MEMORANDUM
Every major decision taken the management of a company affects its employees in several ways, including psychological impact. In order to understand how employees perceive managerial decisions, this paper provides a critical analyses of a major software companies cost cutting measures and the impact they may have had on its employees. In particular, the following points will be evaluated:
Method of communication of the decision
Timing of the decision
Duration for which the steps were implemented
Employee inclusion in the decision making process
The organization witnessed a substantial decline in employee morale after these steps were implemented. This paper will analyze whether these steps directly impacted employee morale and, if so, how.
Executive Summary
This is an analysis of the psychological impact on employees of cost saving measures implemented by a major computer software organization in order to cope with the effects of the global economic recession.
In the year 2009, the organization implemented cost saving measures across departments and functions. Employee opinion was not considered or taken before these decisions were made. The method of communication chosen by the management to share this change was for managers to update their individual teams.
Nine months after the measures were implemented the organization saw a considerable drop in employee morale when compared to the pre-cost saving year. This paper aims to analyze where the above mentioned decisions were major contributing factors to the low employee motivation.
Overview of Cost Saving Measures
The major areas that were chosen for cost cutting were salaries, bonuses and training and development. Pay increments were frozen indefinitely for all employees. In addition, yearly bonuses were cancelled. Employees were also not paid for overtime work. The only exceptions to this step were the sales representatives, who continued to be given commission based on their sales targets.
Further, all training and development programs were frozen, with employees being unable to apply for any training courses that were previously available. Only the Talent Development Programs was allowed to proceed. However, enrolment for this program is based on the recommendation of managers and not individual employee application.
Performance appraisal is now conducted bi-annually instead of annually. Managers play a crucial role in this process as well and were responsible for re-aligning each employee’s role to meet the new organizational objectives. Employee participation in the re-alignment decision making is nil.
The senior management of the firm chose to communicate the changes to the employees through their managers instead of using a organization-wide communication from the top management.
Results and Analysis of Measures
In 2010, the organization conducted a survey nine months after these measures were implemented. The results revealed that when compared to 2009, employee morale was substantially low in 2010. It is evident that the cost saving measures may have had a direct impact on employee motivation. The following findings show how these measures may have lead to lowered motivation among employees:
Cutting budgets for HR and incentives can directly impact employee motivation and effort
Job benefits are correlated with employee engagement and
Increased workload, overtime and other job demands are major contributing factors of strain and stress
Pay, job security, and training—three areas where many organizations were forced to make changes and cuts—impact employee engagement, commitment, and performance levels. Supervisor support and perceptions of fairness are also critical .
From the above findings it is clear that the cost savings measures implemented by the organization has had a negative impaction on employee motivation and job satisfaction.
Discussions on Cost Saving Measures
While several companies have taken up cost saving measures in order to ride the tide during the recession, how and when these changes are made is vital to reduce their negative impact on employee perception of the company’s well being as well as their own future in the organization.
Timing
Hypothesis 1: The implementation of cost saving measures was poorly timed.
The cost saving measures were implemented by the company in 2009. At the time, the global economic recession was at its peak and such measures were being adopted by companies across the globe. Employees to did not complain too much about such measures as they considered it better than being laid off. As per a survey conducted by Society for Human Resource Management in January 2009 , US employees were still quite optimistic about the security of their jobs as is highlighted in Figure 1:
Hence, the timing of the cost saving measures by the organization was reasonably timed. However, the same survey showed that employees were nearly equally divided when it asked if they would look for a new job once the economy began to recover as illustrated in Figure 2:
These statistics revealed that while employees were certain of retaining their current jobs, they were psychologically prepared to look for better job offers once the economy began to recover. This could be attributed to employees wanting to regain the monetary value lost due to pay freezes 2009. Hence, while the organization was right in wanting to cut costs in order to survive the recession, it needed to be a more cautious when cutting employee related costs.
Communication
Hypothesis 2: Poor communication has led to uncertainty, confusion and lack of trust.
Communication plays a crucial role in raising the level of job satisfaction in employees. The organization in question chose an indirect manner in which to deliver what employees may easily consider to be bad news. Direct communication between the top management of the company and employees is crucial when organization-wide changes are being implemented. The organization chose to let its managers pass on the update to their teams. Every manager has his or her own style of communicating which may vary in its effectively. The level of information provided in the communication goes a long way in clearing any doubts that employees may have about their future in the organization. In addition, poor communication may lead to a build up of confusion and uncertainty that can greatly decrease an employee’s morale. According to a survey conducted by the Opinion Research Corporation, the following factors were crucial when communicating major changes being made due to the recession:
Organizations need to clearly explain the reasons why decisions or changes are being implemented (28%)
Employees need to be constantly updated on decisions being made based on economical (13%)
Employees need a heads up to alert them about anticipated changes so that they are not taken aback when they are implemented (11%)
Open and honest communication (9%)
Providing regular updates through frequent communication (8%)
The survey also revealed that employees were most negatively impacted by the following lapses in communication:
Poor communication from management (25%)
Too many rules or policies (16%)
No or limited advancement potential (13%)
Not feeling valued (8%)
Lack of training (7%)
Unclear company strategy (5%)
Communicating with employees through their managers leaves far too much scope for miscommunication or poor communication where such major decisions are concerned. At the same time, not including employee opinion when making decisions related to their job roles and pay scales left the employees feeling unvalued. When employees feel that they are not part of an organization, they begin to doubt their future in the company, leading to low morale and motivation.
Duration
Hypothesis 3: Employees feel that the cost saving measures have been in place for longer than necessary
According to a survey conducted by Sirota Survey Intelligence, while employees showed understanding and cooperation with organizational changes when the recession hit in 2009, as economies began to stabilize in 2010, employees began to expect their situations to return to pre-recession levels . Some even expected to be rewarded for the extra efforts they had put in during tough times. And employee interviewed in the survey said:
“Doing more with less is needed when the economy is bad, but I hope when the company is back on track that they will not require me to constantly work 12 or 14 days in a row.”
To continue to drive business performance and retain top talent, companies need to create a work environment that fosters efficiency and engagement at the same time.
Employee Inclusion
Hypothesis 4: Employees feel ‘left out’ of decisions that impact them the most
Decades of research on workplace change, motivation, and effectiveness all come to the same conclusion: the majority of employees want to be involved in organizational improvement efforts. When they are treated like partners and allowed to provide input, they are more likely to accept and embrace change efforts. And, because they are the most familiar with how work actually gets done on a day - to‐ day basis, they often can identify some of the best efficiency improvement opportunities . The organization failed to take into account employee view points when taking decisions that would impact employees the most.
Recommendations
Hypothesis 1: While the company implemented the changes in time, it needs to acknowledge that cost saving measures such as these will impact employee loyalty in the long run. As such, the company needs to plan in advance and keep a track of employee trends in order to retain its best talents once the economy begins to recover.
Hypothesis 2: The method of communication chosen by the organization was poor. When major organizational changes are made, there needs to be clear and honest communication that comes from the top management. Further, communication needs to be made through multiple channels such as emails, memos and staff meetings where employees have the opportunities to clarify doubts first hand. This will build trust and solicit cooperation among employees.
Hypothesis 3: While the organization may still need to keep the cost saving measures to be implemented, this should only be done as a life saving measure and not to boost profits. Modern day employees are generally well aware of the financial state of their employers and if they feel that the company can reduce their work load or provide better incentives but is not doing so, they can be highly de-motivated. Hence, it is crucial for the organization to either tone down the cost saving measures or provide one time incentives like ‘Thank You’ bonuses in appreciation of employee cooperation towards the business’ goals.
Hypothesis 4: When decisions are made that impact employees directly, it is only fair to take their opinion on the matter as well. As the organization completely left the employees out of the decision making process, employees may feel that the changes are more of an imposed burden and will not want to cooperate with the implementation of such measures. The organization should, henceforth, conduct internal surveys or take feedback through staff meetings in order to keep a track on employee motivation and job satisfaction trends.
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