes targeted (Cameron and Whetten, 1983)?
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Organizational Linkages: Understanding the Productivity Paradox Why are the myths of downsizing management so pervasive? In what circumstances, with what types of managers, and in what kinds of organizations are they more or less pervasive? Which of them are true more or less of the time (Cameron et al., 1991)? Do our observations about effective downsizing strategies apply equally to all organizations? Or, do organizations that downsize effectively differ fundamentally from other downsizing firms in terms of their culture, structure, size, age, industry, history, and so on (Cameron et al., 1987)? What combinations of across-the-board and selective downsizing strategies work best in various circumstances (e.g., degree of cutback required, type of work force, form of technology)? Is downsizing inevitable for most mature organizations? To what extent is downsizing the natural consequence of imprudent management during earlier expansion phases of organizational development? If downsizing is inevitable, can lessons be gleaned from examining the contraction phase of the "organizational life cycle" that can inform better management practice during the expansion phase (Whetten, 1987)? In what ways can organizations prepare for continuous downsizing as they grow and expand through early stages of their life cycle (Quinn and Cameron, 1983)? What specific defects in the downsizing process contribute most to the unintended outcome of unrealized increased productivity? What are the effects of employees not understanding the need to cut back and, therefore, resisting the downsizing initiatives; the lack of lower level involvement in planning who and what to downsize; and regulatory and union contract constraints? To what extent are flawed downsizing purposes and processes linked empirically as well as logically? While some evidence exists to suggest that the model A and model B purposes and processes cluster together (Cameron et al., 1993; Freeman, 1992), that should not be treated as a definitive conclusion but as a hypothesis to be tested in a wider array of organizations and circumstances. Subsequent research should systematically examine the conditions under which purposes and processes are more or less likely to occur together. CONCLUSION The purpose of downsizing has evolved over the past three decades. Initially instituted primarily as a strategy for enhancing lagging performance, more recently, downsizing has been added to the tool kit for enhancing productivity. Current research indicates, however, that downsizing very often does not produce the anticipated productivity gains. Given the fact that downsizing efforts, by definition, directly
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Organizational Linkages: Understanding the Productivity Paradox reduce costs, this form of the productivity paradox is both practically disconcerting and intellectually challenging. We have proposed an explanation for this form of the productivity paradox based on the premise that faulty management practice results from faulty assumptions. Specifically, we have argued that the dominant approach to downsizing is based on seven prevailing myths about ideal practice. The attractiveness of these institutionalized beliefs is that they add an aura of legitimacy to management decisions that are inherently uncomfortable and unpopular. The disadvantage is that they represent an inherently flawed perspective on the appropriate purposes and implementation processes for downsizing initiatives. The purpose is narrowly defined as cost cutting, and the process is very much topdown—with limited employee involvement. In contrast, we have proposed an alternative perspective that incorporates a broader set of purposes and processes. This dualistic approach is less disruptive to organizational productivity and more likely to produce desired organizational outcomes. It requires not merely a different set of managerial actions but an entirely new model for approaching the process of downsizing on a continuous basis. REFERENCES Aldrich, H.E. 1979. Organizations and Environments. Englewood Cliffs, N.J.: Prentice Hall. Bennett, A. 1991. Downsizing doesn't necessarily bring an upswing in corporate profitability. The Wall Street Journal (June 6):B1, B4. Blanchard, K., and S. Johnson. 1983. The One-Minute Manager. New York: Morrow. Brockner, J. 1988. The effects of work layoff on survivors: Research, theory, and practice. In B.M. Staw and L.L. Cummings, eds., Research on Organizational Behavior, Vol. 10. Greenwich, Conn.: JAI Press. Cameron, K.S., and D.A. Whetten. 1983. Organizational Effectiveness: A Comparison of Multiple Models. New York: Academic Press. Cameron, K.S., M.Y. Kim, and D.A. Whetten. 1987. Organizational effects of decline and turbulence. Administrative Science Quarterly 32:222–240. Cameron, K.S., S.J. Freeman, and A.K. Mishra. 1991. Best practices in white-collar downsizing: Managing contradictions. Academy of Management Executive 5:57–73. 1993. Organizational downsizing and redesign. In G. Huber and W. Glick, eds., Organizational Change and Redesign. New York: Oxford University Press. D'Avani, R. 1990. Top managerial prestige and organizational bankruptcy. Organizational Science 1:121–142.
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Representative terms from entire chapter: