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Layoff Alternatives and Firm Performance: The case of the consulting industry
DISSERTATION of the University of St. Gallen,
Graduate School of Business Administration, Economics, Law and Social Sciences (HSG)
to obtain the title of Doctor of Business Administration
submitted by
Marla Marlene Kameny
from the
United States of America
Approved on the application of
Prof. Georg F. von Krogh, PhD and
Prof. Dr. Martin Hilb
Dissertation No. 3133
Difo-Druck GmbH, Bamberg 2006
II
The University of St. Gallen, Graduate School of Business Administration, Economics, Law and Social Sciences (HSG) hereby consents to the printing of the present dissertation, without hereby expressing any opinion on the views herein expressed. St. Gallen, November 17, 2005 The President Prof. Ernst Mohr, PhD
III
This dissertation is dedicated to my late uncle, Dr. Melvyn M. Gelch, whose regard for education was limitless.
IV
Acknowledgements This dissertation could only be achieved with the support and collaboration of various individuals. First, I would like to thank Professor Georg von Krogh for his invaluable guidance and encouraging me to apply five years ago. I’d like to thank Professor Martin Hilb for his enthusiasm and indispensable advice. To my friends and colleagues at the Institute of Management, I am extremely thankful for their welcoming and collegial spirit throughout my wonderful stay in St. Gallen and I hope to see them again upon my many anticipated returns to the beautiful country of Switzerland. I would also like to thank the Schweizer Nationalfonds for giving me the opportunity to carry out my research at INSEAD in Fontainebleau, France. To my dear friends Dr. Kyong-Won Kim and Dr. Yvonne Helble, whose deadlines and feedback are what got me started and made me finish – I am grateful! I also want to thank Daniel Sage. Even though he emerged in the middle of my studies, his presence (and desire for editing perfection!) helped carry me through to the end. Finally, this dissertation could not have been completed without the continual love and support of my family and friends.
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TABLE OF CONTENTS
TABLE OF CONTENTS .....................................................................................................i
List of Figures .....................................................................................................................iv
List of Tables........................................................................................................................v
List of Appendices ..............................................................................................................vi
List of Abbreviations ........................................................................................................ vii
Chapter 1 - Introduction........................................................................................................1
1.1 Motivation ........................................................................................................1
1.2 Background......................................................................................................3
1.3 Research Objective ..........................................................................................7
1.4 Knowledge Perspective....................................................................................9
1.5 Dissertation Overview ...................................................................................10
Chapter 2 – Theoretical Foundations.................................................................................11
2.1 Theory Building – HRM ...............................................................................11 2.1.1 Theory Building – recent perspectives ..........................................................14 2.1.2 Exploring layoff alternatives and firm performance......................................17
2.2 Human Resource Management ....................................................................19 2.2.1 Background ................................................................................................19 2.2.2 Human Resource Management - current perspectives................................20 2.2.3 Strategy and HRM......................................................................................22 2.2.4 Types of employee-firm separation ............................................................23 2.2.5 Layoffs and Firm Performance...................................................................30 2.2.6 Layoff Alternatives.....................................................................................32
2.3 Empirical Setting ...........................................................................................35 2.3.1 Professional Service Firms.........................................................................35 2.3.2 Knowledge Intensive Firms........................................................................36 2.3.3 Management Consulting Firms ..................................................................40
Chapter 3 – Towards a new conceptual framework.........................................................43
3.1 Strategic HRM – Current Perspectives .......................................................43 3.1.1 Strategic HRM............................................................................................43 3.1.2 Strategic HRM and Resource Based View.................................................44 3.1.3 Strategic HRM and Employees as Strategic Resources..............................48 3.1.4 Strategic HRM and Firm Performance .......................................................49
3.2 Strategic HRM and Introduction of the Knowledge Based View ..............50 3.2.1 Knowledge as a resource ............................................................................52
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3.2.2 Knowledge and Intellectual Capital............................................................53 3.2.3 Knowledge-Based View.............................................................................54 3.2.4 Knowledge Management and Knowledge Retention..................................55 3.2.5 KBV and Strategic HRM............................................................................56
3.3 Organizational Performance ........................................................................58 3.3.1 Linking HRM to Firm Performance ...........................................................59 3.3.2 Strategic HRM and Firm Performance .......................................................62 3.3.3 Causality.....................................................................................................66 3.3.4 Examining firm performance .....................................................................67
3.4 Conceptual Framework.................................................................................70
Chapter 4 - Research Design and Methodology................................................................72
4.1 Research Objective Revisited ...............................................................................72
4.2 Research Methodology ..........................................................................................73
4.3 Research Design – Contextualization...................................................................77 4.3.1 Rich Description..............................................................................................79 4.3.2 Drawing comparisons with prior research.......................................................89 4.3.3 Establishing the meaning and effects of different frames of reference............91 4.3.4 Identifying the potential variability in the underlying causal variables ...........93 4.3.5 Evaluating the role that time plays ..................................................................93 4.3.6 Summary – Contextualization .........................................................................96
Chapter 5 – Findings and Analysis.....................................................................................97
5.1 Introduction ...........................................................................................................97
5.2 Observation - General Findings ...........................................................................99 5.2.1 Layoffs ..........................................................................................................101 5.2.2 Layoff Alternatives .......................................................................................105 5.2.3 Reasons behind layoff alternatives ................................................................108 5.2.4 Communication/measurement of layoff alternatives .....................................109
5.3 Categorization......................................................................................................113 5.3.1 Impact on Client Relationships .....................................................................115 5.3.2 Impact on Knowledge Retention ...................................................................118
5.4 Defining Relationships ........................................................................................123 5.4.1 Impact on Firm Performance.........................................................................124 5.4.2 Effectiveness of layoff alternatives as firm policy ........................................134
5.5 Discussion.............................................................................................................137 5.5.1 Firm differences ............................................................................................138 5.5.2 Firm differentiation .......................................................................................141 5.5.3 Research question revisited ...........................................................................142
Chapter 6 – Summary and Implications..........................................................................148
6.1 Summary of Findings ..........................................................................................148
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6.2 Theoretical and Practical Contributions ...................................................149 6.2.1 Contribution to theory ...................................................................................150 6.2.2 Contribution to practice.................................................................................151
6.3 Limitations ...................................................................................................153
6.4 Future Research...........................................................................................153
REFERENCES...................................................................................................................155
APPENDIX..........................................................................................................................173
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List of Figures Figure 1 – Model of HR-Firm Performance Relationship ........................................13 Figure 2 – Stages in Theory Building .......................................................................15 Figure 3 – Linkages Between HRM Activities, Outcomes and Performance ...........61 Figure 4 – Linking HRM and Firm Performance......................................................62 Figure 5 – Theoretical Links.....................................................................................64 Figure 6 – Layoff Alternative – Firm Performance Framework ...............................65 Figure 7 – Conceptual Framework ...........................................................................71 Figure 8 – Change in Consulting Pyramid Structure ................................................81 Figure 9 – Consulting Industry Growth Patterns ......................................................82 Figure 10 – Downsizing Issues .................................................................................84 Figure 11 – Alternatives to Downsizing ...................................................................85 Figure 12 – Reasons to Reduce Staff ........................................................................101 Figure 13 – Communication of Layoffs....................................................................103 Figure 14 – Communication Effectiveness ...............................................................105 Figure 15 – Responsible for Decision Making Process ............................................107 Figure 16 – Pursuing Layoff Alternatives.................................................................107 Figure 17 – Reasoning Behind Layoff Alternatives..................................................108 Figure 18 – Communication of Layoff Alternatives .................................................110 Figure 19 – Satisfaction with Return/Re-assimilation ..............................................112 Figure 20 – Measurement/Assessment Processes .....................................................113 Figure 21 – Effect of Layoff Alternatives on Client Relationship ............................115 Figure 22 – Perception of Client Relationships Effect..............................................117 Figure 23 – Knowledge Retention in Layoff Alternative Decision Making .............119 Figure 24 – Knowledge Retention Considered by Firm............................................122 Figure 25 – Knowledge Retention Considered by Firm – Public/Non-public ..........123 Figure 26 – Effect on ‘Relations among employees in general’ ...............................126 Figure 27 – Effect on ‘Relations between management and other employees’.........127 Figure 28 – Effect on ‘Ability to retain key employees’...........................................128 Figure 29 – Effect on ‘Ability to attract key employees’..........................................129 Figure 30 – Effect on ‘Productivity’ .........................................................................130 Figure 31 – Effect on ‘Quality of service/products’ .................................................130 Figure 32 – Effect on ‘Quality of service delivery’ ..................................................132 Figure 33 – Effect on ‘Development of firm expertise and knowledge’ ...................133 Figure 34 – Layoff Alternative Reaching Intended Goals ........................................135 Figure 35 – Layoff Alternative as Long-Standing Firm Policy ................................135 Figure 36 – Seek Other Employment........................................................................139
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List of Tables
Table 1 – Costs of Turnover .....................................................................................24 Table 2 – Types of Turnover ....................................................................................25 Table 3 – Layoff Studies...........................................................................................31 Table 4 – HRM Outcomes ........................................................................................68 Table 5 – Organizational Performance Outcomes ....................................................69 Table 6 – Rich Description .......................................................................................79 Table 7 – Knowledge Retention ...............................................................................143 Table 8 – Client Relationships..................................................................................144 Table 9 – Organizational Performance .....................................................................145 Table 10 – Layoff Alternatives .................................................................................145
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List of Appendices Appendix A – Overview of Empirical Research.......................................................173 Appendix B – Survey Template................................................................................174 Appendix C – Sample Cover Letter..........................................................................185 Appendix D – Research Topics and Issues in Management Consulting...................186 Appendix E – Management Consulting Research Websites .....................................187 Appendix F – Consulting Research Sources – Journals............................................188 Appendix G – Interview Question Template ............................................................189 Appendix H – Alphabetical Listing of Firms Represented by Survey ......................191 Appendix I – Aggregate Results – Organizational Performance ..............................192 Appendix J – Various Layoff Alternatives Offered ..................................................193
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List of Abbreviations ERP Enterprise Resource Planning HR Human Resources HRM Human Resource Management IC Intellectual Capital IT Information Technology KBV Knowledge Based View KIF Knowledge Intensive Firm KM Knowledge Management MCF Management Consulting Firm OECD Organization for Economic and Cooperation Development PSF Professional Service Firm RBV Resource Based View ROA Return on Assets ROI Return on Investment SHRM Strategic Human Resource Management TQM Total Quality Management USD United States Dollar
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Chapter 1 - Introduction
1.1 Motivation
The topic of this dissertation was influenced by and generated from various sources. Prior
to my graduate education, my professional experience in the field of Human Resources
provided me the opportunity to observe Human Resource Management (HRM) ‘in action.’
There were occasions where I questioned certain actions of management and the reactions of
employees, and vice versa. Such experiences have given rise to my academic ambition to
research and explore why disparities can and may exist between employee and management
expectations, with regard to firm policy. Ultimately, my goal is to provide useful insights
not only to academics, but also to practitioners.
I began engaging in layoff research at the onset of the US recession in Spring, 2001. There
is extensive research on the subject of layoffs, which has produced inconsistent results in
terms of the effects layoffs have on firm performance. For example, there is a myriad of
perspectives to consider when deciding how to approach the subject. Is it a Labor/Personnel
Economics issue? A Strategic Management issue? A Strategic Human Resource
Management issue?
In my doctoral seminars, I was introduced to the Knowledge Based View of the firm (KBV)
and was intrigued by how it logically evolved in tandem with the growth of the knowledge
economy.1 In terms of products offered by firms, professional services are outpacing more
traditional manufacturing, so that a firm’s competitive advantage most likely lies in its
ability to offer products in the form of collective, knowledge-based output rather than a
physical, packaged good. Consequently, it behooves academics to embark on empirical
work that looks specifically at industries and firms where knowledge and the employees
1 For a good overview of the knowledge economy, please visit http://advancingknowledge.com.
2
who possess it are considered the core assets.2 This dissertation addresses these issues in the
context of the consulting industry and is one of the first attempts to examine performance in
this industry through a human resource management (HRM) lens. Current and past research
in consulting focuses mainly on knowledge transfer, knowledge sharing, knowledge
management, and client/consultant relationships.3
A study conducted by Bain & Company, based on information from August 2000-August
2001, showed that “unless the eliminated jobs remain unreplaced for at least six to 12
months – and sometimes for longer than 18 months in a knowledge-based business – a
company will fail to earn a financial payback.”4 They attribute this to the costs of severance
packages, temporary declines in productivity or quality, and rehiring and retraining more
than offsetting the short-term savings from reduced payroll expense. This particular study
by Bain encompasses the general foci of this dissertation – how knowledge intensive firms
should handle situations when employees are no longer needed and how the actions taken
would affect organizational performance.5
The main impetus for this dissertation was founded on and stems from a major global, US-
based consulting firm having instituted a policy that addressed this notion of layoff
alternatives. This led me to conclude that it may not always be necessary for a firm to
engage in across-the-board layoffs during an economic downturn or as a result of a decrease
in demand; rather it could explore opportunities that challenge the status-quo, thus leading to
the question:
Is there a relationship between layoff alternatives and firm performance?
2 This topic will be discussed more in Chapter 4. 3 For a good representation of such research topics, please visit the ‘Knowledge and Value Development in Management Consulting’ conference website at www.iseor.com. 4 For more specific information regarding these findings, please see Rigby, Darrell, ”Look Before You Lay Off”, Harvard Business Review, March 2002. 5 Throughout this dissertation, ‘organizational performance’ and ‘firm performance’ will be used interchangeably.
3
The following offers a brief background, followed by a discussion on the research objective.
1.2 Background
Economic downturns and their ubiquitous effects provide a rich and fruitful ground for
management research. In particular, from a strictly practical perspective, the unpredictability
of business cycles confronts firms with the continual challenge of strategically and
financially positioning themselves so that they are best prepared to embrace potential
economic swings and ultimately survive. The introduction of new markets, most notably the
ones that now exist in cyberspace, combined with the effects of continual advances in
technology, brought the US economy to experience its longest ever expansion, which
officially ended with the start of a recession in March, 2001.6 On a global scale, conducting
business in the ‘knowledge economy’ centered on the rapid expansions of the Information
Technology (IT) and computer industries, and consequently, organizations, both established
and new, were faced the ensuing challenge of obtaining, and even maintaining, competitive
advantage. This advantage could derive from company strategies, products, and capital
investments. However, looking beyond measures of market share and return on investment,
a company’s most valuable asset and primary source of competitive advantage can be
considered to be the talent comprised in an organization.
In the US in 2001, consumer spending and confidence were also embarking on a decline,
reflecting the increasing uncertainty surrounding the job market and rising interest rates.
And, not ignoring the impact of the September 11th attacks, which exacerbated this decline,
the September 2001 US Consumer Confidence Index dropped nearly 47 points, thereby
experiencing its second largest monthly drop. (The largest occurring in October 1990
6 “Economic Report of the President,” The White House, January 2001
4
following the Iraqi invasion on Kuwait.)7 Indeed, while a declining economy can have a
significant impact on society, at the same time, world events can have an impact on society,
which in turn can adversely impact the economy. Regardless of the cause behind a decrease
in demand for products/services, such a decrease negatively affects a firm’s financial and
competitive condition, forcing firms to undertake drastic measures to improve it, including
possibly reducing costs via a reduction in the workforce. However, laying off employees
due in part to a downturn in the economy could have unnecessary adverse effects. These
could stem initially from firms losing the knowledge and skills of those workers who were
laid off, resulting in possible productivity losses and negatively affected client relationships.
Moreover, the eventual improvement in the economy will potentially force firms to hire or
rehire additional workers, thereby incurring the associated costs (i.e. recruiting costs,
training costs). Thus, the notion of layoffs has taken on a new significance and has inspired
some firms to seek out and create alternatives to laying off employees during an economic
downturn.
Based on the notion that ‘people’ can be considered a firm’s most important asset8, the view
taken here is that firms may be able to avoid experiencing the aforementioned effects by
attempting to keep those ‘people’ within the firm. Within the current economic environment
the notion of layoffs has taken on a new strategic dimension, which deserves renewed
attention and a fresh perspective. An organization’s intentions should aim at finding a
balance between engaging in activities that will please investors and those that their current
and future employees will respond well to. Layoffs can be a crude solution to short-term
cost pressures that can compromise a firm’s knowledge base. Moreover, they can induce
adverse effects on networks or relationships, both inside and outside the organization.
7 Consumer Confidence Index, The Conference Board 8 The general theory behind this will be explained in detail in Chapter 3.
5
From the beginning of the millennium, a number of firms have been engaging in various
forms of downsizing. Since this can have a toxic effect on employee morale, firms must
accept the additional responsibility of keeping their remaining employees not just content,
but also appreciated. With respect to organizational downsizing, some previous research has
reported that poorly planned downsizing efforts create difficulties (e.g. Cascio, 1993). For
example, they might inadvertently target individuals with knowledge, skills, and abilities
that are critical for an organization’s future. With an appropriate notion of layoff
alternatives, a firm may be able to avoid losing employees that are important for maintaining
the successful operations of the firm.
In general, management research can be considered a product of the moment in time in
which it is carried out. For example, in their review of organizational behavior research
since World War II, Goodman and Whetten (1998) remarked that the focus of research
shifted according to contemporary economic, political, and social circumstances. As a result
of the upheaval following the war, there was a surge of interest on the rebuilding of
economies, with particular emphasis on individual productivity. Over time, workers became
more skilled, educated, and affluent, causing researchers to delve into evolving areas such as
team work and the quality of work life. Historical factors are thus important when choosing
and describing research settings, including the timing of data gathering and events that
might influence their roles.
The weak economic climate of the early 1990’s and the associated wave of layoffs were the
impetus for numerous studies on layoffs and their effects on firm performance. The current
economic slowdown has refocused attention on layoffs, but with the rise of the knowledge
economy, a crucial goal of research should be how, in a world when knowledge can be an
organization’s most valuable asset, a firm can manage staffing pressures creatively in order
6
to retain its knowledge base. Indeed, in an ever more turbulent global business arena, the
analysis of layoff alternatives should become of increasing practical significance.
Inherent in the notion of layoff alternatives is the general issue of employee retention. This
should go beyond the simple maintaining of a positive work atmosphere during difficult
times. A firm should avoid the short-term perspective of sacrificing knowledgeable
employees for immediate bottom line improvements. Instead, a firm must ensure that its best
people remain during this time. In addition, according to a 2000 US Bureau of Labor
Statistics report, by 2010 there could be as many as 10 million more jobs available than
there are employees in the US. This is a result of such factors as the retirement of baby
boomers and a decrease in workers aged 25-34. Therefore, firms should be looking more
strategically over the long term in order to deal with the changing workforce. Although at
the time of this writing the US is slowly recovering from the onset of the recession in 20019,
firms must still be prepared for the inevitable moment when the job market shifts to the
advantage of job-seekers and a new ‘war for talent’ ensues.
Knowledge, skills and attitudes are hard to control as they are inextricably bound to their
owners and can thereby be difficult to identify and measure. Hence, more sophisticated HR
practices, which are able to work through such challenges, are important for professional
service firms (PSF)10 in order to create and sustain competitive advantage (Coff, 1997). This
is particularly the case for those PSFs, such as consulting firms, which can also be
categorized as knowledge-based. Such firms have become ever more dependent on the
knowledge of their employees, and in an effort to best ensure that the knowledge does not
leave the firm, the realization that this is what will essentially happen when a layoff occurs,
9 Citing statistics from the US is done so for benchmark purposes. The empirical work was carried out on a global scale, as other economic areas (e.g. EU, east Asia) also experienced a slowdown, and hence faced the same general challenges as those firms in the US. 10 Professional Service Firms include Accounting, Advertising, Consulting, and Law firms. A more detailed discussion takes place in Chapter 2. The industry under study in this dissertation is categorized as a ‘Professional
Service Firm’ and will be discussed in Chapter 4.
7
must be truly felt and acknowledged by those involved in the layoff decision-making
process. Thus, the issue emerges of how firms can retain knowledge by not laying off
employees, and rather offering them an alternative.
1.3 Research Objective
It is a common belief in both the business and the academic world that the human resources
of an organization can be a source of competitive advantage, provided that the policies for
managing people are integrated with a firm’s overall strategic objectives. Organizations
have focused on developing human resource management systems that will enable them to
achieve their strategic goals. This study does not examine HRM as a general function within
an organization but rather it explores a new phenomenon that can be categorized as an HR
practice. It attempts to assess the implementation of a specific practice in consulting firms
and focuses on what relationships may or may not exist between a layoff alternative and
firm performance, vis-à-vis the issues of knowledge retention and client relationships. Thus,
the question arises of the extent to which current HRM is prepared to manage organizations
from the knowledge perspective. At present, HRM does not sufficiently differentiate
between knowledge-based and traditional industries. As HRM lacks perspectives that are
needed to influence knowledge-based industries, academics should therefore seize
opportunities to look at what firms are actually doing in practice, position their discoveries
in the current streams of literature and develop an appropriate theoretical framework, and
then provide industry with their findings and recommendations.
The theoretical background for this research lies in the knowledge-based view (KBV) of the
firm in strategic management research developed by Grant (1996) and Liebeskind (1996).
While strategic human resource management (SHRM) has its roots in the resource-based
view (RBV) of the firm, this project instead examines layoff alternatives from the KBV
8
perspective.11 Indeed, this study stands alone in injecting the KBV of the firm in to SHRM
theory, with an empirical focus on a knowledge-intensive industry, where employee
knowledge is truly the core of a firm’s competitive advantage. In its attempt to build upon
current SHRM research and theory,12 this dissertation intends to culminate in presenting
what associations may exist between layoff alternatives and firm performances, which in
turn may serve as a basis for further research.
This study’s principal contributions to the field of management research are twofold. First, it
contributes to theory by introducing the KBV of the firm and its application within current
SHRM research. Second, it aims to elucidate if viable alternatives to layoffs exist and if so,
how they influence employees’ perceptions of firm performance, with a particular emphasis
on knowledge retention and client relationships. The intended contribution to practice is not
to transform how HR should be run as a department within a firm. Instead, the goal is to
offer professionals insights that delve more strategically into the issues and circumstances
surrounding layoffs and potential alternatives, thereby enabling their organizations to
operate more effectively in light of the cyclical nature of the business arena.
Although at the present time the global economy is showing signs of improvement, this
dissertation project addresses a topic that resulted in part from a downturn in the economy
and hence, a decrease in demand for professional services. However, the empirical study
was carried out during Summer, 2004, after the recession and essentially in the midst of a
modest economic upswing. The intent here was to allow the industry to be in a position to
reflect on how their firms fared in light of the downturn, with respect to the notion of layoff
11 It is important to iterate here that this concept of ‘layoff alternatives’ enacted as a result of a decrease in demand, has not received much attention, theoretically or empirically. 12Theory building will be discussed in more detail in Chapter 2.
9
alternatives.13 Moreover, the targeted respondents could provide an experienced, richer
perspective.
1.4 Knowledge Perspective
Morgan and Smircich state that researchers possess a “variety of assumptions regarding the
nature of knowledge and the methods through which that knowledge can be obtained, as
well as a set of root assumptions about the nature of the phenomena to be investigated.”
(1980: 491) Therefore, the concept of knowledge and how it is defined for the purposes of
this research must be made clear. Adopting a pluralistic epistemology, human knowledge
can take on various forms (e.g. tacit and explicit), which are embedded in both individuals
and the collective (Nonaka & Takeuchi, 1995; Stehr, 1992). In this regard, a firm and its
individual employees will differ in both what they know and their manner of knowing.
Consequently, knowledge can be defined as justified true belief, which gives the capacity
for action (Nonaka & Takeuchi, 1995; Stehr, 1992), and according to Nonaka (1994) is
“created and organized by the very flow of information, anchored in the commitment and
beliefs of its holder.” (pg. 16) Essentially, knowledge is inseparable from individuals’
actions, where these actions are based on their beliefs of what they hold to be true. And,
more specifically, two types of knowledge should be noted, explicit and tacit. Tacit
knowledge is embedded in an individual. It is personal and context specific; hence it is
difficult to formalize and communicate. Explicit knowledge is codified and transmittable in
a formal language and by systematic means. Explicit and tacit knowledge exist concurrently
in business and working environments, where the former comprises specific products and
processes, and the latter is engrained in individual cognition and routines. (Inkpen, 1996)
13 This was established with the help of professionals in the industry, via a pilot inquiry, which will be discussed in
more detail in Chapter 4.
10
Both forms of knowledge are important in the context of the empirical setting of this
dissertation, as in the consulting industry both are crucial and simultaneously used.14
1.5 Dissertation Overview
The previous sections have outlined the economic environment as it relates to the
dissertation topic, the motivation behind it, the objective of the research, its theoretical
positioning, and how knowledge is defined for the purposes of this dissertation. Chapter 2
presents theoretical perspectives that underpin the research in order to distinguish the
parameters in which the main research question was eventually formulated. Chapter 3
provides a detailed discussion on the theoretical conceptual framework that emerged, based
on the lack of such treatment within existing HRM and consulting research. This
framework in turn serves as a basis for the research design. Chapter 4 presents the research
design and methodology, as it pertains to the chosen empirical setting, and Chapter 5
provides the findings and analysis of the empirical study. Finally, Chapter 6 discusses the
contributions and implications for theory and practice, as well as limitations and suggestions
for future research.
14 The empirical setting will be discussed in detail in Chapter 4.
11
Chapter 2 – Theoretical Foundations
As a part of this dissertation focuses on theory building, it is necessary to involve an element
of “strategic reduction: abstracting away enough of the world’s confusion to develop pointed
explanations.” (DiMaggio, 1995: 393) Moreover, given the many elements associated with
the various subjects and theoretical streams under discussion, they should be selected
according to “comprehensiveness (i.e. are all relevant factors included?) and parsimony (i.e.
should some factors be deleted because they add little additional value to our
understanding?).” (Whetten, 1989: 490)
2.1 Theory Building – HRM
There exist various modes of theorizing in the literature with regard to SHRM and
organizational performance. Delery & Doty (1996) put forth three dominant modes: the
universalistic, the contingent, and the configurational approach. The universalistic mode,
incorporating ‘best practices’ and ‘high performance work systems’, takes on several
assumptions; 1) there is a linear relationship between HRM practices/systems and
organizational performance, 2) that ‘best practices’ are universally applicable, and 3) that
organizational success is best measured in terms of financial performance (e.g. profit,
market share). The contingency mode implies in part that potentially complex interactions
exist between for example HRM variables and contingency factors (e.g. company size and
age, degree of unionization, industry/sector, geographic location) and between performance
and contingency factors. The third, more complex configurational mode suggests that HRM
practices affect performance not individually, but as interrelated elements in an internally
consistent bundle or system of HRM practices, which is also characterized by consistency
with other organizational systems (e.g. management control, budgeting) and organizational
culture.
12
Alternatively, Guest (1997) presents three categories of theory on HRM: strategic theories,
descriptive theories, and normative theories. Strategic theories incorporate the central notion
that a ‘good fit’ (strategy, policy, and practices within the particular context) will be
associated with superior performance. He concludes that such theories are simplistic in
characterizing HRM and adopt a limited view of performance, in that they focus too heavily
on financial measures. Descriptive theories set out to depict in detail the field under
investigation and address some of the relationships within it (e.g. Beer, et. al., 1995;
Kochan, et. al., 1986). Guest (1997) observes that such an approach fails to provide a clear
focus for any test of the relationship between HRM and performance. Normative theories
are more prescriptive in that they either imply that a sufficient body of knowledge exists to
provide a basis for prescribed best practices or that a set of values indicates best practice.
As Guest (1997) notes, such theories focus more on internal characteristics of HRM at the
expense of broader strategic issues, while leaving unclear the reasoning behind determining
the list of HRM practices.
Rather than speculating on which modes of theorizing in HRM are ‘better’ than others, a
researcher must decide on the mode best suited to their goals. Normative theory tends to
rely more heavily on HR ‘systems’ and financial indicators of performance, whereas
descriptive theory allows for more general modes of theorizing by being able to incorporate
strategic issues and utilizing methods that allow for greater descriptions of the phenomena
under study. The most suitable initial approach involves the descriptive mode of theory
building. As the present investigation is exploratory in nature, this approach is deemed
appropriate. However, with an eye to future research, one must also keep the normative
perspective in mind so that future research can become more prescriptive.
13
These differences tend to reflect a general division that exists between US and non-US
academics with respect to the HRM – organizational performance link. A great number of
US-based academics adopt a shareholder perspective, where little or no attention is paid to
other stakeholders such as employees or trade unions (Paauwe, 2004). Instead, purely
quantitative measures of performance, such as profits, ROI (return on investment), or stock
price are used (please see Figure 1 below).
Figure 1 - Model of HR-Firm Performance Relationship Source: Becker, et. al., 1997
In contrast, research carried out in the United Kingdom for example (Guest & Peccei, 1994;
McNabb & Whitfield, 1997), applies a more stakeholder perspective, where a more pluralist
framework including outcomes such as employee commitment, motivation, and satisfaction
is utilized.
This dissertation considers the general perspective as presented by Guest (1997), as well as
taking into consideration a more stakeholder perspective for several reasons. First, there is a
new, individual phenomenon under study that could be categorized as a particular HR
practice; layoff alternatives. Second, it introduces the KBV to current SHRM theory in
order to build upon it, rather than purely testing theory that already exists. Third, the
14
ultimate goal here is not to determine how HRM as a whole is linked to firm performance,
rather it is to explore how a potential HR practice in a knowledge-intensive industry may
affect firm performance, with regard to employees and the knowledge they possess.
Although aspects of performance will be measured as part of the overall analysis15, it will be
done so for descriptive purposes in order to uncover any potential associations, thereby
setting the stage for future, more in-depth research of knowledge-intensive industries and
their employees in the context of HRM.
Recent criticism has shown that theory building in general still needs to be improved upon
in order to adapt to the ever-changing business environment. This will be discussed in the
following section.
2.1.1 Theory Building – recent perspectives
In their recent paper, Carlile & Christensen (2005) state that a number of respected,
established management researchers (i.e., Simon (1976); Solow (1985); Hambrick (1994);
Staw & Sutton (1995); and Hayes (2002)) have “continued to express concerns that the
collective efforts of business academics have produced a paucity of theory that is
intellectually rigorous, practically useful, and able to stand the tests of time and changing
circumstances.” (p. 1) One of the goals of their paper is not to distinguish other scholars’
theoretical work as either ‘good’ or ‘bad’, but rather to offer significant insights on what
occurs, or at least should occur, at different stages in the theory building process. They
describe a three-step process by which researchers should build theory that is at first
descriptive, and ultimately normative. This process will be discussed in the following
sections.
15 This will be discussed in greater detail in Chapter 3.
15
From descriptive towards normative theory
Developing descriptive theory is a first stage in theory building, as it is a necessary
foundation on which to develop advanced normative theory. One of the major differences
between the two is that the preliminary descriptive stage produces statements of correlation,
whereas normative theory culminates in statements of causality. (Carlile & Christensen,
2005) The descriptive stage can only be ignored or underestimated at the cost of obtaining a
far less substantial predictive theory in the normative stage. Figure 2 below depicts the two
stages, where each level of the pyramids correspond to the three steps that comprise the
theory building process; 1) observation; 2) classification; 3) defining relationships. Each will
be explained briefly in turn with regard to descriptive theory building, followed by a
discussion on their applicability with regard to the research at hand.
DESCRIPTIVE NORMATIVE _________________________________________________________________________ Figure 2 – Stages in Theory Building Source: Adapted from Carlile & Christensen, 2005
Preliminary
statements of correlation
Categorization by the
attributes of the
phenomenon
Observe, describe and measure the phenomenon
Preliminary
statements of correlation
Categorization by the
attributes of the
phenomenon
Observe, describe and measure the phenomenon
Stmt. of Causality
Categorization of the circumstances in
which we might find
Observe, describe and measure the
16
Observation
At the base of the pyramid, a foundation is built by a researcher making initial observations,
accumulating documentation and assessing the particular phenomenon. This foundation
essentially encompasses and describes just what is under study, and can include information
from a wide range of sources, such as people, organizations, and processes. Such
descriptions need to be detailed and discussed in order to make it clear and understandable,
so that subsequent researchers may more easily build upon it. The methodology through
which this could be carried out can run the gamut from analyzing large databases to
engaging in ethnographic, field-based research. It is in this stage that Carlile & Christensen
(2005) posit that researchers often develop what they term constructs. These are abstractions
that help sort out the confusion, enabling one to grasp the essence of what the phenomenon
is and how it functions within its context. Thus, constructs are a necessary component of
theories.
Categorization
Once the phenomenon is richly described, researchers can then classify it into categories,
which are defined by the attributes of the phenomenon itself (i.e. private vs. public firms in
financial performance research, unionized vs. non-unionized in industrial relations research).
Such categorization allows for simplifying and organizing a study for the purposes of
accentuating the potential relationships between the phenomenon and intended outcomes.
Management researchers often refer to this categorization as frameworks or typologies.
(Carlile & Christensen, 2005)
17
Defining relationships – causality vs. correlation
In the third step, researchers explore the association between the categorized attributes of the
phenomenon and the observed intended outcomes by quantifying the degree of correlation
between them.16 Such findings at this point in the process can only reveal on average what
attributes are associated with the best results. (Carlile & Christensen, 2005) The process of
theory building must go beyond this in order to reach the normative stage, due to the fact
that these correlations, normally derived from a given sample of companies, may or may not
be generalized to other companies, even those from similar industries or geographic
locations. Thus, having inductively formulated certain associations, they can then be
‘tested’ deductively using different sets of data.
Moving beyond descriptive to normative theory is outside the scope of this dissertation.
Until an initial inquiry is made and a foundation established with regard to the phenomenon
of layoff alternatives, it would be premature to put forth propositions to be tested in terms of
establishing causality. The relationship between layoff alternatives and firm performance
will be discussed in this dissertation in Chapter 5, by presenting descriptive associations that
exist among the data.
2.1.2 Exploring layoff alternatives and firm performance
When addressing the research question at hand, how does one set out to explore the
relationship between layoff alternatives and firm performance? Although the research
question on the surface seems rather simple, the complexity underlying the two main
concepts poses a great challenge to the researcher in terms of clearly defining them while at
the same time determining an appropriate theoretical framework and empirical agenda.
16 Regression analysis is a typical tool in defining such correlations.
18
This dissertation undertakes the study of a new phenomenon, layoff alternatives, and
positions it within a conceptual framework that is a departure from current literature and
research streams, as will be elaborated on in Chapter 3. Given the broad nature of the
research question and the exploratory nature inherent to the subject under study, the
researcher must then ask herself what the intended results are. Ultimately, it is to provide
initial in-depth findings and uncover any potential patterns, with respect to layoff
alternatives, using data derived from the consulting industry during the recent economic
downturn. This study will in turn serve as a foundation on which to base research on layoff
alternatives in other knowledge-intensive industries. It is also designed to inform decision
makers in knowledge-intensive industries of the existence of alternatives to layoffs as a
response to fluctuations in demand. This should assist firms in avoiding potentially critical
knowledge loss, thereby mitigating any adverse effects on firm operations. The findings
here could help firms to strategize and effectively implement layoff alternatives suited to
their individual circumstances.
The remainder of this dissertation aims to encompass each of the three steps in answering
the research question at hand. The next section illuminates where this dissertation is
positioned in terms of theory building. The sections thereafter provide descriptions of
certain concepts deemed relevant. Some include aspects of existing theory, while others are
more contextual in nature, characterizing the broad nature of some of the key elements.
19
2.2 Human Resource Management
2.2.1 Background
In essence, human resources are active individuals with past experiences and inherent values
and norms that may not correspond with those of the organizations for which they work or
even necessarily with those of their colleagues. There are various communities to which
individuals belong that are both external to and part of their workplace, but within the
workplace their behavior is in part regulated by certain institutions and policies. As a major
function within an organization, human resources generally has a professional responsibility
to both the entire employee population and relevant external parties (i.e. trade unions, local,
state and national legislation). As a discipline, Human Resource Management (HRM) aims
to enhance a firm’s ability to adapt rapidly and effectively to external influences, so that
their employees can function optimally on a daily basis. Over the last 40 years, specifically
in developed economies, the nature of work has drifted from agriculture and manufacturing,
to service-based industries. Indeed, in OECD countries, the service sector employs, on
average, 60 percent of the active civilian workforce.17 This shift coincides with two key
developments put forth by Despres & Hiltrop (1995), both having significant implications
for HRM.
First, there was an evolution from rational (engineered, bureaucratic) to open systems
(multiple-connectivity) frameworks in management and organizational literatures (Perrow,
1973: Scott, 1987). This resulted in the common notion that organizational designs and
managerial practice are becoming more differentiated, less bureaucratic, less dependent on
hierarchical authority structures, and more socially integrative. Second, the post-industrial
17 Organization for Economic Cooperation and Development (OECD), Labour Force Statistidcs, 1971-1991, OECD
Publications, Paris. (1993)
20
revolution,18 which was driven by the information revolution (Postman, 1993), has
established knowledge as a primary factor of production (Drucker, 1992; Handy, 1989).
The consequence of this is a shift of the economic core of production from property, labor,
equipment, and capital to intellectual resources, thereby making the management and
retention of knowledge and the employees that possess it crucial to organizations today. In
the 1980’s, the language of HRM was being developed as companies were realizing that it is
more important to manage ‘people’ as opposed to just administrating policy.
2.2.2 Human Resource Management - current perspectives
Storey (2001) argues that imprecision, variability, ambiguity and contradiction pervade the
definitions of Human Resource Management (HRM). A thorough discussion of the
meaning of HRM is beyond the scope of this dissertation; however the following briefly
describes the elements and perspectives in force for the present study.
Human Resource Management can be considered the sum of an organization’s policies,
procedures and practices, dealing with the general issues of staffing and the development of
employees. It is important however to acknowledge that these main functions are quite
broad, and that each is comprised of many inherent functions. For example, staffing can
include, but is not limited to, areas involving recruiting, hiring, and retention.
Compensation (e.g. salary, wages, merit bonus) and benefits (e.g. health insurance,
pension/retirement), can also be categorized as a component of staffing, as these are
essential in any form of arrangement between an employee and a firm. Issues of labor
relations, such as unionization, also influence staffing. Employee development consists of
activities that go beyond ‘on the job’ training, such as performance assessment, mentoring
programs, and in-house or off-site training programs.
18 For a good discussion on this, please see Bell (1973).
21
As early as 1985, Beer & Spector argue that the set of assumptions underlying HRM
policies include: 1) people considered as the key asset of the organization, 2) development
of the interests of stakeholders for the common good, and 3) participation and informed
choice. By acknowledging that the employees are the core and most important assets of a
firm, there should be an emphasis on the work-related competencies of employees, rather
than just on a head-count. Hence, this study hones in on the employees themselves, in a
knowledge-intensive industry, where consultants are considered a firm’s most important
asset.
However, the theory of HRM suggests that it should be proactive in supporting business and
strategic goals, dealing with employee issues, and ultimately improving the bottom line.
Although this is a reasonable perspective, there is an ongoing debate as to whether HRM is
an academic or applied discipline. It can be said that research in HRM allows it to be
applied more effectively, while at the same time, practical issues form the business world
give rise to future academic research. In addition, HRM literature has provided another
debate surrounding a fundamental issue of what is HRM ‘rhetoric’ and what is HRM
‘reality’ (see Guest & Peccei, 1994; Legge, 1995; Francis, 2002). On one side, academics
produce HRM ‘rhetoric’, while HRM practitioners deal with the every-day ‘reality’ of
managing its people.
A recent article by Mamman & Rees (2004) recognizes that there is a distinction between
the rhetoric and the reality of HRM. Their discussion centers on the notion that there exists
a polarization between researchers and practitioners in the field, as put forth by Foley, et al
(1999: 164) that HRM literature has “…largely focused on defining the meaning of HRM
while eschewing the central concerns of practitioners…” Likewise, Armstrong (2000)
argues strongly about this rhetoric/reality discrepancy and cites a selection of writers who
22
“…mention the ‘rhetoric’ of HR practitioners, but should more
accurately have referred to the rhetoric of the HR academics
who have been debating what HRM means, how different it is,
whether or not it is a good thing, indeed, whether or not it exists,
endlessly and unproductively. Practitioners have pressed on
regardless, in the justified belief that what the academics were
writing about had little relevance to their day to day lives as
they wrestle with the realities of organizational life” (p. 577).
What then arises is the actual purpose and value of academic work that focuses on HRM. In
essence, one of the main goals of this work is to provide insights into a practitioner’s reality
through the application of an academic’s rhetoric. It starts with a ‘real’ HR practice and
attempts to position it within an unexplored theoretical framework, with the aim of then
applying it within new empirical settings. By introducing an innovative HR policy,
practitioners are indirectly ‘calling’ upon academics to place it appropriately in current
research and in turn to share their empirical results.
2.2.3 Strategy and HRM
In Peck’s (1994) study, results indicate that staffing policies are associated with
organizational strategy, whereas retention policies are related to the employment
relationship. As a further indication of the complexity of the organizational strategy and HR
relationship, it showed that although the overall HR philosophy did not significantly lag
behind a firm’s strategy, aspects of the HR practices do lag behind strategy. This is
consistent with Baird and Meshoulam’s (1998) findings that HR departments tend to have
policies consistent with earlier organizational strategies. This implies that HR practices may
23
be implemented without any critical thinking regarding the consequences of such actions, in
terms of the current firm strategy. Firms are saying that ‘since A occurred, we must do B’,
and are ignoring the question ‘If we do B, what will be the potential adverse consequences
and how can they best be avoided?’ In this dissertation, event A is the decrease in demand
caused by the recent economic downturn, which induced response B, a firm’s realignment of
headcount. The latter question is what is being specifically addressed – if a firm implements
layoff alternatives, what is its relationship with firm performance and are they a more
satisfactory solution than mass layoffs? It’s thus important to incorporate strategic thinking
with HRM. In this regard, in Chapter 3, strategic human resource management (SHRM) will
be discussed in detail, where in contrast to basic HRM research, SHRM goes further by
concerning itself with the effects of HRM on firm performance.
2.2.4 Types of employee-firm separation
As the employees and the knowledge they possess are significant in the context of this
dissertation, it is important now to convey the implications associated with the various ways
in which employees may be separated from the firm, starting with the general subject of
turnover, moving to downsizing and layoffs as aspects of turnover, and ending with the
concept of layoff alternatives.
Turnover
Since this dissertation examines a concept that incorporates an employee’s potential
separation from a firm, turnover19, as a much researched subject, needs to be addressed. The
issue of turnover has been vigorously pursued in organizational research. There are studies
19 Turnover essentially encompasses an employee’s departure from their current function and/or firm. The employee turnover rate is defined by Porter & Steers (1973) as the number of people who leave their current function to take up another appointment within or external to the company, as a percentage of the average number of people employed in
that function over the given period.
24
showing both positive and negative relationships between turnover and organizational
effectiveness and performance20. While turnover can carry consequences of decreased
productivity and customer dissatisfaction, at the same time it can be argued for example, that
turnover can benefit the organization as it brings in new skills, experiences, and ideas.
However, it cannot be ignored that there are many costs associated with turnover. Table 1
below summarizes the various costs associated with it:
Direct Costs Hidden/Indirect Costs
-Advertising for replacement
-Management time spent:
• Recruiting
• Interviewing/Selecting
• Inducting/Orientating
• Training
-Recruiting agency fees
-Travel expenses for interviews
-Orientation/Training
-Administration costs (processing
new/ex-employee documents)
-Lost investment in training
and knowledge development
-Lost expertise and
knowledge
-Reduced quality of
service/delivery
-Reduced productivity
-Negative impact on
remaining staff
-Opportunity cost of lost
management time
-Customer dissatisfaction
Table 1 - Costs of Turnover Source: Adapted from Lashley, 2000
Employee turnover can have various distinct characteristics and can be influenced by both a
firm and an employee. Table 2 outlines the main distinctions.
20 For detailed information, please see Price, 1977; Dalton & Todor, 1982, Argote, et.al., 1997; and Abelson &
Baysinger, 1984.
25
Table 2 – Types of Turnover Source: adapted from Wicki, 2001
The economic recovery of the early to mid 1990’s simultaneously involved two changes in
the relationship between a firm and their employees. First, the traditional labor market,
characterized by long-term employment of individuals, gave way to greater employee
flexibility and mobility. Second, amid the dot-com frenzy of the late 1990’s, there arose a
propensity for employees to move from one firm to another, contributing to an ensuing ‘war
Type of
Turnover
Characteristics
Voluntary
employees choose to leave of their own volition, for a
myriad of personal or professional reasons (e.g. marriage
or career development)
Involuntary employees must, upon the determination of the firm,
leave the organization (i.e. poor performance, reduction
in workforce, misconduct).
Avoidable
employees leave due to unacceptable wages and overall
job dissatisfaction (possible stemming from poor
relations with management, lack of work/life balance,
lack of development opportunities)
Unavoidable
employees, for reasons beyond the control of the firm,
leave (i.e., retirement, death, voluntary relocation).
Internal
employees change their position within one company (i.e.
moving to another department or subsidiary)
External employees take up employment outside of the company
26
for talent’. With a shortage of skilled workers and rapidly changing technology offering
innovative and more efficient ways of doing work, companies were faced with a greater
challenge of not only finding the best people, but also retaining them. On the other hand, as
the economy began to sink into recession in late 2000, the conditions of the labor market
altered dramatically. For example, in April 2000 in the United States, the percentage of the
unemployed made up of workers quitting their jobs voluntarily finally climbed into the
15%+ range it had attained in earlier economic expansions, yet within a few months, it had
fallen back to 12.1 percent.21 This suggests that people were not as inclined as during the
boom years to seek out new, maybe more challenging and prosperous opportunities. Thus,
in light of the recent economic downturn and current recovery, the aspect of involuntary
turnover, where firms determine that employees must leave, must in particular be examined
more closely.
This study is based on one aspect of involuntary turnover, namely layoffs. More
specifically, it is concerned with layoffs occurring as a consequence of the economic
downturn, where the current staff levels are no longer necessary due to a decrease in
demand. A primary goal of a firm’s layoff strategy should be to minimize the overall costs,
but taking into account both the direct and indirect costs of this turnover. Naturally, when a
firm is actually laying off employees, there is no immediate mass hiring activity, and thus
little in the way of short-term direct costs. However, when the economy experiences a
subsequent upswing, firms may be in a position where the refilling of certain positions left
vacant by the previous layoff activity must be undertaken. Hence, these ‘direct costs’ would
then apply. On the other hand, the indirect costs of layoffs are immediate and ongoing.
Layoff alternatives offer firms a means of minimizing the total costs of their layoff strategy.
Of the ‘indirect costs,’ avoiding the one due to ‘lost expertise and knowledge’ will be
21 Berner, R. ”Pink Slip Blues: The job market is still tight. But new layoffs are giving bosses more clout.”
BusinessWeek Online, Dec. 25, 2000.
27
addressed through the empirical phase, discussed in Chapter 4, in order to observe and
determine if in fact layoff alternatives are a viable and productive way of avoiding this loss.
As has been discussed, turnover is a vast and complex subject, depending on individual and
company attitudes, behavior and agendas. This research project focuses only on the
decision of firms to engage in layoffs (thereby attributing to turnover), and how the
phenomenon of a firm offering layoff alternatives affects turnover.
Downsizing
Freeman and Cameron (1993) have defined downsizing as the intentional reduction of
personnel intended to improve the efficiency or effectiveness of the firm. At the same time,
downsizing has gained legitimacy as a reorganization strategy (McKinley, Sanchez, &
Schick, 1995), rather than as an indicator of organizational decline.22 McKinley, et. al.
(1995) observe that often downsizing fails because across-the-board reductions in staff
inadvertently cause dramatic changes in the deep-rooted, informal organizational structure
when only incremental changes were intended. There are various theoretical perspectives a
researcher can consider when studying downsizing. McKinley, W., Zhao, J., & Rust, K.G.
(2000) compared three areas in particular; the economic, institutional, and sociocognitive
perspectives. Much research has been undertaken from the economic perspective, for
example addressing the effects of downsizing on firms’ financial outcomes (Leana &
Feldman, 1992; Armstrong-Stassen, 1994; Brockner, 1988; Mishra & Spreitzer, 1998;
Dewitt, 1993; Vanderheiden, P.A., De Meuse, K.P., Bergmann, T.J., 1994; Worrell, D.L.,
Wallace, N.D., & Sharma, V., 1991).
22 For a theoretical discussion on this, please see Greenhalgh, et. al., 1988.
28
Scholars who have embraced the economic perspective assume that downsizing is caused by
a search for productivity and efficiency. A major assumption in the economic perspective is
that decision makers understand the relationship between downsizing and future financial
performance, so that downsizing can be used as a rational, predictable tool for manipulating
that performance. However, the economic perspective has come under some criticism, as
the empirical results to date fail to find consistent positive relationships between layoffs or
downsizing and subsequent financial performance (e.g. Vanderheiden, et. al. 1994; De
Meuse, K.P., Bergmann, T.J. & Vanderheiden, P.A., 1997). These inconclusive findings
suggest that the causal forces prompting downsizing may be more complex than a pure
economic perspective. Hence, as a complement to the economic account, researchers have
incorporated institutional theory (DiMaggio & Powell, 1983; 1991; Meyer & Rowan, 1977)
to help explain downsizing. It is argued that downsizing is impelled by social conventions
that define it as “good” or “effective” management (McKinley, et. al., 1995). The difference
between downsizing and layoffs is quite subtle, with the distinction being made here that
layoffs are a form of downsizing, but not vice versa. Generally speaking, layoffs do not
indicate that a firm is trying to be more efficient in terms of its operations; rather they signal
that there is an oversupply of employees and hence costs need to be reduced.
Layoffs
Layoffs occur when any firm, organization, partnership, etc. decides that the services of
certain employees are no longer needed and the employee is consequently forced to leave.
There is not necessarily a ‘best-practice’ in which layoffs are carried out, and the various
reasons behind such activity are not usually communicated either to the general public or to
the employees themselves. Layoffs may be a firm’s way of optimally responding to demand
shifts, to changes in its industry position, or to unwelcome financial distress. They may also
29
be part of a comprehensive company-wide strategic initiative, such as a planned, well-
considered downsizing, restructuring activity or downscoping23, as previously mentioned.
Layoff literature abounds with theoretical and empirical research on various issues. Layoffs
can create feelings of job insecurity among employees who survive initial workforce
reductions (Brockner, et. al., 1985; Greenhalgh & Rosenblatt, 1984), leading to a variety of
adverse effects. For example, as a result of layoffs, turnover may increase among the firm’s
most valuable employees (Greenhalgh & Jick, 1979; Sutton, 1983), commitment and loyalty
may plummet, and surviving employees may become rigid in their behavior (Staw, et. al.,
1981). Interestingly, evidence regarding the effects of layoffs on survivors’ productivity is
mixed. Studies suggest that “survivor’s guilt” leads to increased effort (Brockner, et. al.,
1985: Brockner, et. al., 1986), whereas field studies suggest that job insecurity reduces
productivity (Greenhalgh, 1982). Although these studies were positioned mainly in
organizational behavior literature and based on firms actually laying off employees, it
presents the opportunity to study what actually occurs with regard to these various issues,
when a firm engages in a layoff alternative policy. On the one hand such a policy indicates
clearly that some employees’ services are no longer needed, yet on the other hand it shows
that firms are considering innovative ways of retaining their people until their services are
again needed.
23 ‘Downscoping’ is defined by Hoskisson and Hitt as ‘the process through which firms reemphasize their core businesses.’ (1994, p. 164)
30
2.2.5 Layoffs and Firm Performance
There is an abundance of empirical work that addresses the specific issue of layoffs and
their effects on firm performance. Table 3 below outlines a sample of studies and their key
findings, indicating a lack of consensus on the true effects on firm performance. There are
various peripheral issues and aspects that a researcher could choose to incorporate or isolate.
For example, Lee (1997) also found in her study that firms laying off smaller portions of
their work forces may not have been perceived as laying off enough. On the other hand,
firms dismissing the largest portion of their workforce may be those that are having
operational or financial problems – in these cases, the layoff announcements only verify the
firms’ conditions, possibly making future hirings more difficult.
31
Table 3 – Layoff Studies Source: Author
Authors Key Findings
Bailey & Sherman
1988
Note that downsizing is virtually synonymous with a boost
in profitability.
Bhagat, Shleifer,
and Vishny 1990
Labor cost savings will increase a firm’s value
substantially, as these are by far the largest cost in most
corporations.
Iqbal, Shetty 1995
Financially healthy firms exhibit lower shareholders’
reactions when compared with financially weak firms;
lower stock returns for the financially healthy firms indicate
that, from the investors’ point of view, the potential benefits
of layoffs are less when firms are already financially sound.
Worrell, Davidson,
& Sharma 1991
Places layoffs in two categories: financial distress, and
restructuring/consolidation. They document that from
1979-1987, the net effect of layoff announcements on stock
prices is negative.
Vanderheiden, et. al.
1994
Companies using layoffs as a strategy for financial
improvement failed to achieve that result. Profit margins,
ROA, and ROE continued to deteriorate.
Vanderheiden, et.
al. 1999
Added a firm’s risk (Beta) to ‘94 study - same net results.
Lee (1997) Layoff announcements in both the US and Japan trigger
negative returns for both countries.
Hallock (1998)
Layoffs and stock price have a negative relationship.
Iqbal & Akhigbe
(1997)
Firms disclosing favorable news with layoff announcement
experience improvements, while those without favorable
news have deteriorating performance. Stock price reactions
to layoffs are negative for firms without favorable news.
32
It would seem that the best way for firms to cut costs is dominated by several
considerations: short-term financial gain, needing to show shareholders that the company is
trying to reduce costs/expenses, or being reactive to competitive forces. Even when firms
take into account these considerations, layoffs still seem to be a popular method of dealing
with the economic environment, when a firm’s profitability and overall financial condition
are compromised.
The aforementioned serves to show that the primary measure of firm performance in layoff
research is based on financial indicators. The examination of layoff alternatives as a new
HR practice however, warrants an approach that aims to explore not only effects on an
organization’s performance, but also the manner in which they were carried out within the
firm.
2.2.6 Layoff Alternatives
The initial impetus for this dissertation arose from a global consulting firm’s public
announcement of a practice, where they offered certain employees an alternative to being
laid off outright, in which they would continue to receive partial compensation, but not be
involved in an every day function. In the context of this dissertation, layoff alternatives are
defined as measures created by a firm and then offered to its employees (either to the entire
employee population or only to particular departments/functions within the firm), which do
not incorporate an official and total dismissal and severing of ties with the firm. The
employees are not engaged in daily business operations, nor are they necessarily on-site.
Layoff alternatives could functions on several levels. For example, in one scenario, an
employee could receive a heavily reduced salary while retaining full benefits as well as the
ability to participate in firm/client networking and social activities; he would moreover be
under a binding agreement to come back to the firm after a certain time and/or under certain
33
conditions.24 These separations are temporary in nature so that when the economy picks up
or circumstances change, and demand has reached a level where the employees are needed
again, they can be asked to return.
At one end of the layoff strategy spectrum, it is important to point out that a firm could
indeed have a ‘no layoff’ policy.25 Alternatively, there could already exist in firms a myriad
of HR policies that accommodate a flexible working environment, such as part-time, flex-
time, or job-sharing programs. Such policies however were instituted in response to a
changing workforce (i.e. more women entering workforce), not a decrease in demand that
caused an oversupply of employees. As such, they are not true layoff alternatives as defined
for the purposes of this dissertation. Moreover, in the service industry and professional
service firms (PSF’s)26, where client service and relationships are key success factors,
flexible working environments in general may not prove most effective when demand is at
normal or high levels. For example, the utility of a consultant is usually quite clear. Either
he is engaged on a project and is therefore ‘billable’, in which case a firm wants him
working full time, or he is waiting ‘on the beach’ until he is appointed to a project. In this
latter case, while his knowledge, skills and abilities are still available to the firm, he is not
bringing in revenue while being purely an expense to the firm.
Thus, the question still remains of how a PSF, when confronted by a decrease in demand,
can best cut costs, while not compromising client relationships and service delivery. In
addition, as a knowledge intensive firm (KIF)27, a consulting firm is also faced with keeping
24 These aspects will be elaborated on in Chapter 5. 25 For illustrative purposes, it is fair to say that a firm could implement a ‘no layoff policy’, which in fact Cleveland, Ohio-based Lincoln Electric has. What employees agree to, in return for guaranteed employment (a minimum of 75% of a normal workweek to those with at least three years of service), is to accept pay cuts or reassignments if the
business conditions are such that they are necessary, and also to agree not to join a union (Executive Memo, “How ‘No Layoffs’ Can Work,” BusinessWeekOnline, November 6, 2001). 26 The topic of ‘Professional Service Firms’ will be discussed in the following section. 27 The topic of ‘Knowledge Intensive Firms’ will be discussed in the following section.
34
the knowledge of their consultants within the firm. This is accomplished not only explicitly
in databases, but also tacitly as such knowledge exists among and between colleagues and
clients. Consequently, if consultants are laid off at a time when there is a decrease in
demand in order to cut costs, it will produce additional costs (hiring, training) in the future,
when an improving economy causes a demand for more services.
Bolstering the potential benefits of layoff alternatives, research has been done on the effects
of re-hiring former employees. From their meta-analysis, Zottoli & Wanous (2000) reported
that referrals by current personnel, in-house job postings, and the re-hiring of former
employees are the most effective sources of recruiting. In 1992, Wanous reported that the
job survival rate for inside sources (including referrals and re-hires) averaged 24 percent
higher compared to outside sources (agencies and advertisements). These studies exemplify
the fact that there are definite benefits to re-hiring former employees. In the context of layoff
alternatives, the ‘new’ employees in actuality are those who are still employed and are
simply returning after their temporary separation from the firm.
Reichheld & Teal (1996) argue that one of the economic effects of a high employee
retention rate is customer retention. They explain that employees who stay with the
organization for long periods become familiar faces to customers and develop relationships
with them, thereby giving rise to increased levels of satisfaction and loyalty among
customers. This in turn may influence the commitment level of employees, who then may be
inspired to offer even higher levels of service to the clients. Given the importance of client
relationships in the consulting industry, part of the empirical research in this dissertations
focuses on the potential effects of layoff alternatives on client relationships.
35
The following section provides the necessary background to better understand why the
consulting industry was ultimately chosen as the empirical setting for the present study of
layoff alternatives.
2.3 Empirical Setting
The professional services industry has expanded extensively in tandem with ever improving
technology and a highly skilled, more educated workforce. In turn, the demand for such a
workforce increased and those individuals with the necessary abilities required increasing
flexibility in deciding where to ultimately work, contributing to the ‘war for talent’. The
professional services industry is therefore challenged with finding and retaining the best
people. As the empirical setting for this dissertation is the consulting industry, it is important
to explain why it was chosen, but first it is necessary to provide a discussion on why the
industry is categorized as both a professional service firm (PSF) and a knowledge intensive
firm (KIF).
2.3.1 Professional Service Firms
Quinn (1992) maintains that organizations today can be considered ‘intelligent enterprises’
because they transform intellectual assets from human input into product and service
outputs. Professional Service Firms (PSF) are firms whose products come in the form of
service delivery; in other words one does not order a product and simply have it shipped.
Professional services can be characterized by the following; they are knowledge intensive,
involve a high-level of customization, necessitate significant interaction with clients, and
require highly educated people to deliver them. (Lowendahl, 2000) Examples of PSFs
include consulting, accounting/auditing, and law firms. In general, they create and sell
business solutions to their customers, where the delivery of such solutions allows firms to
36
leverage their collective experience from serving their entire client base, which in turn could
either reduce variable costs or increase the quality of their services. As PSFs are concerned
with client interaction, they can also be seen as a ‘knowledge broker’ between clients
(Sutton & Hargadon, 1996; Hargadon, 1998). The basic premise is that a broker (PSF), due
to its central position, can identify and transfer solutions (experience) between relatively
isolated sectors of the economy (i.e. across different industries, countries). Intense growth
and globalization have attributed to the need for PSFs to bring together formally the
substantial and dispersed experience of its employees. PSFs thus rely on their knowledge,
which is the basis for the services they offer; hence, PSFs are at the same time knowledge
intensive.
2.3.2 Knowledge Intensive Firms
“Knowledge intensive firms find it necessary to maintain a high degree of flexibility: to be able to pursue multiple conflicting goals simultaneously and to be prepared to act on options that reveal themselves as the firm increases its learning and experience.” (Choo & Bontis, 2001: ix)
In the current economy, more businesses are evolving whose value is based not on their
tangible resources but on their intangible resources (Itami, 1987). Tangible resources are
typically found on the balance sheet - cash, buildings, and machinery. Intangible resources
are people and their expertise, business processes, and market assets such as customer
loyalty, repeat business, reputations, etc. Although these intangibles contribute to a firm’s
competitive advantage, organizations are still struggling to fully understand their true nature
and value (Collis, 1996). Attempts are being made to shed light on these intangibles, with
firms being acknowledged as knowledge-based or knowledge-intensive, and the employee
emerging as a focal point of the discussion, in terms of the knowledge they possess and the
relationships they develop.
37
The recognition of firms as knowledge-based entities dates back to 1987, when Sveiby and
Lloyd moved beyond the concept of the knowledge worker, and developed an account for
general managers of knowledge organizations. They first defined know-how as ‘value
added information’, and then suggested that ‘know-how companies’ provide a nonstandard
and creative problem-solving service. They then observed that in order for know-how
companies to be successful, they must have high levels of professional skills, and at the
same time, a high level of managerial skills (defined as the ability to preserve added value).
Not surprisingly, their list of such types of organizations includes advertising agencies,
software firms, and consultancies (management, architectural, and engineering). This
analysis went beyond the boundaries of the more traditional foci of capital-, technology- or
labor-intensive firms. And, they concluded that know-how companies pose more problems
of management and organization from several perspectives. For example, new forms of
employment relationships28 may be demanded by know-how workers. Another potential
problem is that high short-term profit is likely to be a mistaken goal for know-how
companies, as they highly depend on their ability to convince clients and customers of the
value of a long-term relationship.
Given the growing importance of the ‘professional know-how organization’, Starbuck
(1992) emphasized the importance of social skills and client relationships to the activities of
knowledge workers, and followed up in 1993 by exploring the distinctive identities of
Knowledge Intensive Firms (KIFs) and the need to analyze them within their particular
market situations.29 Alvesson (1993b), on the other hand, studied how managers of KIFs
may cope with their dependency on their knowledge workers. His analysis of a computer
consultancy showed that management used ideological controls in striving to create a strong
28 In the consulting industry, for example, consultants are usually ‘on-site’ with clients a majority of the time, allowing
for this mobility to potentially disrupt relationships with managers and causing the consultant to possibly question his/her professional identity in terms of loyalty and commitment to their firm and at the same time their customer. 29 Starbuck, W. H. (1993), “Keeping a butterfly and an elephant in a house of cards: the elements of exceptional success,” Journal of Management Studies, No. 30, pp. 885-922.
38
culture by manufacturing a sense of community, using performance-related rewards, and
regularly intervening in an attempt to influence the ways in which employees thought of
themselves and the company. This leads one to pick up on certain vulnerabilities KIFs need
to be cognizant of and therefore, ‘knowledge intensive’ captures a greater depth and
necessary understanding of the processes surrounding knowledge; how it is created,
captured, and shared in order to contribute to sustaining a firms competitive advantage.
A knowledge business is created when the know-how inside the firm and the needs of the
customers outside the firm meet (Donaldson, 2001). Recognizing the fact that knowledge
itself is a firm’s major resource, firms therefore depend on the generation, utilization and
uniqueness of their knowledge base. At the same time, Donaldson’s allusion to the
customers is an aspect that should not be ignored. This two-way-street between the firm and
the customer stresses the need to look at not only the knowledge within the firm, but also the
relationships that exist with the end users and receivers of it, as was similarly pointed out by
Starbuck (1992). Although knowledge products are not immune to being ‘copied’ by other
firms, the interaction between the producer of the knowledge product and the customer
remains the key to the core competence of a knowledge intensive firm (Nurmi, 1998).
Customers may in fact contribute in one way or another to the development of the service by
sharing their particular improvement wants and needs, and desired outcomes. For example,
when an individual goes to a tailor for a new business suit, most likely they are not
expecting to purchase a standardized cut, rather they pay for the consultative aspect of the
transaction, and accordingly receive a tailored suit made to fit their personal style. In a
sense, the competitive advantage of a KIF therefore lies in differentiation rather than cost-
effectiveness.
March and Simon (1958) argue that the greater the efficiency of communication in an
organization, the greater the tolerance of independence. Employees in KIFs are highly
39
independent; thereby a very high (and effective) level of communication is needed to ensure
a minimum amount of coordination that will maintain the firm as an integrated entity. The
strategies that KIFs engage in therefore partly emerge from the workers, who encounter
daily the intricacies of the interfaces of both products and customers. Ansoff (1965)
observes that strategy can be conceived as a product-market mix. When this is arguably the
case, then knowledge workers have the most direct access to product and market
information, via their customers.
As Maister (1993) states, Knowledge Intensive Firms compete in two markets
simultaneously, the ‘output’ market for its services and the ‘input’ market for attracting and
keeping their professional workforce. And, these markets are closely related: a loss in one
may affect the other. When an employee chooses or is asked to leave a KIF, there may be
potential for knowledge, created and used both internally and externally, to be lost. A major
challenge then of KIFs is to retain their key personnel (Alvesson, 1995; Deetz, 1997). Core
knowledge of a firm, partly embodied in individuals, is at risk of leaving the company when
employees themselves leave the company (Helfat & Raubitscheck, 2000).30 At
PricewaterhouseCoopers, employee turnover of 22% has proven to result in a considerable
knowledge loss (Densford, 2000). In addition to this knowledge loss is the added costs of
hiring and training new workers and potential losses due to temporary decreases in
productivity.
There are other differences between what characterizes KIFs and other types of firms31, but
the particular aspects just discussed illustrate the importance of the employees who bear the
knowledge, and the fact that if they leave (and possibly go to a competitor or potential
30 Neither the author nor the paper is taking the stance that firms, instead of laying off workers, should offer life-long employment. Rather, the interest lies in examining the phenomenon in an industry where knowledge is key and employee turnover is high, and where effects of an economic downturn have been felt. 31 For example, KIFs are usually less hierarchical, and more horizontal, provided that a KIF has the marketing power to effectively reach a broad range of customers, it can more easily operate globally; and KIFs are less capital-intensive
than manufacturing firms.
40
competitor), some of their knowledge leaves with them. A KIF can be characterized as an
ever-changing network of relationships, where there is a certain centrality of these
relationships and at the same time a necessary close contact with clients. This inherent
dependency of KIFs on those workers involved in and even merely associated with such
relationships, coupled with the workers’ penchant for independence,32 highlights the
potential for there to exist difficulty for in KIFs in retaining workers. These losses have the
capacity to disturb both internal and external relationships and networks, and in turn
employee loyalty, trust, identity, and commitment. A KIF requires what could be termed as
more creative ways of dealing with their workers, and within the current uncertain economic
times, this is ever more apparent. Ultimately, without such solutions firm performance, both
financial and operational, may be compromised.
2.3.3 Management Consulting Firms
The previous section has discussed the increasing importance and recognition of KIFs. The
present section looks specifically at one type of KIF, management consulting firms (MCF)33,
which has been chosen as the empirical setting for this research project.
Interest, both conceptually and financially, in knowledge management systems has become
widespread amongst management consulting firms, and the concept of knowledge
management (KM) and its effectiveness can be considered a major selling point in the
consulting industry. Nevertheless, from a strategic standpoint, it remains to be seen whether
a firm will be able to achieve a competitive advantage by developing a KM system that is
recognized by potential clients as delivering a service appreciably superior to that available
32 Knowledge workers as a whole hold the expertise and creativity that contributes to the development of those products/services that have the potential to create certain markets or produce customer value. 33 In the context of this dissertation, management consulting firms comprise the following types: strategy, IT, human resource, operations, and outsourcing. In addition, the term ‘consulting industry’ will be used throughout the
dissertation for simplicity purposes.
41
from its competitors. Ultimately, a management consulting firm’s success depends on the
effectiveness of the solutions provided to clients, and the consultants’ delivery and
implementation of them. As Tobin (1998) pointed out, employee knowledge is really what
helps distinguish a firm from its competitors. Hence, it can be argued that a management
consulting firm’s sustained success is driven by the knowledge of its consultants, which is
used to help develop and deliver their services.
Engaging in consulting work can primarily be considered the production of knowledge,
which is then processed into services that are sold and distributed via different channels to
organizations and consumers. This provides a rather broad definition of consulting as an
industry, but in the context of MCFs, consultants are usually characterized as those who
bring about change by using tools and methods established within their organizations in
conjunction with those that are self-developed, and the firm’s success is based on the
effectiveness of the tools. However, it is not only the tools and methods, but also their
personal skills and experiences that provide value. This self-developed aspect exists
because a consultant is able to use his own knowledge, expertise, and more ‘intimate’
relationship to his client, to create products of value. This relationship between the
consultant and client cannot and should not be underestimated. This research aims to
uncover how layoff alternatives may mitigate any harm to this relationship that can occur
when services of consultants are temporarily not needed as a consequence of a downturn in
the economy.
“Increasingly, management consultants are worth their fees not only because of their ability
to analyze client problems and provide sound recommendations, but also because of their
skill in conducting a human process that facilitates needed learning and change. It is process
skill that makes analytical ability valuable.” (Turner, 1988: 12) This implies that replication
is quite difficult, so that the ‘best’ way to avoid losing such abilities is by not letting them
42
work for someone else. In keeping with Polyani’s (1966) belief that knowledge, or the
process of knowing, is personal and related to the individual, retaining people decreases the
chance for a firm’s services to be imitated. However, when using MCFs as a source of
analysis, it is important to be aware that such a setting is not without its challenges. Similar
to March and Simon’s (1958) concept of an individual’s “decision to contribute,”
consultants may have the tendency to favor serving clients, to the extent that they prefer to
do that than share their knowledge with their colleagues and their firms on a whole. It can
be viewed that there is a ‘market’ for knowledge within firms with the belief that
consultants, in essence ‘sellers’ of knowledge, feel that they will benefit by hoarding their
knowledge rather than sharing it. Firms have tried to counter this potential problem by
promoting knowledge sharing through performance management, for example, tying an
employee’s knowledge contribution to the firm to their annual performance appraisal.
However, the implication of this is that the consultants, when approached about their
reactions to layoff alternatives, may not necessarily say in any absolute terms that the
alternatives have an influence on their work and relationship to their clients.
The characteristics and importance of the empirical setting in which this research will be
carried out has been put forth, in order to provide a basis for a more in-depth perspective to
be introduced in Chapter 4. The previous discussions on theory building and HRM serve as
a backdrop to what will be discussed in detail in the next chapter, namely strategic human
resource management (SHRM), the knowledge based view (KBV) of the firm,
organizational performance, and their potential for providing a conceptual framework in
which to position the research question at hand.
43
Chapter 3 – Towards a new conceptual framework
The proposed theoretical framework will combine existing theories while simultaneously
incorporating a ‘new’ theoretical perspective. It is developed in conjunction with the
foundations discussed in the previous chapter and incorporates the empirical focus of this
dissertation. The following sections provide an overview of the relevant aspects of current
research and at the end introduces the conceptual framework.
3.1 Strategic HRM – Current Perspectives
3.1.1 Strategic HRM
Prior to the 1990’s there was an abundance of management science publications that focused
on areas such as strategy, marketing, and business process engineering. However, as early
as 1978 the notion of Human Resources as a significant component of a company’s overall
strategy was beginning to emerge. James Walker (1978) put forth that it was time for firms
to establish a better link between business planning and Human Resource planning. It can
be said however, that three years later the origin of the field of Strategic Human Resource
Management (SHRM) was established by Devanna, M.A., Fombrun, C.J., & Tichy, N.M.
with their article “Human Resources Management: A Strategic Perspective.” (1981) They
held that SHRM should primarily concern itself with the relations between (1) business
strategy and HRM and (2) HRM and firm performance. Five years later in 1986, Hendry &
Pettigrew wrote that the call for SHRM implies in part that HRM activities are matched to
some explicit strategy and that the people of the organization are seen as a strategic resource
for achieving competitive advantage.
44
The difference between generally accepted notions of HRM and SHRM is that SHRM is
integrated with the strategic decision-making processes that steer organizational efforts to
cope with the environment (Guest, 1989). Thus, in the current environment, maintaining
integration is potentially necessary when an organization must cope with adverse economic
conditions. This is not necessarily an easy task, so it is important that individuals within
firms who are responsible for human resources decision making be aware of how they may
best help their firms navigate through a troubled business environment.
3.1.2 Strategic HRM and Resource Based View
In Edith Penrose’s 1959 seminal work The Theory of the Growth of the Firm, she put
forth the notion of a firm being a bundle of resources and argued that the limited supply of
managerial resources constrains firm growth. Subsequently, the emphasis in strategic
management research shifted more towards a perspective from which to study and
characterize the reasoning behind a firm’s strategy, with the focus on assessing a firm’s
internal circumstance in conjunction with external influences in order to determine its
competitive position.34 In essence, a firm’s performance was based on an industry-centric
paradigm, where companies developed strategies to achieve competitive advantage by
placing themselves favorably within an industry and defending their position for maximum
profitability. However, Penrose’s ideas still played an important role. The external
perspective taken to determine a firm’s competitive position left open the consideration of
34 Learned, et.al. (1965) developed what is known as the SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis, which is used to help a firm better position itself for long term success. Also, Porter (1981) firmly established his contribution to competitive strategy with his five forces model, which determines an industry’s attractiveness and a firm’s position within its industry. Interestingly, Porter’s (1980) model of generic strategies was later used by SHRM researchers to delineate the specific HR strategies one would expect to observe under each of
them (Jackson & Schuler, 1987, Wright & Snell, 1991).
45
the internal workings of a firm, and the exploration of these internal aspects led to the
emergence of the Resource Based View of the firm (RBV).35
The RBV has been influential in the development of Strategic Human Resource
Management (SHRM) literature, due in part to the RBV shifting emphasis in the strategy
literature away from external factors (i.e. industry position) toward internal firm resources as
sources of competitive advantage (Hoskisson, R.E., Hitt, M.A., Wan, W.P., & Yiu, D.,
1999). The growing acceptance of this concept of internal resources as sources of
competitive advantage, in turn legitimized SHRM’s contention of people being significant to
a firm’s success.36 (Huselid, 1995) The propensity then for the SHRM field to ‘borrow’
from broader strategy literature is hardly surprising. The recognition of the RBV within the
SHRM literature as a foundation for both theoretical and empirical examinations has most
likely exceeded researchers’ expectations. (McMahan, et. al., 1999). The application and
implications of the RBV within general strategy literature has attributed to the convergence
between the fields of strategic management and SHRM. In addition, not only are people
regarded as a strategic resource, but also concepts of dynamic capability (Eisenhardt &
Martin, 2000; Teece, Pisano, & Shuen, 1997), learning organizations (Fiol & Lyles, 1985;
Fisher & White, 2000), leadership (Finkelstein & Hambrick, 1996; Norburn & Birley,
1988), and knowledge (Argote & Ingram, 2000; Grant, 1996; Liebeskind, 1996) as sources
of competitive advantage further the intersection of strategy and HR issues.37
Chadwick and Cappelli (1999) examined the role of SHRM from a resource-based view and
argued that systems of HR practices may lead to higher performance by developing and
exploiting key internal capabilities that lead to sustained competitive advantage. In 1992,
Capelli & Singh examined the implications of the RBV on SHRM. In particular, they noted
35 Contributors to the RBV include: Wernerfelt, 1984; Rumelt, 1984; Barney, 1991; Peteraf, 1993; Teece, et.al, 1997. 36 This will be discussed in more detail in Section 3.1.4. 37The consideration of knowledge as a strategic resource with regard to this project will be elaborated on in Chapter 4.
46
that most models of SHRM based on internal/external fit assume that 1) a certain business
strategy demands a unique set of behaviors and attitudes from employees, and 2) certain HR
policies produce a unique set of responses from employees. Further, they also argued that
within strategy literature, researchers have implicitly assumed that it is easier to rearrange
complementary resources given a choice of strategy, than it is to rearrange strategy given a
set of resources, even though empirical research seems to imply the opposite. Thus, they
proposed that the RBV provides a theoretical rationale for why HRM could have
implications for strategy formulation and implementation.38 This dissertation in part aims to
observe if in fact layoff alternatives, as an HR practice that focuses directly on the value and
function of the individual and indirectly on the knowledge base of the firm, do indeed instill
an environment where employees’ behavior and attitudes react positively to them, by
examining certain performance outcomes.39
However, there are inconsistent views on the potential for HR practices to constitute a
source of sustainable competitive advantage. In 1994, Wright, et. al. distinguished between
the firm’s human resources (i.e. the human capital pool) and HR practices (the HR tools
used to manage the human capital pool). In applying the ideas of value, rareness,
inimitability, and substitutability, they argued the HR practices could not form the basis for
sustainable competitive advantage since any individual HR practice could be easily copied
by competitors. Instead, they proposed that human capital (consisting of a highly skilled
and highly motivated workforce, which thereby exhibits productive behavior) had greater
potential to constitute a source of sustainable competitive advantage. In this vein it can be
said that layoff alternatives, as a policy instituted by a firm, are directly related to a firm
keeping or losing a part of its human capital. It is true that one could imitate the policy and
instill it within his or her own organization, but it is the knowledge that these human beings
38 Interestingly, the application of the RBV in SHRM is still in force; Colbert (2004) considers the implications for research and practice in SHRM of a complex, living-systems extension of the resource-based view. 39 This will be discussed in Section 3.3.3.
47
possess that arguably cannot be imitated. In contrast, Lado and Wilson (1994) proposed
that a firm’s HR practices could provide a source of sustainable competitive advantage.
They take the perspective that by exploring the role of HR in influencing the competencies
of the firms, HR systems (groups of individual practices) can be unique, causally
ambiguous, and synergistic in how they enhance firm competencies, and thus could be
inimitable. This leaves open to question then what is more influential and critical to the firm
- the practices they utilize or the people that realize such practices.
In 1996, Boxall in part addressed this question and expanded upon the RBV-SHRM
relationship by putting forth that HR advantage (i.e. the superiority of one firm’s HRM
function over another’s) consists of two parts. First, human capital advantage refers to the
potential to capture a stock of outstanding human talent, and second, human process
advantage can be understood as a “function of causally ambiguous, socially complex,
historically evolved processes such as learning, cooperation, and innovation.” (p. 67).
Boxall (1998) then extended this basic model of strategic HRM into a more comprehensive
one. He argued that one major task of organizations is the management of mutuality (i.e.
alignment of interests) in order to create a talented and committed workforce. Success in
this will result in a ‘human capital’ advantage. A second task is that of developing
employees and teams in such a way as to create an organization capable of learning within
and across industry cycles. Success in this will result in the ‘organizational process’
advantage.
Overall, the RBV suggests that for an organization to benefit from adopting a Strategic
HRM perspective (i.e. viewing employees as resources), top managers must 1) choose
strategies that capitalize on the unique aspects of an organization’s human talent and 2)
enact human resource practices that develop additional unique and valuable characteristics.
48
(Bennett, et. al., 1998) The following sections discuss further the notion of an
organization’s human talent as a strategic resource.
3.1.3 Strategic HRM and Employees as Strategic Resources
Organizational resources include financial, physical, and intellectual capital and intangibles
such as reputation or brand loyalty. In addition to these resources, a strategy that capitalizes
on the distinctive features of an organization’s array of human talent is likely to enhance
success (Barney, 1991). A key source of uncertainty in HRM involves the adequate supply
of qualified employees. If a firm is not properly staffed, then the smooth operation of day-
to-day business is compromised as a result. It has been argued that in order for a firm to
build and sustain a competitive advantage, proper staffing is critical (Wright & Snell, 1991).
In order to ensure that the staffing aspect of organizations is not ignored, HRM as a function
must be considered crucial to a firm’s success. Thus, there needs to be in place mechanisms
that enable a firm to be in a position to seek out the best employees. Although this is usually
considered a more transactional or administrative HRM task, recruiting and selection must
be considered from a strategic perspective. Building on Mintzberg’s (1989) description of
strategy, as encompassing both overt plans for future actions and patterns that implicitly
evolve from past practices, the concept of firm strategy, in conjunction with HRM has
received increased attention (Delery & Doty, 1996; Cook & Ferris, 1986; Wright &
McMahan, 1992). A study by Bennett, et.al. (1998) has concluded that the more top
management viewed employees as a strategic resource, the greater the integration of HRM
and strategic decision making. MacDuffie (1995) states that
49
…human resources can be a primary source of
sustainable competitive advantage for a firm. Employee
knowledge about products, processes and customers that
is embedded in routines and social interaction patterns
can create organizational capabilities more difficult to
imitate than readily purchased technological
capabilities” (pg. 198)
Recognizing that employee knowledge can be considered the basis for creating
organizational capabilities, it then seems reasonable to look at firms from a knowledge-
based perspective. This dissertation does not purport to culminate in a new model to assess
HRM as a whole, but rather aims to show how the development and application of the KBV
in SHRM research is appropriate and beneficial, given the shift towards knowledge as a
factor of production.
3.1.4 Strategic HRM and Firm Performance
In the 1990’s there was an influx of management researchers delving into the field of
Human Resource Management (HRM) and how it relates to firm performance. In particular,
the notion of managing people was central to such research, as exemplified by various book
and article titles, including Competitive Advantage Through People (Pfeffer, 1994), HR
Champions (Ulrich, 1997), ‘Linking individual performance to business strategy: the
people process model’ (Gratton, et. al., 1999), ‘Building Profits by Putting People First’
(Pfeffer, 1998), and ‘Linking People, Strategy and Performance’ (Becker, et. al., 2001). The
influential work by Huselid (1995) established both an interest in and a link between HRM
and performance, claiming that more advanced high performance work practices implied a
substantial increase in sales and market value per employee. In addition, Pfeffer’s (1994)
50
emphasis on what he described as 16 best human resource (HR) practices (which he later
reduced to seven (1998)), which if implemented would contribute to competitive advantage,
set the stage for continued interest among both managers and academics.
In addition, Paauwe (2004) has remarked that little attention is given to the way in which
HRM practices are shaped and to the factors affecting this process. The focus rather is
mainly on the kinds of practices that are related to achieving improved performance.
Moreover, this notion of performance is captured predominantly through a financial or
quantitative perspective (i.e. return on investment, stock price).
3.2 Strategic HRM and Introduction of the Knowledge Based View
Paauwe & Boselie (2003) and Delery & Shaw (2001) recognize the significance of the RBV
in SHRM research, stating that people are consistent with having value and being rare,
inimitable, and non-substitutable, which according to Barney (1991), are necessary criteria
for organizational success. However, where SHRM literature has lapsed is in the notion that
what people know could be deemed more important.
The emergence of the ‘knowledge economy’ has not been wholly ignored by SHRM
researchers. However, a literature review of HRM from the knowledge-based perspective
has revealed a dearth of studies that focused on a more strategic perspective of knowledge;
almost all considered knowledge as being job related. Although the concept of knowledge
management has been introduced as part of an effective HR system, the notion of
knowledge as a strategic resource within HRM has not emerged. However, one of the only
publications that brought together HRM and the emerging knowledge economy was by
Despres & Hiltrop (1995). Moving beyond the RBV, which in part implies people as
strategic resources, one can deduce that the knowledge that such people possess, as accepted
51
under the KBV, is what gives a firm a competitive advantage. Therefore, this article
deserves mention as it was written at a time when it was accepted that the productive core of
organizations was migrating from property, plant and equipment to intellectual resources,
and that innovation and management of knowledge are crucial in modern day entities.
Nevertheless, producing knowledge and managing innovation have always been extremely
important (e.g. Simon, 1965), even though interest and research in them peaked later on.
For example, the production process in manufacturing produces goods that are transformed
from various raw materials. This occurs due to the mental capacity of human beings to
formulate the process. Whereas in services, products stem from information and data that is
collected and analyzed, which is then presented in a relevant and appropriate form, again
with human beings having the ability to formulate the process. In the knowledge economy,
organizations are increasingly using knowledge to produce, in turn, a knowledge product,
which can be viewed as a capital good that is exchanged in the marketplace. However, the
fundamentals of production are distinctive in terms of process and output, where the process
is mostly dominated by the employee and not the organization, in a knowledge-intensive
industry.
A knowledge-based theory of the firm differs from previous theories in that it must grasp the
implications of managing invisible assets that behave both as resources and as processes.
(Itami, 1987) An organization’s knowledge base transcends individuals to include other
repositories, or ‘storage bins’ (Walsh & Ungson, 1991), such as cultures, processes,
routines, relationships, and databases. But, one must look deeper and ask themselves just
what is behind these knowledge repositories and what comprises them. The notion that all
knowledge resides in human heads and is thus created by individuals seems rational and, in
terms of tacit knowledge, is basically true.40 One can assume that at some point all
40 Tacit knowledge however does not necessarily remain as such - Nonaka and Takeuchi (1995) show that the interaction of tacit and explicit (i.e. encodable and easily transferred), through their SECI (socialization,
externalization, combination, and internalization) model, leads to the creation of new knowledge.
52
knowledge resides in individuals, and that this knowledge is made explicit at some point so
that it is combined with other individuals’ explicit knowledge, in order to help create certain
cultures, develop particular processes, and contribute to knowledge databases. Thus, while
not fully disagreeing with nor ignoring the fact that an organization’s knowledge base
transcends the individual, this research takes place with the belief that it is still the
individual that is at the core of a firm’s knowledge base. In more simplistic terms, if one
believes that a human being is in fact a repository of knowledge, or in other words a
knowledge resource, then this implies that SHRM cannot be independent of both the RBV
and KBV.
3.2.1 Knowledge as a resource
Strategy theory and research provides the basis for understanding the value of knowledge to
the firm and highlights the need to manage and maintain it. The HR field has lacked such a
perspective and rather has focused on how knowledge is created, captured, and transferred
among individuals comprising the firm. Knowledge has had a presence in SHRM literature
in various forms, such as testing applicants for job-related knowledge (Hattrup & Schmitt,
1990), training employees to build their job related knowledge (Gephart, M., Marsick, V.,
Van Buren, M., & Spiro, M., 1996), developing participation and communication systems to
transfer knowledge (Cooke, 1994), and providing incentives for individuals to apply their
knowledge (Gerhart, B., Milkovich, G., & Murray, B., 1992). Whereas the HR literature has
focused more on job related knowledge, the strategy literature has focused on more market-
relevant knowledge, such as knowledge regarding customers and competitors or knowledge
relevant to the creation of new products (Grant, 1996; Liebeskind, 1996). Herein lies the
potential for an examination of the consulting industry, where both market and internal
knowledge are critical to a firm’s success.41
41 The consulting industry will be discussed in more detail in Chapter 4.
53
3.2.2 Knowledge and Intellectual Capital
Roos, et. al. (1998) make the following distinction between Intellectual Capital (IC) and
organizational knowledge: “While knowledge is part of IC, IC is much more than just
knowledge.” (p. 24) Theorists often use the term intellectual capital (IC), with three
underlying constructs: human capital, social capital, and organizational capital; these
describe the entire scope of an organization’s stock of potentially useful knowledge, skills,
and information (Klein & Prusak, 1994; Edvinsson & Malone, 1997; Stewart, 1997). Over
time, the firm accumulates this ‘stock’ that is unique to its learning and experience and
which resides in its employees, organizational routines, intellectual property, and even in
external relationships with for example customers, suppliers, and distributors. This issue
was alluded to in the prior mention of ‘knowledge repositories’, but the emergence of the
field of IC has served to reinforce its significance.
Bontis (2001) suggests that in general IC represents this ‘stock’ that exists in an organization
at a particular point in time, implying that this stock is susceptible and even vulnerable to
undergoing potential change. For example, in their study of retaining human capital during
an acquisition, Ranft, et. al. (2000), found that autonomy, status, and commitment
significantly affect the retention of human capital, but economic incentives do not. This
highlights two issues for the current research project: 1) the vulnerability of a firm’s
knowledge base should and cannot be ignored, especially with the uncertainty associated
with changing circumstances resulting from turbulent economic times, and 2) the
significance of non-financial incentives that they find supports the applicability of using
performance outcome indicators as an assessment tool.
54
3.2.3 Knowledge-Based View
The previous section has shown that people, viewed as strategic resources to the firm, are
only as effective as the knowledge they possess, share, and contribute to the firm, thus
making this notion of knowledge a necessary component of this research. The present
section builds on the previous discussion of knowledge to address aspects of knowledge
literature that are pertinent to the question of a firm retaining knowledge via layoff
alternatives. One of the aims of this research project is to contribute to the development of
and bring to the forefront the significance of knowledge retention, which has taken a back
seat to other knowledge processes within theoretical discourse and has moreover been
unintentionally overlooked by practitioners.42 In the recent words of Grant (2002):
“...the real contribution of knowledge-based approaches to
management and the firm is not so much in offering a new
theory that can revolutionize our thinking about the existence
and management of companies; it is more in providing a
perspective that can augment and extend, possibly even
transform, existing theory and management techniques.” (pg.
135)
Grant (2002) also presents five assumptions and observations concerning the nature of
knowledge that are at the foundation of the KBV, of which one in particular is pertinent
here; knowledge is created by human beings, and to be efficient in knowledge creation and
storage, individuals need to specialize (Simon, 1991: 127). Simon (1991) also reasoned that
new knowledge can be created only through the specific actions of individuals; thus their
42 In organizational practice, firms mainly distinguish between creating, capturing and transferring knowledge. In addition, von Krogh, et. al., (2000) with the focus on enabling conditions for knowledge creation, investigated
capturing and transferring in the case of explicit knowledge and locating and sharing in the case of tacit knowledge.
55
motivation to contribute to the organization is essential. These observations highlight the
significance of the following question: “What is, or should be, the foundation of conducting
research in knowledge-intensive industries?” This researcher adopts a perspective similar to
that which Grant (2002) put forth in the above quotation. Any extension of current theory
falls under the rubric of theory building, and thus should be approached from a descriptive
perspective, as discussed in Chapter 2. Accepting that knowledge itself is a resource, the
general application of the RBV is thus not enough, at least when conducting research in
knowledge-based industries and firms. In more simplistic terms, if one believes that a
human being is in fact a repository of knowledge, where this knowledge is considered a
resource in and of itself, and that the individual is considered the core of a firm’s success,
then the implication exists that SHRM cannot be independent of both the RBV and KBV.43
The KBV provides management researchers with a sound rationale for the necessity to
specialize their approach in terms of what truly lies at the core of a firm’s competitive
advantage and ultimate success. In the consulting industry, the source of a firm’s
competitive advantage is clear – it is what their consultants offer and successfully deliver to
their clients. The research here thus intends in part to gain a deeper understanding of
knowledge intensive industries by investigating one particular type of such an industry.
3.2.4 Knowledge Management and Knowledge Retention
Given the previous discussion, it is necessary to present the distinction being made, for the
purposes of this research, between knowledge retention and knowledge management. The
former refers to the notion of keeping knowledge within the firm simply by retaining those
individuals who possess it, whereas the latter is a concept that has different and more
43 This is depicted later on in Figure 5.
56
specific implications. Knowledge retention can be defined as avoiding knowledge loss.
However, the term knowledge management has other dimensions. Knowledge Management
encompasses the separate processes of knowledge creation, capturing, and transfer.
The focus here on knowledge retention first assumes that the knowledge that is to be
retained resides in the heads of individuals, is part of a firm’s intellectual capital, and is
relevant.44 Second, this ‘retention’ can be considered as one activity that occurs as part of a
system of Knowledge Management in an organization.45 For example, Knowledge
Management practices can take place either ‘person-to-document’ or ‘person-to-person’
(Hansen, et al, 1999). The former aspect may not be a major concern to firms, as
technology has allowed them to efficiently capture and retrieve such documents, but the
latter is of vital importance. It is the tacit dimension of knowledge that cannot be captured in
a document. Layoff alternatives can preserve internal relationships with colleagues and
external relationships with clients, thereby helping firms to maintain an optimal level of
service.
3.2.5 KBV and Strategic HRM
According to Simon (1991), knowledge ‘resides’ and is created in the minds of individuals
and thus cannot be owned by organizations. Therefore, firms need to keep the individual
possessing this knowledge as close as possible to and preferably within the organization. To
produce economic gain from its knowledge resources, an organization must leverage its
44 By ‘relevant’ the author is acknowledging that there are employees in firms that may no longer possess the appropriate knowledge that enables them to carry out their tasks effectively and efficiently. This leads to the assumption that layoff alternatives would only be offered to those employees, who in the view of the firm, possess relevant knowledge in order to be successful in their jobs. 45KM systems can take on various forms. For example, such system could be a type of collaborative technology such as Lotus Notes, or a web-portal such as www.metalayer.com. On a less technologically advanced level, a filing system
created by an individual could be considered a form of KM.
57
knowledge effectively and efficiently both internally and in the marketplace. The shift to
knowledge as the critical organizational resource has led to an increased awareness of the
human capital of an organization (Becker, 1964). The focus on a firm’s human capital has
in turn pushed HRM researchers to seek explicit connections between activities of HRM and
economical organizational outcomes, as has been referred to in previous sections.
The KBV suggests that a firm’s main function is the retention and creation of knowledge on
all organizational levels. In addition, a firm’s performance depends on management’s
efforts to mobilize all the knowledge held by both individuals and teams and its ability to
create value from it. (von Krogh & Roos, 1996) Knowledge-centered strategy research
inevitably confronts a number of HR issues. KM requires that firms define knowledge,
identify existing knowledge bases, and provide mechanisms to promote the creation,
protection, and transfer of knowledge (Argote & Ingram, 2000; Henderson & Cockburn,
1994; Liebeskind, 1996). There are also arguments that HR practices may play a primary
role in knowledge creation (Lado & Wilson, 94; Snell, et. al. 96). These two ideas
combined reiterate and advance the influential aspects of the KBV on HRM, and vice versa.
Although the KBV of the firm is a more recently researched and discussed concept in
management science literature, there are two relevant studies of downsizing which date from
the early 1990’s. In the study of Cameron, et. al. (1991) on downsizing in the US automobile
industry, the authors found widespread implementation errors. Most of the companies
involved in the study experienced deteriorating levels of quality, productivity, and
effectiveness as a result of using “nonprioritized” implementation tactics that did not allow
for the “prediction of who would be eliminated, how many would be gone, or which talents
and skills would be lost” (1991: 61). Another, particularly egregious, case in point was cited
by Cascio. Here, a Fortune 100 company downsized a bookkeeper earning $9 per hour only
58
to hire him back as a consultant at $42 per hour because management realized that “it lost
valuable institutional memory” in the process (1993: 99).
3.3 Organizational Performance
Firm performance addresses, on the one hand, the issue of how a firm is carrying out and
managing its operations, and on the other hand, the results achieved from doing so. In
studying the latter issue, the question still remains as to how these results are recognized, by
both internal and external parties. This recognition depends on how performance is
measured. Both researchers and practitioners are faced with the challenge of determining
how and with what methods they will approach and measure firm performance. The possible
variety can be seen from the study of Wright, Dyer, Boudreau, & Milkovich (1999) in which
the authors noted the contextual differences between SHRM in the US versus the view of
the concept among non-US researchers. Specifically, US based researchers have formed a
consensus around measuring financial performance as the major goal of SHRM.
Researchers outside the US are more likely to view employee outcomes such as satisfaction
and commitment as equally legitimate goals. Financial reporting is of course the primary
way of deriving a financial means of reflecting and assessing firm performance. At the same
time, other more subjective aspects (e.g. customer/client satisfaction, balanced scorecard) of
firm performance may be observed through the non-quantitative lens of surveys, case
studies, etc. However, a combination of both means (i.e. calculating the financial
consequences of employee behavior) remains an on-going challenge to researchers and
practitioners. While it is recognized that new strategies and competitive realities are
demanding new measurement systems, there is a revolution taking place with a shift from
considering financial figures as the foundation of performance measurement, to treating
them as one of a broader set of measures (Neely, 1999). In fact, strictly financial measures
59
in studying the consulting industry can be misleading, due in part to limited access to
financial information of major consulting firms (which are non-public).
3.3.1 Linking HRM to Firm Performance
As has been mentioned previously, the historical perspective is that HRM is a transactional
and administrative function within a firm. Going beyond this perspective, linking HRM to
organizational strategies and outcomes has been and continues to be a great challenge. In
the past, Human Resource departments were not viewed as elements of the value production
process, but rather as necessary supporting units (Lundy, 1994). However, current SHRM
models attempt to place HRM activities alongside the production process in order to
compare their activities for cost and value purposes. Within the current realm of
‘knowledge’ and its importance and role in an organization, a firm’s products and/or
services may be thought of as resting almost entirely on the human skills of the organization.
HRM activities do not serve a purely peripheral staff function. Rather, they are directly
related to maintaining and managing the most valuable assets of the organization, namely
the employees and the knowledge they possess, and hence influence the ability of a firm to
offer superior products/services and achieve its desired goals.
The relationship between HR practices and firm performance has been extensively studied.
Dyer & Reeves (1995) reviewed four studies and found evidence for a relationship between
HR and firm performance. Becker & Gerhart’s (1996) review of the 7 studies appearing in
the special issue of Academy of Management Journal on HR practices and firm performance
revealed considerable evidence for this relationship. In addition, Paauwe & Richardson
(1997) identified 9 studies containing 22 empirically established relationships between HR
and performance. However, there does not appear to be a clear theoretical or consistent
empirical link between an organization’s HRM and its performance (Dyer & Reeves, 1995),
60
thus implying the existence of a ‘black box’ between HR and HR practices, and firm
performance
There are numerous research studies that focus on a single or several HRM practices and
examine their effect on various performance measures (e.g. Abowd, 1990; Banker et. al.,
1996; Delaney & Huselid, 1996; Delery & Doty, 1996; Gerhart & Milkovich, 1990; Harel &
Tzafrir, 1999; Koch & McGrath, 1996; Leonard, 1990; Terpstra & Rozell, 1993). There are
also studies examining the effect of bundles of HRM practices on performance (e.g. Arthur,
1994; Becker et. al., 1997; Hoque, 1999; Huang, 2001; Huselid, 1995; Ichniowski et. al.,
1997; MacDuffie, 1995; Youndt et. al., 1996). A final group of studies is concerned with the
characteristics or orientation of the HRM function and their link to performance (e.g. Boxall
& Steeneveld, 1999; Cook & Ferris, 1986; Guest & Hoque, 1994; Huselid et. al., 1997;
Snell & Youndt, 1995; Stroh & Caligiuri, 1998). The research attempting to link systems of
bundles of HRM practices to organizational outcomes has led to inconsistent results and is
even now still being investigated. For example, Bowen & Ostroff (2004) have very recently
added the role of ‘strength’ of the HRM system in trying to understand the HRM-
performance link
Paauwe & Richardson (1997) synthesize well the results of prior research regarding the
HRM-performance link with the following framework given in Figure 3 below.
61
Figure 3 – Linkages Between HRM Activities, Outcomes and Performance Source: Paauwe & Richardson, 1997
For illustrative purposes, Figure 4 depicts a specific model, based on a linear causal process,
which exemplifies the variety of mediating variables a HR Practice - firm performance link
can incorporate. This model goes deeper into employee behaviors, by breaking it down into
productivity, creativity, and discretionary effort. However, there is increasing evidence that
62
it is not really how people behave that drives competitiveness, rather it is what they know;
their knowledge, skills and abilities (Quinn, 1992; Reich, 1991) further accentuate the
connectedness between knowledge and HR.46
Figure 4 – Linking HRM and Firm Performance Source: Guest, 1997
3.3.2 Strategic HRM and Firm Performance
Wright & McMahan defined SHRM as “the pattern of planned human resource deployments
and activities intended to enable an organization to achieve its goals.” (1992: 298). At the
same time, HRM has come under scrutiny as a bureaucracy-laden function within a firm
(Stewart, 1996) and as such needs to continually justify its position and utilization. Another
study suggests that HRM may be irrelevant or even an obstacle to effective organizational
46 This connectedness should become clearer in the following section.
63
performance (Welbourne & Cyr, 1997). These conflicting notions pose challenges to both
researchers and practitioners. Within the field of SHRM, efforts have been made to elucidate
the value of a firm’s HRM function, especially through demonstrating its impact on firm
performance.47
By definition, SHRM practices are theoretically or empirically linked to overall
organizational performance.48 Most empirical studies measuring organizational
performance and SHRM have utilized a common underlying logic: HR activities are thought
to lead to the development of a skilled workforce that engages in effective functional
behavior for the firm, thus forming a source of competitive advantage. This results in higher
operating performance that translates into increased profitability and higher stock prices (or
market values). (Becker & Huselid, 1998) Theoretically, this seems rather logical; however
it is interesting to note that most of the empirical studies assess only two variables: HR
practices and performance. Moreover, certain HR researchers have proposed that
organizational performance derives solely from aggregated actions of individuals.49 The
intended research aims to address this inextricable link to individuals (employees) when
assessing firm performance, together with its lack of empirical study, by a twofold approach.
First, employees are given a central role, by recognizing their capacity and status in an
organization. Second, the traditional intricacies attached to measuring firm performance are
avoided by exploring employees’ perceptions of both a potential HR practice and its
potential effects on organizational performance50, thus providing an overall picture and
evaluation of how a firm was affected.
47 Please see Appendix A for on overview of empirical research. 48 Bierly, III, P. & Daly, P. (2002) 49 It has been proposed that that organizational performance can be conceptualized as a function of individual performance (Becker & Huselid, 1992; Wright, P.M., McMahan, G.C., & McWilliams, A., 1994) 50The complex issue of firm performance was discussed in Section 3.3. To engage in a more quantitative measure of performance (i.e. stock price, ROI) at this exploratory stage would be premature.
64
Figure 5 below presents the general theoretical links underpinning this research – the RBV,
SHRM, and the introduction of the KBV. Human capital, as a general firm resource, can be
more specially looked at as ‘knowledge’, which leads to the more recent perspective of the
KBV. In SHRM, employees are considered a strategic resource. The introduction of the
KBV in SHRM research lends itself to the prospect of gaining a better understanding of
knowledge intensive firms, where the employees and the knowledge they possess can be
considered the source of a firm’s competitive advantage.
_________________________________________________________________________
Figure 5 – Theoretical Links Source: Author
Resource Based View of the Firm
Physical Capital
Human
Capital
Organi- zational Capital
Strategic Human Resource Management
Employees as strategic resource
Knowledge Intensive Firm EMPLOYEES and KNOWLEDGE they posses as source of competitive
advantage
Knowledge Based View of the Firm
Knowledge as strategic resource
65
Figure 6 below goes one step further by illustrating the link between an HR practice (Layoff
Alternatives) and its effects on firm performance in a knowledge-intensive firm where
knowledge retention and client relationships can be considered key to a firm’s success.
_________________________________________________________________________
Figure 6 – Layoff Alternative – Firm Performance Framework Source: Author
YES Layoff
Alternative
NO Layoff
Alternative
Knowledge Intensive Firm EMPLOYEES and KNOWLEDGE they posses as source of competitive
advantage
Firm Performance
Potential Effects – Positive? Negative?
Is knowledge retained? Are client relationships affected?
66
3.3.3 Causality
Establishing a true causal link between the phenomenon under study and firm performance,
under the auspices of existing empirical research, is at this point premature. The author is
not implying that this is not a valuable question for future study; rather it is necessary to first
investigate the phenomenon of layoff alternatives in detail in order to better understand it as
a research subject and to facilitate future research efforts.
The previous discussion shows that HR practices are certainly related to firm performance;
however, no theoretical consensus exists on the exact form of this relationship. One can
unequivocally say that 1) there exists a ‘black box’ between HR practices and firm
performance, and 2) there are open questions surrounding the inherent linear causal models
associated with the HR - Firm Performance relationship. As mentioned before, these
models essentially relate HR practices to quantitative outcomes using various financial
measurements. Qualitative research tends to emphasize the contextual understanding of the
phenomenon of interest, where quantitative methods seem less applicable because they do
not allow researchers to provide in-depth insights into phenomena and processes occurring
within a firm. The question then of whether SHRM researchers are yearning for more
qualitative, in-depth research could be implicit in the pervasive literature that fails to reach
consistent enough results via financial measurements, at least regarding the HR practice -
firm performance link. In terms of SHRM research, it would then make sense to engage in
the sometimes criticized approach of developing a qualitative agenda, based on what is
perceived as ‘missing’ from a stand-alone simultaneous quantitative analysis.
To date, no HRM practice-performance study has been reported in the consulting industry,
in spite of the previously discussed fact that there exists a strong association between the
consultants’ performance and organizational outcomes. In addition, within the realm of
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HRM, the KBV has not received significant attention as a theoretical foundation while at the
same time knowledge-intensive industries have had limited roles as empirical subjects.
Given the exploratory nature of this study, the consulting industry has a strategic advantage
over other industries, as its core competence is the knowledge possessed by consultants as
well as their ability to contribute to the firm knowledge base and deliver their expertise to
clients. Hence, it would be beneficial to observe an HR practice from the perspective of the
KBV and discover any potential effects on a firm’s overall performance.
3.3.4 Examining firm performance
In a recent study by Paul & Anantharaman (2003), they used Indian software companies
(which can be categorized as knowledge-intensive firms) in attempting to develop and test a
causal model linking HRM to organizational performance through an unexplored
intervening process. Their study found that not even a single HRM practice that they
examined had a direct causal connection with organizational financial performance.51 At the
same time, however, it found that each and every HRM practice under study had an indirect
influence on the operational performance of the organization. Their research used subjective
measurements of operational performance that included employee retention, employee
productivity, and product quality. Other studies measuring what are categorized as HRM
outcomes are outlined in Table 4 below.
51 This supports the ongoing inconsistencies on any findings of direct causal relationships between HRM and Firm
performance.
68
HRM Outcomes Authors
Knowledge, Skills, and
Abilities/Competence
Schuler, 1989; Becker et. al., 1997; Pfeffer,
1994; Barney, 1991; Lengnick-Hall &
Lengnick-Hall, 1999; Sandberg, 2000; Beer et.
al., 1985; Lado and Wilson, 1994
Motivation Pfeffer, 1994; Schuster, 1998
Organizational commitment Beer et. al., 1985; Beaumont, 1993; Ulrich,
1997; Putti et. al., 1989; Storey, 1995; Yeung
and Berman, 1997
Behavior Schuler, 1989; Jackson et. al., 1989; Rucci et.
al., 1998
Flexibility Storey, 1995; Pfeffer, 1994; Beaumont, 1993
Customer orientation Storey, 1995
Teamwork Beaumont, 1993
Cost effectiveness Beer et. al., 1985
Table 4 – HRM Outcomes Source: adapted from Paul and Anantharaman, 2003
In their article measuring the impact of HRM practice on perceptions of organizational
performance, Delaney & Huselid (1996) argue that although “perceptual data introduce
limitations through increased measurement error and the potential for monomethod bias, it is
not unprecedented to use such measures.” (953-954). Research has found measures of
perceived organizational performance to correlate positively (with moderate to strong
associations) with objective measures of firm performance (Dollinger & Golden, 1992;
Powell, 1992). Previous research has assessed organizational performance with a
combination of subjective and objective measures (Walker and Bechet, 1991; Arthur, 1994;
MacDuffie, 1995; Delaney & Huselid, 1996; Wright et. al., 1998). The objective measures
commonly used revolve around such areas as rate of return on investment (ROI), sales and
69
profit growth, and ratio of production cost to revenue. However, as Truss (2001) has
recently argued, although financial measures are certainly more objective, they are too
narrow to capture the multidimensional nature of organizational performance.
Borrowing from Delaney & Huselid’s (1996) study and incorporating aspects of the prior
research on HRM outcomes discussed above, perceptual measures of organizational
performance will be used for this research.52 As there was no prior instrument to measure
HRM organizational performance outcomes within the context of the consulting industry,
the author developed the following list (Table 5 below) of relevant organizational
outcomes.53
Table 5 – Organizational Performance Outcomes Source: Author
52 This will be discussed in detail in Chapter 4. 53 It was determined that financial performance measures are not appropriate for the research at hand. The lack of transparency of the private firms involved severely constrains the availability of financial information. Therefore, an
industry-wide study that relies on published financial information was not deemed wholly viable.
Organizational Performance Outcomes
• Relations among employees in general
• Relations between management and other employees
• Ability to retain key employees
• Ability to attract key employees
• Employee morale
• Employee’s sense of loyalty/commitment
• Productivity
• Quality of service/products
• Quality of service delivery
• Development of firm expertise and knowledge
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3.4 Conceptual Framework
This dissertation is centered on the research question: “Is there a relationship between layoff
alternatives and firm performance?” Given the broad nature of this question, a systematic
approach is necessary when attempting to answer it. Chapter 1 explained the motivation
behind this research, as well as external factors influencing it. Chapter 2 provided first an
outline in which the intended contribution of this research to descriptive theory was
conveyed and then discussed concepts relevant to gaining a better understanding of the idea
of layoff alternatives, thus setting the stage for a more thorough discussion of
contextualization in Chapter 4.
In this chapter, strategic HRM was first presented in terms of its current theoretical standing,
followed by the introduction of the KBV as applicable to this dissertation. In addition, the
current approach to organizational performance within HRM research was illustrated,
followed by a discussion of the new approaches taken by the author. The specific research
design, methodology, and setting will be discussed in more detail in the following chapter.
Finally, by incorporating the proposed theoretical links (in Section 3.3) with the
phenomenon under study (layoff alternatives) within the chosen empirical setting, the
relationship will be examined in a knowledge intensive industry, where the people and the
knowledge they possess, along with client relationships and knowledge retention, are crucial
to a firm’s success. This framework is depicted in Figure 7 below.
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_________________________________________________________________________
Figure 7 – Conceptual Framework Source: Author
External Environment
Internal Environment
Human Resource Management
Compen-sation and Benefits
Train-ing and Development
Staffing Reward Systems
Employee and Industrial Relations
KNOWLEDGE-INTENSIVE
FIRM
Layoff Alternatives
Knowledge Retention
Performance Outcomes
Client Relationships
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Chapter 4 - Research Design and Methodology “The need to contextualize is reinforced by the emergence of a world-wide community of organizational scholars adding ever-greater diversity in settings as well as perspectives.” (Rousseau & Fried, 2001: 1)
4.1 Research Objective Revisited
Gibb (2001) presents three specific benefits of exploring the quality of employees’ direct
experience of HR. The first two deal with countering the ‘managerialism’ and ‘economistic’
theories sometimes associated with HRM. The third benefit of this type of research is that it
“…can be a lever for re-introducing the ‘human dimension’ to studying HRM” as “it seems
timely and necessary to re-emphasize the value and validity of thinking about HRM systems
and services as involving actual people in local realities.” (Gibb, 2001: 324). This
essentially argues for an understanding of the reality of HRM as seen through the eyes of
employees, which can inform academics who are seeking to study and develop the
discipline. This dissertation project aims to explore a new HRM ‘service’ that emerged in
light of the challenges posed by the recent economic downturn. This ‘service’ is discussed
within a proposed conceptual framework that offers a new paradigm with regard to existing
SHRM research. Empirically, Eriksen & Dyer (2004) suggest that if desirable employee
behaviors depend on both the organization’s goals and the environments in which
employees operate, then future SHRM theory and research would benefit from deeper and
richer explorations into the settings and circumstances in which certain employee behaviors
enhance organizational performance. This dissertation addresses the empirical call for
studying organizational contexts in more depth in order to better explore the relationship
between layoff alternatives and firm performance.
In empirical research, operationalizing organizational performance remains a challenge for
SHRM scholars. Firm-level performance indicators such as profitability (e.g., ROI and
73
ROA), sales growth, and stock market value have been most commonly used when
assessing firm performance. However, they fail to incorporate and capture the importance
of human action and moreover studies which strictly rely on these indicators have
culminated in inconsistent results. As a result, SHRM researchers have been criticized from
several perspectives. First, it has been said that performance measures have been selected
on the basis of empirical convenience over conceptual veracity (Rogers & Wright, 1998).
Second, others have called for future research to focus on intermediate, process-related
performance measures that indicate how financial results are achieved (Becker & Gerhart,
1996: 793). Third, others point to “a crying need for a few carefully selected, qualitatively
oriented, intensive case studies to help clarify the nature of the variables and relationships.”
(Dyer & Shafer, 2003: 8) These viewpoints demonstrate the need the need to deviate from
the status quo. Although the third and most recent perspective calls for an intensive case
study methodology, the nature of the industry and phenomenon under study here does not at
present allow for such an approach.54 However, other qualitative methodologies exist and
the one used in this dissertation will be discussed in the following section, which outlines
the research methodology, followed by a detailed discussion on the research design with
regard to the notion of contextualization.
4.2 Research Methodology
As previously mention, the impetus for this research project stems from a specific firm’s
public announcement of a practice in which certain employees were offered an alternative to
being laid off outright; the employee would continue to receive partial compensation,
54 Gaining direct access to an appropriate number of consulting firms could be a significant barrier to support in-depth case studies. At this point in time, engaging in a few, detailed case studies was not deemed appropriate. As this is a new phenomenon, conducting an industry wide study is preferable in order to determine which firms could indeed be used for intensive case studies in future research. Naturally, it would then be necessary to gain access to those individuals who can provide the necessary information.
74
although not be involved in an every day function, and would have a binding commitment to
return to the firm under certain conditions. Finding a connection between layoff alternatives
and non-financial measures of performance, and at the same time exploring layoff
alternatives in general are the fundamental goals of this empirical research.
Scott (1998) outlines the following performance criteria for knowledge networks in the
frame of management consulting companies: 1) increasing the rate of client acquisition, 2)
reducing the rate of client churn, 3) reducing employee fluctuation, and 4) increasing profit
margins. Although not focusing specifically on knowledge networks, the intent here is to
evaluate certain criteria that can be used to develop an empirical agenda that will elicit
findings based on criteria similar to those of Scott in the context of layoff alternatives. These
criteria should also encompass the attitudes and behaviors of a firm’s employees, thereby
reiterating the importance of the ‘human dimension’ that has been lacking in SHRM
research.
Recognizing that knowledge resides in individuals and that it is embedded in organizational
processes and routines and social interactions, it is important to understand how various
relationships are affected by implementing layoff alternatives. These relationships consist of
internal relationships within a firm, as well as those between a firm and its clients. This
study will primarily make use of a large-scale descriptive survey to understand how layoff
alternatives affect these relationships. This survey will be designed to gather data on the
behavior, attitudes, and perceptions of consultants.
Research that aims to uncover and understand a phenomenon about which little is known is
an example of qualitative research (Marshan-Piekkari & Welch, 2004). It is generally
accepted that for exploratory research, where problems may be of an unstructured nature,
qualitative methods are most useful and suitable. (Ghauri & Groenhaug, 2005) According
75
to Yin (1994), deciding on an appropriate research method depends on the form of the
research question, the available control over behavioral events, and the extent of focus on
contemporary events. Of the five research strategies listed by Yin (1994),55 the survey has
been chosen as the most appropriate methodology, as no control is required over behavioral
events, and a contemporary event (i.e. layoff alternatives) is being examined.
A survey is an effective tool that allows a researcher to gather opinions, attitudes and
descriptions, and more specifically, descriptive surveys are concerned with certain
characteristics of a specific population of subjects when describing the phenomenon under
study. (Ghauri & Groenhaug, 2005) For example, descriptive surveys have been used to
obtain consumer attitudes towards a certain product and to ascertain views and opinions of
employees in an organization. (Reeves & Harper, 1981)
Given the exploratory nature of this research, the survey used is descriptive; it is also large-
scale in type, as one of its goals is to reach diverse, geographical areas. As a guide to the
development of the survey questions, the performance criteria will revolve around the
respondents’ perceptions and their relationship to organizational performance outcomes. In
addition, questions also address the notion of layoff alternatives and the attitudes and
behavior of the respondents with regard to them, with particular emphasis on the issues of
knowledge retention and client relationships.
An advantage of a large-scale survey is that it allows for a vast geographic representation, as
such a survey can reach respondents in a cost-effective and expedient manner (Snow &
Thomas, 1994; Remenyi, et. al., 1998). Moreover, the respondents can take more time to
answer questions, reflect more on the questions, and reply more thoroughly and candidly,
than in the case of more in-depth, face-to-face interviews (Cooper & Schindler, 1998). The
55 Experiment, Survey, Archival Analysis, Historical Accounts, Case Study
76
survey used here was web-based, thereby minimizing costs and at the same time ensuring
the respondents’ anonymity, while also allowing easy access to the researcher if necessary.
Nonetheless, disadvantages also exist with large-scale surveys. First, a respondent may feel
obligated to respond and potentially give false or misleading answers (Emory & Cooper,
1991). In order to mitigate this, it was stressed in the cover letter and at various points in the
survey instrument that the respondent one should only answer those questions which he/she
felt were appropriate. Also, since the survey was not administered by their employer, it is
expected that the respondents would feel more at ease in giving honest, detailed information.
Another concern with a large-scale survey is that its reach to a potentially larger number of
respondents may be gained at the cost of providing more superficial data. (Gable, 1994)
However, as with any initial inquiry or exploration into a new phenomenon, the data
collected can serve to provide a detailed overview of what actually occurs or the
circumstances resulting from the subject under study. The data collected can show where
certain disparities exist, thereby making it more apparent which areas or aspects warrant
further, more in-depth research.
Finally, some large-scale surveys tend to have a low response rate, thereby reducing the
extent to which survey results can be generalized to the whole sample. (Snow & Thomas,
1994) Efforts to minimize this were made. A sincere attempt was made to create a clear
survey which communicates several important factors to the recipients.56 First, the purpose
and the relevance of the topic were articulated, and the subsequent contributions to both
theory and practice were explained in the brief, yet detailed cover letter that was sent to
potential participants.57 Second, the anonymity and confidentiality of all participants and
the ultimate sharing of the compiled results was emphasized. Third, the appropriateness of
56 Please see Appendix B for survey template. 57 Please see Appendix C for sample cover letter.
77
the timing (i.e. the economic downturn and the importance of firms being prepared for the
expected upturn) of the research project was stressed.
As a means of complementing the large-scale survey, respondents were asked of whether
they were willing to schedule a face-to-face or telephone interview. This interview would
be open-ended in nature so that interviewees would have the ability to offer their opinions,
beyond simply giving direct answers to a pre-determined set of questions (Merton, et. al.
1990) derived from an initial analysis of the data. The interview questions were formulated
to delve more specifically into areas in which the survey provided either mixed or
anomalous information.
It is one thing to select a particular research instrument, but it is another to clearly position
one’s rationale for this choice. There exists an implicit trade off between universally
applicable models and a yearning and need for more attention to be given to the issue of
‘context’ and how research should be carried out in light of it. This is even more
challenging in the field of management research and especially in the area of SHRM, with
the continually evolving business and economic environments in which firms must compete
and the simultaneous changes and developments in workforce dynamics. Reiterating the
call for a more qualitative agenda in SHRM research, the following section discusses the
empirical approach taken here with regard to the issue of contextualization.
4.3 Research Design – Contextualization
Rousseau and Fried (2001) state that contextualizing “entails linking observations to a set of
relevant facts, events, or points of view that make possible research and theory that form
part of the larger whole.” (pg. 1) Although this was part of an editorial for the Journal of
78
Organizational Behavior, their assertion that the rapidly diversifying nature of work and
work settings can greatly alter the underlying causal dynamics of worker-organizational
relations could and should be applied to some, if not all, management disciplines. They
offer both ‘pros’ and ‘cons’ to contextualizing, and ultimately remark that few norms exist
regarding how to account for contextual factors appropriately. As previously discussed, the
call for context exists in HRM as well. Paauwe states, “We need theory to assess the
relationship between a set of HRM policies and practices and to explore how these relate,
interact, or are influenced by the context. Moreover, how do we define ‘context’?” (2004:
36-37). While this latter question stresses the vagueness underlying the concept of context,
at the same time it implies the need to consider it when engaging in research. In their
research on bureaucracy, Alder and Borys (1996) observe that when looking at bureaucratic
practices and their implications for the firms and people they impact, it is imperative to
consider a practice’s functionality in the particular setting studied. Thus, within the proposed
theoretical framework and when addressing the new phenomenon of layoff alternatives, it is
important to understand the environment and circumstances of the overall research setting.
The theoretical foundations and frameworks were set forth in Chapters 2 and 3. The current
chapter demonstrates why the consulting industry, which has not been the subject of much
organizational research58, is an appropriate setting and, more importantly context, in which
to explore layoff alternatives.
Finally, Rousseau & Fried (2001) state that “…contextualization is a way of approaching
research where knowledge of the settings to be studied is brought to bear in design and
implementation decision. This can occur at all stages of the research process…” (pg. 6) In
this dissertation, the research design was carried out using this notion of contextualization;
this will be discussed in the following sections.
58 Most consulting research has centered on the industry itself without much inter-disciplinary perspectives. Appendix D outlines some of the more recent research topics and issues that were discussed in August, 2004 at the Academy of
Management conference’s Management Consulting Division meeting.
79
4.3.1 Rich Description
Depending on the parameters of the research question and the disposition of the setting
itself, Rousseau & Fried (2001) offer three approaches59 to contextualization. For the present
research question, which incorporates an under-explored industry and a new phenomenon,
the most appropriate approach is ‘Tier 1 – Rich Description.’ ‘Rich Description’ aims to
provide a “detailed description and informed reflection on the role that context plays in
influencing the meaning, variation, and relationship among variables under study.” (p. 7)
There are five components to this approach (please see Table 6 below); each will be
addressed in turn with regard to the consulting industry.
Table 6 – Rich Description Source: Adapted from Rousseau & Fried (2001)
Focus upon the setting – the consulting industry
59 Tier 1 – Rich description; Tier 2 – Direct observation and analysis of contextual effects; Tier 3 – Comparative
studies. For further details on these approaches, please see Rousseau & Fried (2001).
Tier I – Rich Description
• Focusing upon the setting
• Drawing comparisons with prior research
• Establishing the meaning and effects of different frames of
reference
• Identifying the potential variability in the underlying causal
variables
• Evaluating the role that time plays
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According to Pfeffer (1998), studies in one specific industry convey more meaningful
results than do cross-industry studies because economic conditions affecting a particular
industry are constant for all firms in the same industry. The following discussion combined
with the previous remarks on professional-service and knowledge-intensive firms highlight
those aspects of the consulting industry that should be kept in mind for the present study.
General Overview
Prior to 2002, the global consulting market grew by double digits in 17 of the prior 19 years,
with a compound annual growth rate of 18% during this time period. In 2001, on the other
hand, the industry shrank by 6% and in 2002 it was flat.60 When the empirical research was
carried out in early summer 2004, the consulting industry was in the midst of a recovery
from the sharp slowdown of 2001. This recovery, however, has been extremely modest
relative to the very high growth rates experienced in the last 20-30 years. According to
Kennedy Information Group’s61 recent report, The Global Consulting Marketplace 2004-
2006, the overall market will likely grow by low single digits in 2004 and then by mid single
digits in 2005 and 2006.62 Nevertheless, such growth will still impact a firm’s staffing
needs, considering both the spate of layoffs that took place over the last few years and those
consultants who voluntarily left their respective firms.
One of the greatest challenges consulting firms face is keeping a balance between client
demands and staffing demands. This, in conjunction with overenthusiastic hiring during the
recent boom years, has altered more traditional pyramid structures that consulting firms may
60 Consultant News, Kennedy Information, Inc. January, 2004. 61 Kennedy Information Group is a well-known independent industry association that has been tracking and reporting on the consulting industry since 1970. Please visit www.kennedyinformation.com for more information and please see Appendix E for a listing of popular consulting-related websites. 62 Consultant News, Kennedy Information, Inc. January, 2004
81
employ. In order to push experienced people ‘up’ the pyramid, there must be an appropriate
number of greener and less expensive employees at the base, and smaller numbers of
experienced professionals comprising the higher layers. However, the potential effects of a
downturn on such a structure could result in a more ‘diamond’ shape, where the base has
shrunk due to layoffs, voluntary turnover, and stagnant hiring at this level (Please see Figure
8 below).
BEFORE AFTER _________________________________________________________________________
Figure 8 – Change in Consulting Pyramid Structure Source: Author
With the expected low and slower growth rates, it will be more challenging to replenish the
pyramid base over time. A rational question for consulting firms is whether such a situation
could have been avoided or at least mitigated. The importance of this must be stressed, as
Partner Principal Director
Senior Manager Manager
Team Leader
Analyst, Associate, Consultant
Consultant Associate Analyst
Senior Manager Manager
Team Leader
Partner Principal Director
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the consulting industry has followed a somewhat predictable cycle (please see Figure 9
below). Therefore, it is plausible to say that similar shifts in demands will continuously
recur in the long run, thereby forcing firms to adjust accordingly. In addition, regardless of
what drives growth in the consulting industry63, fluctuating demand accentuates the need for
firms to retain their best staff.
Consulting Industry Growth Patterns
1970-2003
14%
3%
27%
7%
16%
-4%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
1970-
1975
1976-
1982
1983-
1989
1990-
1993
1994-
2000
2001-
2003
Compound Annual
Growth Rate
Figure 9 – Consulting Industry Growth Patterns Source: adapted from Consultant News, Kennedy Information, Inc., June 2004
The consulting industry is quite varied, being comprised of a range of areas of expertise (e.g.
IT, strategy, HR, operations) and ownership structures (publicly owned, partnerships). The
various types range from independent one-person entities to firms with global reach which
employ as many as 50,000 employees worldwide. The competitive landscape for the US
consulting industry is dominated by a small group of large multinational consultancy firms.
63 For example, in the 1970’s corporate strategy was the focus, the 1980’s saw TQM and ERP, and in the 1990’s it was the Internet and Y2K. It can be said that today’s focus is outsourcing, however it is not necessarily good for the consulting industry in the long run. For instance, when a company engages a consulting firm to help outsource a part
of its business, that part of the business is essentially no longer a potential revenue stream for a consulting firm.
83
Following the Enron scandal and the ensuing new disclosure rules, some accounting and
audit firms were induced to sell off their consulting arms as a way to avoid conflicts of
interest and to improve public sentiment about the industry. The buyer in most cases was
another large multinational consulting firm. Mergers and acquisitions (e.g. Cap
Gemini/Ernst & Young, PwC & IBM) have also influenced competition. As a result of such
consolidation, strategy firms (e.g. McKinsey, Bain & Co.), which tended to be more affected
by the downturn, were pushed into developing their technology expertise in order to better
compete during the current upturn.64
Downsizing/Layoff Activity
Consulting represents a true professional service industry, unlike other industries or
companies studied previously in SHRM research. In general, professional service industries
are more prone to the effects of the cyclical nature of the economy. When there is a
downturn, companies have to focus on cutting costs, and a common means of doing so is not
engaging external firms that sell professional services. In the mid- to late- 1990’s when the
economy was more robust, companies had more disposable income and were more inclined
to hire outside consultants. With increased competition among consulting firms, a fierce
‘war for talent’ ensued where consultants (or future consultants) were in great demand. At
the same time there was a penchant for consultants to leave for other firms or to establish or
join one of the numerous ‘start-up’/‘dot-com’ ventures. In spite of these challenges, most
firms in the consulting industry expanded not only in revenues, but also headcount during
this time. This issue of headcount made it difficult in the early 2000’s to cope with staffing
issues caused by the decrease in demand due to the downturn in the economy.
64 www.businessweekonline.com, “Long Awaited Bounce”, July 7th, 2004.
84
In October, 1999, Kennedy Information Group published a special report by Ransford on
downsizing in the consulting industry. Three-hundred consulting firms (representing all
types and sizes) were included in the study, which was conducted in part as a response to
firms then experiencing a Y2K-related slowdown, as well as to gain a sense of what firms
might be doing to prepare for future growth. As depicted in Figure 10, almost half of the
respondents mentioned that their firms were indeed exploring alternative or nontraditional
methods of maintaining staff capacity, while at the same time just over a third said they
were considering downsizing.
Figure 10 – Downsizing Issues Source: adapted from Consultant News, Kennedy Information, Inc., October, 1997
85
Figure 11 below shows what alternatives to downsizing were being considered.
Figure 11 – Alternatives to Downsizing Source: adapted from Consultant News, Kennedy Information, Inc., October, 1997
The fact that 90% of respondents planned on retaining and redeploying staff gives a clear
indication of the firms’ intentions of keeping employees within the firm. Nonetheless, after
an exhaustive review and search of periodicals, newspapers, websites and industry
association publications, firms that actually laid off employees around this time included,
but were not limited to, Accenture, PwC (now IBM), KPMG consulting, Booz Allen &
Hamilton, Cap Gemeni Ernst & Young, Boston Consulting Group and AT Kearney.
Not long after this study, it was reported in Consulting Magazine, that morale in consulting
firms generally suffered as the economy declined. In a survey conducted between early
2001 and Summer 2002, morale was significantly down in the 32 largest US consulting
firms – and in fact by mid 2002 approximately 21% of consultants held the morale within
their firms in disdain.65 The lower morale was not categorically attributed to layoffs, but
could certainly be tied to the overall malaise felt in the industry and within individual firms.
Furthermore, those who responded to the survey do not include the large number of
65 Consulting Magazine, Kennedy Information, Inc., November, 2002.
86
consultants who were laid off in 2001, and instead only included those who were still
employed, having survived any rounds of layoffs.
Turnover rates in general also declined during this time. Traditionally, large consulting firms
(200+ consultants) have an attrition rate of over 15%, while smaller firms (5-200
consultants) have more volatile rates, ranging from 2% to 25% or more.66 For example,
among 20 leading public IT firms, the turnover rate fell drastically from 24% in the middle
of 2000 to 14% in the third quarter of 2001.67 Towards the end of the dot-com boom firms
indeed went to great lengths to retain their best staff, as they realized that the ‘war for talent’
was still in force. However, at that time firms may have had better resources they could
commit to retaining good people. With the dot-com implosion which began soon thereafter,
consultants were no longer likely to leave their positions voluntarily. When retention
strategies are in place during a time when the economic conditions are not necessarily grim,
as in the late 1990’s, they are aimed at keeping a firm’s ‘best and brightest’ from leaving for
better opportunities. Nevertheless, when there is a downturn in the economy, firms must
recognize that such conditions are only temporary, and must accordingly take appropriate
measures to best retain its staff. There is some evidence that firms were proactive in this
during the most recent recession;68 there is no evidence of this during previous downturns.69
This implies that firms have taken note of the exodus of consultants during the dot-com
boom and have realized that managing their staffing levels at all times should be a priority.
66 Consultant News, Kennedy Information, Inc., February, 1997. 67 Consultant News, Kennedy Information, Inc., January, 2004. 68 One such firm was alluded to in Chapter 1; indeed this case provided part of the impetus behind this research. Another firm implemented a ‘furlough’ and told 30% of its staff not to return to work for six months, during which time they received 35% of their salary in cash payments. If they returned they would receive 35% of their salary in restricted stock. Details regarding when and under what circumstances employees would be brought back were not available. The distinct difference between these two policies is that the former was voluntary, while the latter was not. 69 No evidence could be found via any public means.
87
Pilot Inquiry
One of the biggest challenges in researching the consulting industry is access. The
proprietary nature and exclusivity of consulting firms, both public and non-public, poses
barriers when trying to contact individuals through the firms themselves.70 After
discussions with professors, consultants, and former MBA classmates, it became evident
that a legitimate point of entry would need to be found. The first step in this direction was a
pilot inquiry on a public message board from a widely-used and popular web portal.71 This
inquiry was done to establish the potential willingness of consultants or former consultants
to respond to questions on this topic and to see if an unexpected, random solicitation would
be heeded and hence, effective. After the initial posting, over 15 responses were posted in
the following week, a handful of which prompted further and valuable dialogue among the
researcher and anonymous individuals. To garner additional support and interest, a further
inquiry was made through personal networks of consultants to assess their willingness to
participate in a survey on the topic of layoff alternatives. This network started with ten
individuals, who reported back that there was indeed interest and enthusiasm among their
colleagues and peers and moreover that if solicited, they would participate. It was then
determined that a web-based survey sent via email would be the most appropriate
instrument, due to its ease of use and guaranteed anonymity among the respondents. The
expectation is that this method provided an opportunity for respondents to provide forthright
and honest insights, without compromising their privacy or promoting any fear of retaliation
by colleagues or superiors.
70 This was duly experienced after personally soliciting a sample of major consulting firms. 71 Vault was established in 1997 and offers an extensive library of company profiles, offering detailed data with regard to companies’ activities and their work environments, as well as information on recruiting/interviewing. It provides both job seekers and professionals with a medium to exchange information and offer advice on jobs and career. For
more specific information, please see www.vault.com.
88
Sample
Huselid et. al., (1997) argue that HRM research must consider a firm’s effective practices
rather than documented policies. Moreover, without direct access to firms as a whole,
inquiring about and getting concrete information on official policy was a challenge.
Therefore, the consultants themselves, as those with direct personal and professional
experience of certain HR activities, were deemed the appropriate starting point to explore
the notion of layoff alternatives. Moreover, as discussed earlier, contacting employees
directly is particularly appropriate in the consulting industry because in this industry the
relationships and the knowledge of the employees are a critical success factor (Nurmi,
1998). It would also be interesting to obtain data from the HR professionals who administer
the HRM activities of the company and from the senior management who develop the HRM
policies; one could then compare and contrast the results with those responses of the
employees. This will indeed be a subject of future research. However, given the exploratory
nature of this project, the present research targets only those who are directly affected by a
firm’s HRM practices, namely the consulting professionals.
The list of survey respondents was generated from a network of alumni from two highly
regarded MBA programs – one in the US and one in Europe.72 Empirical findings in HRM
are based primarily on research carried out in North America, as both Hiltrop (1999) and
Guest (1997) note. However, given the global nature of the larger consulting firms, it would
be useful to generate data which is not limited to a specific geographic area.73 It was
determined that a broader geographic representation was advantageous, at the potential
expense of a lower response rate.
72 The US and European MBA programs have been ranked in the top 25 business schools, respectively in Business Week and the Financial Times. 73 This is not to say that future research with geographic limitations would not be useful.
89
The list of respondents was determined in several steps. First, a sample was selected
consisting of the top 50 consulting firms (based on revenues) from Kennedy Information
Group’s 2004 listing.74 Based on this list, an initial list of those alumni of the two
universities who were employed by these 50 firms was generated. This list was then sorted
by title, and the final list of survey recipients included those whose titles were analyst,
associate, or consultant.75 This was done for several reasons. Reiterating what was
discussed at the beginning of this chapter, numerous scholars have called for HRM research
to embrace the ‘reality’ of the HRM discipline by putting employees at heart of empirical
research. In addition, since consulting firms tend to lose more employees from the ‘base’ of
the pyramid, it is their perspectives that can provide better insights as to what they or their
former colleagues experienced. More senior member of firms can of course offer details
and viewpoints as well, but since they are not typically the target of layoff alternatives, they
have not been considered so far.76
4.3.2 Drawing comparisons with prior research
As previously discussed, the typical research design has involved using statistical methods
to relate HR practices to some financial outcome such as profitability or shareholder wealth.
In addition, rather than hone in on statistical causal linkages pitting bundles of practices
against aspects of firm performance, and then test each one individually, the approach put
forth for this research attempts to take on what researchers have implicitly called for but
have yet to tackle – a more qualitative agenda.77 In an effort to better understand how HR
practices impact performance outcomes, one must theorize the means through which this
74 There are other published rankings of consulting firms (i.e. www.vault.com, www.businessweek.com, www.consultinginfo.com). Kennedy Information Group’s was chosen as it is the most comprehensive industry resource. Please see Appendix F for a listing of consulting research sources. 75 As firms have their individual nomenclature, a direct inquiry was made to determine titles used for employees making up the bottom part of the pyramid (lower-level staff). 76 Implications for future research will be discussed in Chapter 6. 77 Again, the author is not precluding any future studies that build upon the findings of this exploratory work.
90
relationship occurs. It was demonstrated in Chapter 3 that concepts from the KBV are well
aligned with SHRM research, yet at the same time move beyond the RBV, thereby
providing a more in-depth perspective when isolating a firm’s knowledge, viewed as its
primary source of competitive advantage. In conjunction with a global shift leaning more
towards the professional service industry, this extension in SHRM research and its
application in a knowledge intensive industry are particularly appropriate. Consulting
research in particular has focused primarily on knowledge management, client relationships,
consultant roles, and even on the practice of consulting in terms of service delivery.
However, the industry has yet to be examined through a more traditional strategic and
human resource management lens.78
Indeed, there is a dearth of studies using the consulting industry as an empirical base within
such research. This is perhaps due in part to the reputation of the industry. In addition,
although the consulting industry is undeniably a dominant force in the global business
arena79, there is a certain stigma of ambiguity and secrecy attached to it. The tendency for
consulting firms to lack transparency may in part cause researchers to shy away from the
challenges the industry poses. The author suggests, however, that this attitude should and
must change.
At this point, it is worth mentioning three articles that have elements relating to the research
at hand. First, Paul & Anantharaman (2003) examined the link between HRM and
organizational performance in the Indian software industry (which can be considered a
knowledge-intensive industry). In their research design, they put the software engineers,
who comprise the core production factor of their firms, as the main focus of their study.
78 For a thorough listing of recent articles and research, please see Research in Management Consulting, Information Age Publishing, Greenwich, CT. www.infoagepub.com. 79 According to some estimates for example, Accenture and McKinsey, the largest (by number of employees) public and non-public firm respectively, had turnover of almost 12 and 4 billion USD, respectively from 2002-2004.
(www.businessweek.com, www.vault.com)
91
They also noted that although HR professionals may have more detailed information
regarding policies and practices of the firm, they were not included in the study, since they
were not the direct beneficiaries of such policies. Second, Doorewaard & Meihuizen (2000)
used the management consulting industry in two European countries to explore the
relationship between HR and strategic performance options in professional service
organizations. Rather than putting the employees at the core of the study, they focused on
HR strategies that contribute to either a firm’s ‘expertise’ or ‘efficiency’ orientation. This
qualitative study provided insights on HR approaches and practices which help HRM staff
cope with an orientation ‘mix’ and moreover provided a foundation that shows the general
importance of HR in professional service firms. Third, Boxall & Steeneveld (1999)
considered the link between HR and organizational performance indicators. Their study,
however, focused on a specific type of consulting firm (engineering) and was isolated to one
country (New Zealand). Each of these studies has its distinct influence on and serves to
highlight the importance of the research at hand. The first recognized the employees and the
knowledge they possess as critical to their study, while the second represented a successful
attempt to use the management consulting industry as an accessible and sensible empirical
base. Finally, the third study looked at performance in a knowledge-based firm, albeit in a
limited geographical area.
4.3.3 Establishing the meaning and effects of different frames of reference
The pilot inquiry revealed that there were a wide variety of components a firm might
incorporate into a layoff alternative policy.80 Therefore, prior to the study design, it was
extremely important to put together a comprehensive list and uniform definition of these
layoff alternatives that could be applied to any firm, so that there was a consistent frame of
reference among respondents.81 It also became clear during the pilot inquiry that there were
80 Please see Appendix J for a listing of the various components. 81 The definition of layoff alternatives for the purposes of this research was already discussed in Chapter 2.
92
inconsistencies amongst the policies at individual offices of the same firms in terms of what
was offered and how it was communicated.
It was assumed that those who responded to the pilot inquiry were based in the US (all but
one mentioned their office location). However, as previously discussed, geographical
limitations were not in place for the purposes of this research. It was thus necessary to
design the study so as to account for potential differences in settings, roles, and cultural
frames of reference based on geographical differences, which in turn could influence
individual’s interpretation of the issues at hand. The survey was thus designed to
incorporate geographical differences and to be able to account for them during the analysis.
A majority of the questions were formulated to gather not only factual information, but also
to elicit opinions. The former was achieved by presenting a pre-determined set of answer
choices and the latter by giving the respondent an opportunity to expand on and account for
why they answered the way they did, given their individual frames of reference and
experience (i.e. influence of regulatory and cultural differences). This allowed for an
immediate and reactionary response to be collected, which could provide a more detailed
explanation which could in turn enhance the analysis.
As mentioned earlier, the list of potential respondents was limited to those deemed most
affected by a layoff alternative – consultants. More specifically, attempts were made to
achieve a similarity in roles and stature within a firm among the recipients, thereby
promoting similar frames of reference and experience among the respondents and thus
providing more consistency in the analysis.
93
4.3.4 Identifying the potential variability in the underlying causal variables
As the main research question does not intimate a pure causal relationship between layoff
alternatives and firm performance, this aspect was not deemed pertinent for the research
undertaken here. The issue of causality was discussed in Chapter 3, since most research in
the HRM realm has targeted establishing such a relationship. However, as this is a new
phenomenon under study, it is necessary to first establish through exploratory means what
types of relationships may exist, so that future research has a rich foundation on which to
build.
4.3.5 Evaluating the role that time plays
The issue of time is of great importance for this dissertation. It has been said by Goodman
& Whetten (1998) that since World War II, a researcher’s focus shifts depending upon the
issues of the day. The particular historical circumstance underlying this project is the
economic downturn that began in 2001. This resulted in a decrease in demand for
professional services, so that the consulting industry in turn suffered and experienced
layoffs. Although when the empirical research was carried out, the economy was in the
midst of a modest upturn, at the time of this writing there are signs yet again that the
economy in the US and Europe is weakening.82 As mentioned earlier, demand in the
consulting industry fluctuates in tandem with economic factors. For example, in the late
1980’s, the compound annual growth rate (in revenues) was approximately 25-30%.83 This
was a time when the industry was driven by business process engineering and total quality
management projects. After a significant slowdown in the early 1990’s, there was a
resurgence in the late 1990’s caused by Y2K and the ‘e-’ and dot-com boom. However,
82 “In Europe, economic pessimism takes hold,” Kanter, James, International Herald Tribune, Saturday, April 30th, 2004 pgs. 1 & 4. 83 Consultant News, Kennedy Information, Inc. January, 2004
94
after the dot-com bust and economic downturn in the beginning of the millennium, the
consulting industry experienced its worst slump in the last 30+ years.84 Although there is an
economic recovery taking place, for this research it is more important how this translates
into a ‘recovery’ for the consulting industry itself. While the industry is at least facing a
market that is growing, albeit sluggishly, as opposed to declining as it has for the past few
years, the expected growth rate of no more than 5% predicted for the near future guarantees
that the industry will still be confronted by many challenges.85
As previously mentioned, over the last 30-40 years, the growth of the consulting industry
was based on new ideas. Currently there is no ‘new’ idea on the horizon with obvious
industry-driving potential. This means that firms will have to learn to navigate troubled
waters creatively until good times return to the industry. Firms have already or are still
striving to ‘rightsize’ their staff in response to layoffs, voluntary turnover, and over-hiring
during the boom years. This, in conjunction with the rekindled war for talent and the
changing industry landscape, should force firms to look for ways to consistently and
effectively adapt to changing conditions over time.
The distribution of the survey took place in late Spring, 2004. This was done for several
reasons. First, although there is no ‘best’ time to solicit voluntary participation from busy
consultants, the summer is at least a ‘better’ time to do so. This was determined after
discussions with consultants representing various firms in both the US and Europe. At this
time individuals will, as one consultant said, “probably be in a not-so-bad mood; summer is
coming, and that means looking forward to vacation.” Others in essence shared this
sentiment.
84 Consultant News, Kennedy Information, Inc. January, 2004 85 Consultant News, Kennedy Information, Inc. January, 2004.
95
Second, firms were affected differently and at different times during the downturn, which
began in late 2000 – early 2001. A year later firms were still feeling the effects of the
downturn and continuing to lay off staff. At this time, research was carried out that
culminated in the Winter, 2002 publication of “Leap Before You Lay Off: Look for Creative
Alternatives.” (von Krogh & Kameny) During the following year, the author developed the
current research project and empirical agenda while simultaneously monitoring the industry.
It was determined during this time to await signs of an upturn in the economy before
proceeding, as the economy was in the midst of an unexpectedly slow recovery. In addition,
Consulting News reported at the end of 2003 that consultants were not happy with their jobs
in general,86 which signaled that negative emotions may still exist within firms as part of the
aftermath of the downturn and its adverse effects. Thus, it was deemed more apt to wait to
disseminate the survey until the late Spring.
Third, had the survey been disseminated prior to Spring, 2004, there could have been several
disadvantages due to inappropriate snap judgments of the potential recipients. Regardless of
when and what type of new policies or practices are being introduced to employees, there is
usually a time lag before the overall effects are felt and the intended goals are met.
Moreover, the effects of the policies are often known only if firms make a concerted effort
to find out. The choice of timing in the survey distribution was designed to allow
individuals time for reflection on how the economic situation was affecting the industry,
their firm, and ultimately their individual circumstances. Had they received the survey in
late 2002 or early 2003 for example, their responses could have been influenced by more
‘emotion’, giving rise to a more biased or less rational response. Over time, intense feelings
may subside from the purely reactionary to a more reasonable acceptance of the situation. In
addition, individuals would attain a more genuine impression of how the firm and industry
fared during this time and therefore be able to provide more detailed and thoughtful insights.
86 Consultant News, Kennedy Information, Inc. November, 2003.
96
Finally, a particular finding in the pilot inquiry was that as part of a layoff alternative, one
firm gave the option of being separated from the firm for a period of at least six to at most
18 months. Hence, it was appropriate to give ample time to allow for those individuals who
did indeed leave to return and re-assimilate.
4.3.6 Summary – Contextualization
Paauwe (2004) asserts that HRM needs a “…universally applicable model, a way of
theorizing that can be applied, to every country; a theory that can accommodate the
enormous variety in HRM policies and practices as well as the various contextual factors
involved.” (pg. 37) On the other hand, it could be said that the various contextual factors are
in actuality exactly what prohibit any such ideal. The field of management research exists
because of the complexities and internal and external market influences that affect different
industries at different times. If all industries and firms could be covered by one blanket
theory, even within specific disciplines, then one’s job as a management researcher would
be far less challenging. For example, there are distinct HRM models that reflect geographic
and cultural differences.87 This does not imply however that one is ‘right’ and the other
‘wrong’; rather they both serve to show how context is implicitly integrated into their
models. Thus, context should and must be accounted for when conducting SHRM research.
The evolution of strategic management itself has reflected the changing contexts in which
firms must operate (e.g. growing importance of the service industry, the KBV of the firm).
The previous discussion, adopting one of Rousseau & Fried’s (2001) approaches to
contextualization, explains why the consulting industry was determined to be a good starting
point for empirical research on the unexplored notion of layoff alternatives, within the given
conceptual framework. All industries, and even the specific companies that comprise them,
87 Brewster, 1993; Guest, 1990.
97
are not alike, nor are their policies and practices. Moreover, they are affected by and react to
external and economic conditions in inconsistent ways. It would be counterproductive and
even misleading not to account for this in management research. Rousseau & Fried state that
“at a minimum, contextualization essentially requires a thicker description of the setting to
help the reader and those researchers that would build upon a study understand the factors
that gave rise to the researcher’s observations.” (2001: 6)
This study on layoff alternatives combines the theoretical constructs of Chapters 2 and 3
with a rich contextualization. Thus, this research sets out to answer the pervasive calls for
context in research settings, solid preliminary descriptive theory in management research,
and a more qualitative agenda in exploring the HRM – Performance relationship. With this
in mind, the following chapter presents the findings and analysis of the empirical study.
Chapter 5 – Findings and Analysis
5.1 Introduction
When engaging in empirical research, whether quantitative, qualitative, or some
combination of both, a researcher must define the unit of analysis. However, the first
consideration is what data is publicly available and can be collected directly from firms
within the industry. The consulting industry is somewhat enigmatic in terms of management
research, at least that part of research which goes beyond the issues of knowledge
management, firm operations and the continual development of the profession itself. For
example, the editor of a journal dedicated to management consulting stated as part of the
journal’s mission statement:
“...articles will focus on a wide range of topics, encompassing
research on: the consulting industry itself, including the
management, marketing and expansion of professional services
98
firms; critical examination of current trends in the consulting
field; conceptualization and evaluation of intervention
techniques and strategies; and reflections on consulting
experiences.”
Although the research undertaken here is related to an aspect of firm ‘management’, it
focuses more on how a potential HR practice could impact firms in the consulting industry.
While it is certainly not suggested here that past and current research in consulting has not
been significant, it is undeniable that integration with other fields of management science is
indeed lacking.
As discussed in Chapters 2 and 4 respectively, the notions of categorization in theory
building and contextualization with regard to empirical settings have been emphasized in
this dissertation. The latter was outlined as it is important that the reasoning behind the
choice of industry and the circumstances surrounding the one ultimately chosen be made
clear. The issue of categorization (i.e. defining the attributes of the phenomena under study)
is of concern during the analysis stage when building descriptive theory. A theory’s
applicability should be guided by categorization while underlying differences in data sets are
what in fact may hinder a theory’s generalizability. In addition, when engaging in an
industry study, categorization should be done in order to make explicit the inherent
differences within it, so as to better account for conclusions reached in terms of what
relationships may indeed exist. It is argued here that these differences need to be accounted
for, and at the same time the method in which this should be done must be appropriate given
the nature of the data collected.88
88 This will be discussed in Section 5.5.
99
The next three sections are devoted to presenting the findings of the empirical study with
regard to the three steps outlined in descriptive theory building in Chapter 2: observation,
categorization, and defining relationships. Furthermore, they aim to help establish what
associations may exist between layoff alternatives and firm performance, using the
parameters put forth in the empirical agenda. Rather than simply listing the findings, they
will be presented with commentary and preliminary, speculative interpretations.
5.2 Observation - General Findings
Given the exploratory nature of this research, one of the goals was to gather initial and
preliminary insights into how firms, via individual consultants, were perceived to have
reacted and dealt with the realities of the economic downturn, specifically with regard to
potentially both laying off employees and engaging in layoff alternatives. With this in mind,
early survey questions89 assessed certain demographics (e.g. location, size, type of firm).
They also asked whether a consultant’s respective firm engaged or planned to engage in
layoffs as well as seeking information about certain conditions surrounding this. These
combined allowed one to gain a richer understanding of the various firms’ circumstances
and to be able to better observe potential associations in the data.
Questions were then asked on the subject of layoff alternatives itself, followed by questions
regarding organizational performance outcomes, client relationships, and knowledge
retention. Finally, there were 6 follow-up interviews90 (face-to-face, phone) that attempted
to delve deeper into the subject. Results of these will be incorporated in the overall findings
as deemed appropriate.
89 Please see Appendix B for the survey document. 90 Please see Appendix G for the interview question template.
100
A total of 608 consultants from 25 different consulting companies were solicited for survey
participation. Out of 133 responses collected from 22 companies, 127 responses from 21
companies were usable. Twenty-one out of 25 companies responded, yielding a response
rate of 87.5 percent.91 Among the usable responses, 68% were from non-public firms while
32% were from public firms.92 The individual response rate from consultants amounted to
21%. This seemingly low response rate93 could be attributed to various factors. First, after
sending the survey, of the original 608 there were 23 returned as ‘unknown’ email address.
As the recipient list was generated from MBA alumni networks, as discussed in the previous
chapter, it could be that those responsible for maintaining alumni records were not given the
most up to date information by the alumni themselves. Second, there were 19 ‘out of office’
automatic replies that cited those individuals were on vacation and would not be reading
emails until they returned. Despite the fact that follow-up emails were sent after an
appropriate period of time passed, there was no change in the final number of responses.
Third, individuals may have decided that they were unable to participate due to
confidentiality issues. Although it was clearly stated in the correspondence that all results
would remain anonymous, individuals may have nonetheless thought it inappropriate to
divulge any information pertaining to their firms. For example, one recipient replied
specifically that he did not consider it appropriate to respond for this exact reason.
The following two sections present the general findings with regard to layoffs and layoff
alternatives.
91Appendix H provides an alphabetical listing of all firms represented in the survey results. 92 The importance of this will be discussed in Section 5.3 93 Studies with similar and relatively low response rates have been used and have resulted in published works. For example, Huselid (1995) had a response rate of 28%; Delaney, Lewin, & Ichniowski (1989) had a response rate of
6.4%.
101
5.2.1 Layoffs
As previously discussed, the timing of this research is significant. Although the global
economy is generally improving, albeit very modestly, from the downturn that began in the
US in early 2001, it could not be generalized that all firms needed to adjust to the
consequences of the downturn by reducing headcount. In fact, only 55% of the respondents
reported that their respective firms did indeed reduce their staff. However, not all members
of the same firm responded in the same way to whether their firm had reduces staff, thus
implying that a firm as a whole did not necessarily reduce staff in all of its offices. In
addition, respondents from the same firm but different offices did not put forth the same
reasons as to why their firms did reduce their staff, further implying potential differences
among regional offices.
However, of those 55%, it was rather clear what they perceived to be the main reasons94
behind their firm’s rationale for reducing its staff. This is depicted in Figure 12 below.
In light of the downturn in the economy, what did you perceive to be the reason behind
your firm's need to reduce its staff?**Note: In this and in all subsequent bar graphs the legends are represented on the x-axis from left to right.
17%
36%
65%70%
23%15%
23%
12%
0%
10%
20%
30%
40%
50%
60%
70%
80%
n = 66
To survive
To get rid of `dead weight'
Reduce costs
Decrease in demand for services
Satisfy shareholders
Satisfy stakeholders
Reaction to competitive forces
Other
Figure 12 – Reasons to Reduce Staff
Source: Author
94 In this particular question, respondents were asked to check all that apply.
102
It is not unexpected that a decrease in demand for services and to reduce costs were the main
reasons, but the third most cited reason was to get rid of ‘dead weight.’ The common and
often-used expression of ‘dead weight’ could have various connotations attached to it. Dead
weight can characterize individuals, usually as part of a group or team, who are just ‘there’
and most likely not contributing to the entity’s productivity. This in turn could cause such
an individual to be simultaneously thought of as a poor performer. This common deduction
needs to be addressed. In the context of this research, potential layoffs are a result of the
economic downturn, which caused the decrease in demand. Thus, in this context, the
perception of ‘dead weight’ should not be taken at face-value; one must distinguish between
underutilized employees and poor performers. It needs to be determined whether these ‘dead
weight’ individuals would in fact be productive if demand were present. This is precisely
the type of individual to whom a firm might reasonably offer layoff alternatives, so as not to
lose unnecessarily their supposed ‘dead weight.’
Another important aspect of a firm’s potential layoff activity is how it is communicated.
This was assessed in part to get a better understanding of the context and environment to
which the respondents were exposed to. Figure 13 below provides a breakdown of the
various communication methods used by firms.95
95 In this particular question, respondents were asked to check all that apply.
103
How was this communicated to you?
33%31%
34%
11%
34%
3%
26%
0%
5%
10%
15%
20%
25%
30%
35%
40%
n = 61
Formal conversation
with superior
Informal conversation
Telephone
Grapevine
Media (e.g. newspaper)
Other (Please specify in
the next question)
Figure 13 – Communication of Layoffs Source: Author
These results are not necessarily surprising; however, it is important to observe that two of
the most common methods, along with email and formal conversation with supervisor, are
grapevine and informal conversation. This provides at least a foundation upon which certain
negative attitudes and sentiments may have developed among consultants in their respective
offices and firms. Although layoffs are not always easily communicated and carried out in a
deliberate and systematic manner, it should not be taken for granted by firms that the
employees are aware of the firm’s situation and are expecting such announcements.
The following (Box 1)96 is a sample of open-ended responses, providing a more detailed
account of how the communication of layoffs, rather inconsistently, occurred in various
firms.
96 In this and in all subsequent examples of open-ended statements, the firms will be referred to as Firms A through L and will be designated as either public or non-public. All accounts are taken verbatim from the survey responses.
104
FIRM A In the recent climate, I had expected down-sizing. The reasons did not need to be explained. Communication was not the issue; it would not have been possible to make such large cuts in an upbeat way. Action was the issue; there was no attempt to look into alternatives to redundancies. lots of rumors; some consultants were informed by their mentor they had to leave before end of month, whereas no problem of performance were identified in the period; willingness from management to hide # of laid-off to avoid 'licenciement economique' procedure and pay official lay-off packages; strategy to lay-off constantly but few people to legal constraints It was known that the staff would be reduced on a global level, but not what the impact would be on the local level. This uncertainty caused (unnecessary) unrest. FIRM B Formal communication generally works better. However considering that its lay-offs, the FIRM Chose to ensure that the retrenched employees can leave with dignity - so no formal communications were made. The situation was obvious by just coming in to work every day, looking at the number of people on the bench and the lack of jobs in the pipeline. Senior management confirming observations was adequate; the firm regularly communicated by e-mail so that forum was adequate.
FIRM C Several rounds of layoffs used different forms of communication. Some were announced by email, one major layoff was followed by a meeting by the partner of the affected group, while others occur without announcement, warning, or follow-up communication. This last sort has the worst affect on morale I certainly understood what was happening, but it was not pleasant.
Box 1 – Sample ‘Other’ open-ended responses: communication of layoffs
There was one respondent from a non-public firm whose attitude towards layoff
announcements is one that would be ideal for firm management to hear:
“Doesn’t need any special communication: it is overly clear”
On the other hand, there was a respondent from a public firm who felt:
105
“It explained the need fine - it was just unpalatable!!”
Such responses represent the gamut of attitudes and perceptions. However, if 9%, 33% and
31% thought that the communication of layoffs was ‘very effective’, ‘effective’ or ‘neutral’,
respectively (see Figure 14 below), it can be said that employees instinctually or intuitively
knew they were inevitable. The effectiveness of communication should not be
underestimated, but delving further into theory surrounding communication would be
beyond the scope of this dissertation.
How effective was this communication (from Question 14)?
9%
33%31%
24%
3%
0%
5%
10%
15%
20%
25%
30%
35%
Very
Effective
Effective Neutral Ineffective Very
Ineffective
n = 58
Figure 14 – Communication Effectiveness Source: Author
5.2.2 Layoff Alternatives
Certain HR policies such as ‘part-time’, ‘flex-time’, and ‘job-sharing’ are not new and can,
for example, be thought of in part as layoff alternatives, in that they provide opportunities
for employees to work less and hence reduce costs for the company. However, it is
106
important to distinguish why such policies were initiated. In the mid to late 1980’s and early
1990’s, the issue of work/life balance surfaced in response to a changing workforce (i.e.
more women were choosing to enter and/or stay longer) as well as to provide a reprieve to
longer working hours. Therefore, such policies were used by firms in the professional
services industry97 to address these issues. Given the cyclical nature of the consulting
industry, as discussed in the previous chapter, it is of course the case that firms have been
faced with slower economic conditions before, but this slump in particular is difficult to
compare with those of the past. For example, the fact that outsourcing can be considered the
current ‘trend’ in the professional services industry does not necessarily bode well for
consulting firms. In other words, there is less of an expectation that a ‘new’ market driver is
just around the corner, at least one that would have the tremendous effects of those of the
past. The market, competitive, and staffing landscapes are proving to be more challenging
than in past ‘recovery’ times. Layoff alternatives, as discussed and defined in Chapter 2 for
the purposes of this research, are thus a component of a firm’s willingness and ability to
adapt continually to its environment. The following discusses the data surrounding the
notion of layoff alternatives; this data is based on individual’s personal experience and
insights, and on perceptions of how their respective firms performed in light of the
economic downturn.
Of the total respondents, the data showed that 64% said there was discussion of the firm
pursuing alternatives. However, only 18% said that they did participate in a layoff
alternative, with this group coming from 8 out of the 21 firms represented by the total
number of respondents. Those involved in the decision making process (see Figure 15
below) for offering layoff alternatives were overwhelmingly perceived to be the firm
management (91%), with HR perceived to be involved by roughly one-third of the
respondents (36%). Interestingly, only six respondents mentioned that HR was ultimately
responsible for actually making the final decision to implement them. These findings are
97 Scott, M (1998); Wooten, L.P. (2001)
107
somewhat at odds with the abundance of literature asserting that HRM, as both a discipline
and function, should take on a strategic role in overall firm management.98
Figure 15 – Responsible for Decision Making Process Source: Author
In addition, in terms of the actual communication on the subject (See Figure 16 below), firm
management was mostly responsible (62%) as opposed to HR (16%). Although it is beyond
the scope of the research at hand, it is worth pondering in this context just how strategic HR
is in consulting firms and how the function is operates within a firm’s organizational
structure.
Assuming at some point recently or in the past few years, when potential
layoffs were looming, from whom did you learn of your firm actually
pursuing any alternatives?
62%
9%13%
2%
16%20%
0%
10%
20%
30%
40%
50%
60%
70%
n = 55
Firm Management
Direct Supervisor
Consultant
Project/Team Leader
HR/Administrative Staff
Other
Figure 16 – Pursuing Layoff Alternatives Source: Author
98 As discussed in Chapter 3.
108
5.2.3 Reasons behind layoff alternatives
As previously discussed, employees and the embedded knowledge, skills and abilities they
possess are crucial to a firm’s success, especially for a firm with both a knowledge-intensive
nature and a professional service orientation. Thus, keeping them within the firm is vital. As
such, in the context of layoff alternatives, it is important to assess whether the intended
goals are in tune with this. Figure 17 below depicts what the respondents perceived to be
the reasoning behind their firm pursuing alternatives.
What did you perceive to be the reasoning for and/or goals of the firm's offering of a
layoff alternative?
12%6%
62% 60%
6%
17%
25%
40%
15%
0%
10%
20%
30%
40%
50%
60%
70%
n = 52
To get rid of `dead weight'
Reduce chance for 'burnout'
Reduce costs (i.e. reduced salaries)
Retain `talent' until demand picks up
Maintain client relationships
Favorable public relations
Garner employee loyalty
Give employees opportunity to seek other
employmentOther
Figure 17 – Reasoning Behind Layoff Alternatives Source: Author
It is not surprising that the widest perceived reason was to reduce costs. Almost the same
number of respondents cited to ‘retain talent until demand picks up’. The question then
arises as to how this reconciles with the 40% of the respondents who said that it would ‘give
employees an opportunity to seek other employment.’
109
Of those respondents who did participate in a layoff alternative, 47% percent said that yes,
they did seek other employment during this time while the rest did not. Only 13% of those
that said yes sought employment in the consulting industry. When asked if one were to
participate in a layoff alternative, an overwhelming 84% said that they would seek other
employment. There are several factors that should be considered when attempting to
understand these numbers. Ideally, the question of whether or not one would pursue other
employment would best be asked by firm management as part of the decision making
process. As this information was not attainable, it is important to recognize that the
respondents were able to make decisions not only after reflecting upon what had occurred,
but also while the situation and environment in their firms were unfolding and becoming
more transparent. In addition, the respondents had plenty of opportunity to discuss the
possibilities with colleagues both in their own firm as well as with their personal networks
of consulting professionals.
5.2.4 Communication/measurement of layoff alternatives
It is important to consider the manner in which information about layoff alternatives was
communicated to individuals. (See Figure 18 below) Although 41% said it was learned via
email, it is revealing that almost the same amount (39%) learned through informal
conversation and 27% through the grapevine. The following are examples of ‘other’
responses: presentation, HR-Webcast, voicemail, gossip, www.vault.com, Town Hall
meeting. In light of these findings, it is interesting that overall roughly 84% responded either
‘very effective’, ‘effective’, or ‘neutral’ with regard to the effectiveness of the
communication within in their respective firms.
110
How was this (from Question 24) communicated to you?
22%
39%41%
8%
27%
2%
20%
0%
10%
20%
30%
40%
50%
n = 51
Formal conversation with superior
Informal conversation
Telephone
Grapevine
Media (e.g. newspaper)
Other
Figure 18 – Communication of Layoff Alternatives Source: Author
However, Box 2 below offers general assessments, including more telling accounts of what
occurred in various offices, and some within the same firm.
111
FIRM A Found out that other offices had offered e.g. sabbatical on half pay etc - but nothing clear, as not offered within our office. I heard through the grapevine that there was another office in a different profit centre that had offered unpaid leave but that it was unsuccessful. I don't know if this was true or not. FIRM B there were more rumors than official communications and that was bad. it was never very clear whether such alternatives were just 'possible' or 'very much encouraged', nor whether they were applicable for all countries The idea of the flexleave came after (if I remember correctly) one early round of layoffs. The flexleave concept was explained in email format and then conversations took place with firm partners.
FIRM C In one layoff, there was a program offering sabatticals and part time status, with the idea that people participating in those programs would reduce company cost in a win-win situation. I thought this was a great idea, and wish it had been introduced in other rounds of layoffs. FIRM D should have publicised options more widely FIRM E The FLA option could have been communicated from Firm Leadership
Box 2 – Sample ‘Other’ open-ended responses: communication of layoff alternatives
Based on these varying responses and criticisms, it is clear that consistent, firm-wide
communication would be preferred and thus would be perceived positively by employees.
Regardless, a very large percentage (84%) of respondents still perceived the communication
as being neutral, effective, or very effective. This high percentage could imply that
employees in general indeed did not have high expectations with regard to their firm’s
communication techniques.
Another important aspect when observing layoff alternatives is uncovering how firms
themselves approached the idea of measuring the effects of such a policy. Of those
112
respondents to which it was applicable, upon their return to their firms, the satisfaction
levels of what occurred were mixed (See Figure 19 below); 44% dissatisfied, 22% were
neutral, and 33% were either satisfied or very satisfied.
How satisfied were you with the return/re-assimilation to the
firm at the completion of your temporary separation (answer
only if applicable)?
11%
22% 22%
44%
0%0%
10%
20%
30%
40%
50%
Very satisfied Satisfied Neutral Dissatisfied Very
dissatisfied
n = 9
Figure 19 – Satisfaction with Return/Re-assimilation Source: Author
Also, as indicated in Figure 20 below, almost half of the respondents were unsure of any
measurement mechanism put in place by their firms, and a little over a third said there were
no formal processes in place.
113
What types of measurement/assessment processes, which you
are aware of, were in place to monitor the effect of layoff
alternatives upon an employee's return (after having participated)?
n = 31
3% 13%
39%
45%
Questionnaire/Survey of
returning employees
Interview/Meeting with
returning employees
No formal process
implemented
Not sure
Figure 20 – Measurement/Assessment Processes Source: Author
It is speculation at this point as to why this is the case. What the preceding discussion
intended to establish is a foundation on which to further analyze the phenomenon of layoff
alternatives. Providing certain findings with regard to layoffs in general and layoff
alternatives specifically, served to reveal that when it came to decision making,
communication, and measurement, there was an overall sense of inconsistency among
different firms, as well as among offices within the same firm, thereby making formal
conclusions difficult. Thus, the following section intends to delve deeper by classifying the
data and discussing the findings in terms of it, with regard to two particular aspects that are
significant in the consulting industry: impact on client relationships and on knowledge
retention. 5.3 Categorization
In describing the phenomenon of layoff alternatives in the previous section, it became
apparent that inconsistencies exist within firms on a whole and among various offices within
114
them. At this point, attempts should be made to try and uncover where potential patterns
may exist and why. In order to do so, it was determined here that given the broad nature of
an industry study, the data should be organized, using the various attributes attached to the
consulting industry, in a way that could help explain and highlight possible consequential
associations between layoff alternatives and firm performance. As mentioned in Chapter 2,
a fundamental breakdown of the various consulting firms could be done based on the type of
services offered; IT, strategy, HR and operations. Although this could be done rather
simply, it was determined here not to be appropriate. With mergers, acquisitions, and
divestitures, along with firms feeling the need in the recent challenging times either to
expand or narrow their services, these ‘traditional’ categories are becoming ever more
opaque. Geographical location could also be an influencing factor. In Chapter 4 it was
mentioned that location was not considered when compiling the list of recipients, given the
exploratory nature of the current research. The data collected represents individuals from 23
different countries, which on the surface could appeal to any cross-cultural researcher.
However, using geographic location as part of a more in-depth look at this point in time is
not suitable, as the samples under analysis would be too sparse, providing a less reliable
foundation for comparison. Another way to categorize is based on a firm’s ownership
structure – is it a publicly owned (via stockholders) entity or is it owned privately (via
partners, other stakeholders)? In prior SHRM research, for example, this distinction has
been often made when measuring firm performance.99 Moreover, the shareholder vs.
stakeholder perspective as discussed in Chapter 2 is a prominent theme in consulting that
could influence research and/or analysis of the industry. Thus, it was determined that the
remainder of the findings in this section will incorporate when applicable the public vs. non-
public aspect.
99 Please refer to Table 3 in Chapter 2 for a representative sample.
115
5.3.1 Impact on Client Relationships
The role of clients in the consulting industry was stressed in Chapter 2, where their ultimate
satisfaction could be critical in part to a firm’s success. Therefore, it stands to reason that an
overwhelming number (approximately 80% - see Figure 21 below) of respondents do
perceive that the client relationship is affected at least to a small extent, if not more.
To what extent do you perceive layoff alternatives affecting
the client relationship?
3%8%
21%
51%
18%
0%
10%
20%
30%
40%
50%
60%
Very great
extent
Great extent Moderate
extent
Small extent No extent
n = 39
Figure 21 – Effect of Layoff Alternatives on Client Relationship Source: Author
It is somewhat surprising that only a small percentage (18%) of the respondents perceive it
to be affected to no extent; the open-ended responses may provide a better understanding of
this (Box 3 below).
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PUBLIC
FIRM A Leave has only been offered to consultants who were not on a project. In that case it did hardly affect current client relationships. leave-consultant was in most cases (if not traveling) available for former clients. FIRM B you won't offer this alternative to employees who are key to your client relationships If a STAR employee took a leave that left a project in peril, I could see how this could affect a client relationship. I just don't think the best and brightest took these leaves. In fact, as a former HR Rep who helped administer the leaves, I KNOW that the people who most often chose the leave option did so to avoid a layoff...they knew they were in trouble. I am aware of exceptions (e.g. the guy who wanted to travel around the world), but it was not common for staffed people to take leave. Staff were transitioned from the project/client. Most staff participating in alternatives were junior analysts, consultants, and junior managers. Senior managers and partners with relationships responsibility not involved generally, FIRM E - There wasn't a lot of work -- if clients had wanted a specific person to be brought back early, they could have requested him/her FIRM I why would they care... the expectation is that you would not do a layoff alternative if you were critical to the project. a layoff alternative only makes sense if you are not billable. FIRM J The client relationship is usually managed by more senior employees that typically did not participate in my firm's lay-off alternatives
NON-Public
FIRM K Consultants : small extent, if the consultant leaves at the end of its assignment and if hand-out is properly handled Managers : great extent as personal relationships have been built with top-level managers by the clients VP's : very great extent as they handle the client relationship, especially on the business development side
FIRM D Small extent - was managed and generally junior through substitution same as the cancel on process. Some individuals were also extended at client request
FIRM F
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Near term - Team turnover requires clients to be comfortable with people leaving and joining projects mid-way through. Longer term - higher retention leads to more experienced teams and better client offer. FIRM G If done abruptly, can have negative impact. If well managed, impact should be minimal. FIRM L Some positive effect with clients receiving people on secondment
Box 3 – Sample ‘Other’ open-ended responses: impact on client relationships
The manner in which these aggregate numbers change when looking (See Figure 22 below)
only at those respondents who represent public firms is that 50% perceived layoff
alternatives affecting the client relationship to a small extent, 28% thought to a moderate
extent, and 22% to no extent. Interestingly, it was only individuals working in non-public
firms who perceived layoff alternatives to affect the client relationship to a very great extent
(5%) and great extent (15%).
To what extent do you perceive layoff alternatives affecting
the client relationship?
0% 0%
28%
50%
22%
5%
15% 15%
50%
15%
0%
10%
20%
30%
40%
50%
60%
Very great
extent
Great extent Moderate
extent
Small extent No extent
n = 39
Public
Non-public
Figure 22 – Perception of Client Relationships Effect Source: Author
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For consultants at public firms, the aspect that comes closest to a consensus among the
responses is that alternatives were offered neither to employees already staffed on a project
nor to those that were more senior ranking in the firm, implying that if layoff alternatives
were offered, and in turn taken by such employees, negative effects on client relationships
could result. Although there was some overlap of this by respondents from non-public
firms, in general, it could be said that in non-public firms’ clients received more
consideration with regard to a firm’s decision to offer layoff alternatives.
One response by a respondent from a non-public firm takes a more ‘big picture’ perspective
to this question and extrapolates that if layoff alternatives are offered, then such retention
will foster stronger teams and ultimately provide clients with better service. This could
imply a more altruistic perspective in terms of considering their employees first. On the
other hand, a respondent from a public firm took another extreme saying the clients would
have no concerns, since the layoff alternatives would only pertain to employees that are not
‘billable’. Although both perspectives have their merit, one should be wary about the latter.
This refers back to the circumstances in which layoff alternatives would be offered by firms;
when there is a decrease in demand due to a downturn in the economy. The situation where
a consultant may not be ‘billable’ does not necessarily imply that he or she is a poor
performer whose skills are expendable.
5.3.2 Impact on Knowledge Retention
As discussed in Chapter 2, knowledge retention is of critical importance to firms in the
consulting industry. The subject of Knowledge Management itself has received a lot of
attention, in part due to the advances in technology that make it relatively cheap and easy to
119
store information. However, having a repository for knowledge is just a vehicle for enabling
knowledge retention to occur. More importantly, it is necessary to have the people to add
knowledge to it. Figure 23 below depicts the respondents’ personal perspective on the
importance of knowledge retention when considering offering layoff alternatives.
How important do you consider the notion of knowledge
retention, as an aspect used in determining a firm's decision
to offer layoff alternatives?
34%29%
20%17%
0%
10%
20%
30%
40%
Very important Important Somewhat
important
Not important
n = 35
Figure 23 – Knowledge Retention in Layoff Alternative Decision Making
Source: Author
It is encouraging to see that on an individual level, a majority of respondents clearly believe
that knowledge retention is either important or very important in the context of offering
layoff alternatives while only a small (17%) percentage feel that it is not important. When
breaking down this data between public and non-public firms, the results were not
significantly different. A sentiment expressed by one of those respondents from a public
firm who felt it not important was the following:
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“The people that were offered the program are not considered to have extensive
and unique knowledge. People with unique knowledge and/or client relationships
were denied the opportunity to participate in the program even if they applied.”
In the same vein, another respondent from a non-public firm expressed the following:
“Firm has developed fairly advanced processes to capture and codify knowledge
as it is developed, as people are constantly joining/leaving...these systems have
been well-applied and seem to minimize institutional memory loss”
Although both respondents felt knowledge retention unimportant, it was for fundamentally
different reasons. The former was of the mind that layoff alternatives targeted those
employees lacking unique knowledge, whereas the latter thought that firm processes and
technology could adequately cope with capturing the knowledge of employees as they come
and go. Box 4 below presents additional open-ended responses.
121
PUBLIC
FIRM B In consulting, people are knowledge; you don't want to get rid of them if you think you will need them again later The company spent a great deal of money to attract, train, and retain the 'best people'. When all you are selling is people, it is important to keep the good people you are selling. It is important -- and in fact I believe was one of the reason the FIRM Implemented the policy -- however they seemed to FORGET THAT upon the return of the employees Even the best knowledge database and processes does not capture all the knowledge FIRM C In our business, despite documentation, the real expertise and knowledge of how to make things work is primarily in employee's heads. There is a large hidden cost of finding and training a replacement for an expert employee who has specific solution, industry, or client know-how. In some previous layoffs, this did not appear to be much of a factor for management. FIRM E Firm E has lost huge amounts of intellectual capital through attrition
NON-Public
FIRM D primary factor - only offer to individuals who you really want to keep FIRM H This was the key trade-off in our decision to not use layoff alternatives. Knowledge retention would certainly be enhanced; but client reaction and employee interactions would be negatively impacted.
FIRM L Consulting is generally a high staff turnover business - the average lifetime of a consultant is less than 2.5 years - so existing processes, such knowledge management and the ability to call all people (either currently employed or previously employed) who worked on a project, work to get around this. Generally, these processes are quite effective, so layoff alternatives need not consider this aspect.
Box 4 – Sample ‘Other’ open-ended responses: importance of knowledge retention
The next question, in contrast (Figure 24 below), asked what the respondents perceived the
role that knowledge retention played in their firms offering layoff alternatives.
122
From your perspective, to what extent was this notion of
knowledge retention considered by the firm in deciding to
offer layoff alternatives?
6%
18%
27%24% 24%
0%
10%
20%
30%
Very great
extent
Great extent Moderate
extent
Small extent No extent
n = 33
Figure 24 – Knowledge Retention Considered by Firm Source: Author
Overall, more respondents were not overwhelmingly convinced that their respective firms
actually considered knowledge retention to a large extent when offering layoff alternatives.
It would be ideal to compare the employee’s perceptions of the firm’s intentions in offering
layoff alternatives with the actual intentions of the firm. Whether this is a feasible goal in
future research remains to be seen. When looking at the breakdown between public and
non-public firms, it can nevertheless be perceived that non-public firms are more concerned
with knowledge retention than public firms. The findings were similar with regard to the
percentage perceiving that their firms considering knowledge retention either to no or to a
small extent. Almost half of those from public firms (41%) perceived it to be to a moderate
extent while the remainder (12%) thought to a great extent. In non-public firms, only 13%
perceived it to be considered to a moderate extent, while 20% thought to a great extent, and
even 13% to a very great extent (see Figure 25 below).
123
From your perspective to what extent was this notion of
knowledge retention considered by the firm in deciding to
offer layoff alternatives?
0%
12%
41%
28%
19%20% 20% 20% 20%
40%
0%
10%
20%
30%
40%
50%
Very great
extent
Great extent Moderate
extent
Small extent No extent
n = 33
Public
Non-public
Figure 25 – Knowledge Retention Considered by Firm – Public/Non-public Source: Author
Such differences could imply that non-public firms are more concerned with keeping
knowledge within their firms, paralleling their greater desire to maintain appropriate client
relationships.
5.4 Defining Relationships
The main research question, ‘Is there a relationship between layoff alternatives and firm
performance?’ implies a broad spectrum of research approaches. The survey results offered
a plethora of data, which can be a disadvantage of the process of descriptive theory building,
thereby challenging the researcher to present the findings in terms of the research goals. As
a researcher cannot engage in a more in depth approach if a foundation of a new
phenomenon is not established, the first step was to provide general findings that defined
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pertinent constructs. In the previous section, the findings of two key attributes to the
consulting industry in general – client relationships and knowledge retention – were
presented in terms of public and non-public firms. Moving beyond this, the impact of layoff
alternatives on certain organizational performance outcomes will be presented next.
5.4.1 Impact on Firm Performance
In any empirical inquiry there is no guarantee of attaining an optimal data set. As this is an
initial investigation into a new phenomenon, the tendency is to gather data that is rich so that
reasonable insights may be drawn from it. In addition, as the study focuses on one industry,
the data collected needs to be not only available, but also comprehensive in that it addresses
and best represents the industry as a whole. This was acknowledged by having the point of
entry be consultants, as they could be accessed on an industry-wide basis.
The findings on the impact of layoff alternatives on firm performance, assessed via
organizational performance outcomes, will be based only on those responses where the
respondents’ firm did indeed offer layoff alternatives, thereby providing a more valid set of
data in which to draw comparisons.
Organizational performance outcomes
The organizational performance outcomes used here are those measured and used in prior
studies in assessing organizational performance; they were discussed in detail in Chapter 3.
These outcomes were assessed by consultants and are based on their individual perceptions
and experience. The various outcomes will be presented in turn.100
100 For a graphical representation of the overall results please see Appendix I.
125
With respect to relations among employees in general, 49% said that the effect of layoff
alternatives was either positive or very positive, 21% said no effect, and 31% said negative
or very negative.101 Although this does not provide a clear-cut distinction, the positive
aspect should signify the potential for layoff alternatives to help in keeping employees
‘happy’, by allowing them to feel themselves as valued assets to the firm. However, with
roughly a third of the respondents perceiving a negative impact, it is imperative to learn the
source of this negative feeling. While this issue was not explicitly addressed in the survey
instrument, it could however be due in part to a perceived lack of fairness in the way the
policy was applied.
Figure 26 below breaks down these findings in terms of public vs. non-public firms.
Overall, layoff alternatives are perceived to have more of a ‘negative’ effect on general
employee relations in non-public firms than in public firms. This could potentially stem
from public firms on a whole having more employees. In other words, since non-public
firms have fewer employees, the working environments within individual offices could be
more intimate, so that dissatisfaction by a small number of employees could be felt
throughout the office.
101 Due to rounding errors, numbers will not always add up to 100%.
126
Effect of layoff alternatives on
'Relations among employees in general'
6%
56%
11%
28%
0%
11%
33%
22%
28%
6%
0%
10%
20%
30%
40%
50%
60%
Very
positive
Positive No effect Negative Very
negative
n = 39
Public
Non-public
Figure 26 – Effect on ‘Relations among employees in general’
Source: Author
There were similar results for the relations between management and other employees;
overall 52% said the effect of layoff alternatives were either positive or very positive, 15%
said no effect, and 34% were negative or very negative. It is striking that very few
respondents felt that the effect of layoff alternatives had no effect, although there were large
segments who viewed them as positive or as negative. This could reflect the importance of
how the firm communicates the details of its policy to employees.
Figure 27 below depicts the breakdown between public and non-public firms. In
comparison to the previous performance outcome on employee relations in general, non-
public firms here are not as negative; they perceived the effect of layoff alternatives on
relations with management as being more positive or having no effect.
127
Effects of layoff alternatives on
'Relations between management and other
employees'
6%
56%
11%
28%
0%
11%
33%
22%
28%
6%
0%
10%
20%
30%
40%
50%
60%
Very
positive
Positive No effect Negative Very
negative
n = 39
Public
Non-public
Figure 27 – Effect on ‘Relations between management and other employees’ Source: Author
A central theme that was implicit in the open-ended responses with regard to client
relationships and knowledge retention was the subject of staffing. As alluded to in Chapter
2, the consulting industry is continually faced with managing their capacity so that it can
adapt to changing demands and needs. If part of the purpose of layoff alternatives was
perceived to be a way to retain employees, then the effect of these alternatives on a firm’s
ability to retain employees is not surprising: 59% said they were either positive or very
positive, 26% said no effect, and 15% were negative or very negative. It is noteworthy that
the percentage who viewed this positively is very similar to the 63% who regarded
knowledge retention as important or very important. This suggests that employees really are
the source of knowledge and that in some sense employee retention and knowledge retention
are the same thing.
128
Figure 28 below depicts the perceived differences between public and non-public firms.
With regard to the aggregate numbers just given, there is not a great distinction between the
perceptions of public firms in comparison to non-public firms.
Effect of layoff alternatives on
'Ability to retain key employees'
11%
50%
28%
6% 6%
17%
44%
22%
17%
0%
0%
10%
20%
30%
40%
50%
60%
Very
positive
Positive No effect Negative Very
negative
n = 39
Public
Non-public
Figure 28 – Effect on ‘Ability to retain key employees’
Source: Author
As another aspect of staffing, the ability to attract new employees was not perceived overall
as having overwhelmingly positive or negative effects: 38% said either positive or very
positive, 49% said no effect, and 13% said negative or very negative. The fact that almost
three times as many respondents viewed layoff alternatives as positive for attracting new
employees suggests that such policy could be useful as a recruiting tool.
Figure 29 below presents the breakdown of responses between public and non-public firms.
Again, with regard to the aggregate numbers just given, there is not a significant distinction
between the perceptions of public firms in comparison to non-public firms. On the whole,
129
non-public firms are slightly more concerned with the possibility of layoff alternatives
negatively affecting their firm’s ability to attract employees.
Effect of layoff alternatives on
'Ability to attract key employees'
0%
39%
56%
0%
6%
11%
28%
44%
17%
0%
0%
10%
20%
30%
40%
50%
60%
Very
positive
Positive No effect Negative Very
negative
n = 39
Public
Non-public
Figure 29 – Effect on ‘Ability to attract key employees’ Source: Author
The effects of layoff alternatives on the productivity of employees were perceived as the
following: 38% said positive or very positive, 41% said no effect, and 21% said negative or
very negative. In general, one would expect that the existence of layoff alternatives would
make employees more productive; this is supported by the fact that almost twice as many
respondents feel this way.
Figure 30 below presents the breakdown of responses between public and non-public firms.
Again, with respect to the aggregate numbers just stated, there is not a significant distinction
between the perceptions of public firms in comparison to non-public firms. On the whole,
130
non-public firms are slightly more inclined to perceive layoff alternatives as positively
affecting productivity.
Effect of layoff alternatives on
'Productivity'
0%
39% 39%
17%
6%
11%
28%
44%
17%
0%
0%
10%
20%
30%
40%
50%
Very positive Positive No effect Negative Very
negative
n = 39
Public
Non-public
Figure 30 – Effect on ‘Productivity’
Source: Author
With regard to the quality of services, the effects of layoff alternatives were perceived
mostly as having no effect: 18% said either positive or very positive, 72% said no effect, and
10% said negative or very negative. With respect to these aggregate numbers, there is not a
significant distinction between the perceptions of public firms in comparison to non-public
firms (see Figure 31 below).
131
Effect of layoff alternatives on
'Quality of service/products'
0%
11%
72%
11%
0%0%
22%
67%
11%
0%
0%10%20%
30%40%50%60%
70%80%
Very
positive
Positive No effect Negative Very
negative
n = 39
Public
Non-public
Figure 31 – Effect on ‘Quality of service/products’ Source: Author
However, the effects of layoff alternatives on the quality of service delivery102 were more
varied: 59% said no effect, 21% said a positive effect, and 21% said a negative effect.
Although not a clear distinction in numbers between a positive or negative effect, the greater
perceived negative effect for service delivery, as opposed to only service quality, could be of
significance as the service delivery entails the interaction of consultants with the clients.
When looking at the breakdown of responses from public and non-public firms, the numbers
reflect in part the aggregate numbers just stated. The major distinction is that those
respondents from non-public firms perceive a greater ‘negative’ effect of a layoff alternative
on service delivery quality, as depicted in Figure 32 below. It is important to keep in mind
the differences discussed earlier in Section 5.3.1 with regard to the effects of layoff
102 The main difference between product and service delivery is that the former would consist for example of certain models developed by the consultant for the client, whereas the latter is the actual human delivery of the product and
hence involves interaction with the client.
132
alternatives on the client relationships, where non-public firms were more concerned with
the possibility of layoff alternatives having a negative effect. The delivery of a firm’s
services can be considered the most important link in the consultant-client relationship.
Thus, if non-public firms seem more concerned with client relationships, then it is not
surprising to find them more concerned with the quality of the delivery of the services to
their clients.
Effect of layoff alternatives on
'Quality of service delivery'
0%
28%
61%
11%
0%0%
11%
56%
33%
0%
0%
10%
20%
30%
40%
50%
60%
70%
Very
positive
Positive No effect Negative Very
negative
n = 39
Public
Non-public
Figure 32 – Effect on ‘Quality of service delivery’ Source: Author
Finally, the effect of layoff alternatives on the development of firm knowledge and expertise
was perceived as the following: 21% said positive, 41% said no effect, and 38% said
negative or very negative. It could be expected that the existence of layoff alternatives
would have a positive effect on the development of firm knowledge, since they are designed
to keep knowledge within the firm. It could be very interesting to discover why so many
employees feel that layoff alternatives have at best no positive effect on this. One might
133
speculate that this is because in their firms layoff alternatives are perceived as more layoff
than alternative.
Figure 33 below depicts the perceived differences between public and non-public firms.
Again, with regard to the aggregate numbers just given, there is not a great distinction
between the perceptions of public firms in comparison to non-public firms.
Effect of layoff alternatives on
'Development of firm expertise and knowledge'
0%
22%
39%
33%
6%
0%
17%
44%
33%
6%
0%
10%
20%
30%
40%
50%
Very
positive
Positive No effect Negative Very
negative
n = 39
Public
Non-public
Figure 33 – Effect on ‘Development of firm expertise and knowledge’
Source: Author
The previous discussion on organizational performance outcomes provides general findings
for those respondents from firms that did offer layoff alternatives, together with a
breakdown between the public and non-public sectors. The following section presents
findings that reveal the respondents’ views on whether layoff alternatives are perceived to
have met their intended goals, as well as the potential for such activity to be a long-standing
firm policy.
134
5.4.2 Effectiveness of layoff alternatives as firm policy
It cannot be assumed that all consulting firms engaged in layoffs. However, it seems that
within those firms that are represented in the data, they were perceived as somewhat
inevitable. Since over half of the firms represented by the respondents did in fact consider
pursuing alternatives, it could be said that firms did realize to an extent the importance of
their employees. On the other hand, the views of some respondents suggest that layoff
alternatives were also perceived merely as a way to cut costs in the short term, potentially at
the expense of longer term capacity issues. It cannot be concluded from the data that layoff
alternatives had an overwhelmingly positive effect; 54% thought that layoff alternatives
were somewhat successful in reaching their intended goals, but only 29% thought they were
either successful or very successful. On the other hand, only 14% thought them
unsuccessful. From those respondents representing public firms, 63% thought they were
somewhat successful, 12% thought they were either successful or very successful, and 25%
thought them unsuccessful. From those respondents representing non-public firms, 42%
thought they were somewhat successful, 33% thought they were successful, 25% thought
they were very or extremely successful, and no one considered it unsuccessful (see Figure
34 below).
135
How would you rate the overall success of the
layoff alternative policy reaching its intended
goals?
0%
6% 6%
63%
25%
8%
17%
33%
42%
0%
0%
10%
20%
30%
40%
50%
60%
70%
Extremely
successful
Very
successful
Successful Somewhat
successful
Unsuccessful
n = 29
Public
Non-public
Figure 34 – Layoff Alternative Reaching Intended Goals
Source: Author
As a follow-up to this, it was then asked if layoff alternatives should be implemented as a
longstanding, permanent policy. Figure 35 below indicates an overwhelming ‘yes’ either
with or without modifications, with only 14% saying ‘no’.
Would you like to see layoff alternatives implemented
as a long-standing, permanent firm policy?
n = 35
46%
40%
14% Yes
Yes, but with modifications to
what and how it is currently
offered and administered
No
Figure 35 – Layoff Alternative as Long-Standing Firm Policy Source: Author
136
The open-ended responses include a range of interesting perspectives (see Box 5 below).
Although based on their individual experiences, these candid findings should nonetheless
provide momentum for both academics and practitioners to seek a better understanding of
layoff alternatives and their potential.
PUBLIC
FIRM B It should be an offering to all employees, at all times...not just a desperate attempt to encourage people to quit...or avoid firing. It is a great idea...but when it was done at FIRM B, the business was so bad, most people didn't feel warm and fuzzy about it...they felt like they had to take leave or be fired...and they were right! I think the program was a good one, and since people still ask about it, it would probably build some much needed goodwill with employees to have it as a standard benefit. Employees should not be penalized for taking the flexleave. They should not be told by senior members of the firm that they no longer have valued skills or that they have been disloyal when the employee returns from a mutually agreed upon break. I think that it is one way to manage the variations in capacity requirements for large consulting firms. It should only be applied to junior levels, if the firm is doing poorly the senior levels should be fired - performance is their responsibility and they should stay and try to sell more. FIRM C One lost opportunity: occasionally a person laid off from one position fits a job requirement in another group in the company. I've seen one rehire on this basis because informal networking connected the employee and manager. This process should be made systematic - before layoffs occur, there should be a formal process to match laid off people with company positions that are hiring. The cost of missing this opportunity is large, both in terms of HR churn cost (hire and fire costs) and in terms of employee perceptions and loyalty.
FIRM A Communication regarding reasons why this programm was offered and why it was offered to somebody (not because of poor performance) was very poor along the whole process. Can be related to the fact that the total firm was affected by the economic downturn as well as the difficult relationship with the mother-firm X FIRM E I think that a sabbatical option would be a great retention policy
NON-Public
FIRM K
137
No. Retaining lowest performers by shifting them to another office is not good long-term policy. FIRM L Better structure required - it is done more than once so there should be formal systems in place Processes do exist currently, but generally applied haphazardly as it was not available in the past downturn, and now we face short term growth constraints after having separated a significant part of our consulting staff. they are FIRM G It enables people to pursue other alternatives and still have the option to come back, which is good for both sides It is just the wrong answer for consultants - too hard to reasonably reassimilate them Would be good if we increased the range of options available, not as a response to economic downturn but as an ongoing option to increase employee flexibility. Right now, this is limited to some part-time options around maternity leave, but could certainly be broadened.
FIRM F Need to be more extreme, and tailored to level and individual preferences. e.g. harder for a manager or partner to take 10 & 2 as need to maintain client relationships - 2 years on, 6 months off might be better here. We've also had managers follow a 6 month on / 6 off program in the past.
Box 5 – Sample ‘Other’ open-ended responses: layoff alternatives as long-term policy
The following discussion intends to synthesize the previous sections and address the main
research question at hand.
5.5 Discussion
The empirical study was designed to gather relevant information that would enable the
descriptive theory building process, as discussed in Chapter 2. The previous section
provided both the general results, as well as those when distinguishing between public and
non-public firms, of the perceived effect of layoff alternatives on organizational
performance. However, it should be reiterated that unlike other studies on the HR-Firm
138
Performance link, this one will not culminate in a statistical representation of causal
relationships, as it is does not warrant it at this point in time.103 The research question does
not indicate or imply causality between layoff alternatives and firm performance; rather it
suggests the need to explore both concepts within a proposed framework, so as to be better
equipped in making assertions as to potential relationships or associations between them.
5.5.1 Firm differences
The findings in the bulk of this chapter have been pervaded by the many differences that
exist among respondents’ perceptions from public and non-public firms. It is important to
establish these so as to avoid making misleading conclusions. Respondents’ views with
regard to layoff alternatives on communication, effectiveness, policy implementation
(formal/informal), and consistency in and assessment of company policy do not uniformly
lean towards one perspective or another (i.e. positive or negative). The following attempts
to shed more light on the public vs. non-public dynamic and its implications.
Non-public vs. public firms
As previously mentioned, the perceived reasoning behind a firm’s offering of layoff
alternatives was somewhat uniform among public and non-public firms. However, there are
several exceptions that should be noted. First, of the non-public firm respondents, a mere
4% indicated that layoff alternatives were offered to reduce the chance for burnout. This was
not the case among public firms. Second, whereas 100% of the respondents from public
firms indicated that reducing costs and retaining talent were perceived as reasons for the
firms offering layoff alternatives, only 40% and 60% respectively, of respondents from non-
public firms indicated this. This could imply that public firms are more sensitive to costs,
103 Implications for future research will be discussed in Chapter 6.
139
possibly due to pressure from having to satisfy shareholders, whereas non-public firms have
more flexibility, with separate offices in various locations having more individual discretion
in administering policy. As to the notion of retaining talent as a reason behind offering
layoff alternatives, again there is a discrepancy worth observing. When asked if they looked
for other employment while participating in a layoff alternative, 43% of the respondents
from non-public firms said yes, they did seek other employment. This is compared to the
75% of those in public firms that said yes (See Figure 36 below). At first glance it is
difficult to reconcile why those in public firms perceived that retaining talent was a reason
behind offering layoff alternatives, while at the same time a significant majority (75%)
indicated that they sought other employment while engaging in one. This could reflect the
discrepancies between the actual intent of firms with regard to offering layoff alternatives
and its perception by employees.
If having participated in a layoff alternative, did
you seek other employment at this time?
75%
25%
43%
57%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Yes No
n = 15
Public
Non-public
Figure 36 – Seek Other Employment Source: Author
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One other difference between public and non-public firms involves the formal process
implemented to measure or asses the effects of alternatives upon a return from a layoff
alternative. In the aggregate, 39% of those participating in a layoff alternative said that
there was no formal process in place (please refer again to Figure 20). However, whereas all
of those respondents coming from public firms said there was no formal process, those
respondents from non-public firms reported a more nuanced situation, in which 50% said
there was no formal process, 25% said there was a meeting or interview upon an employee’s
return, and 25% said they were not sure.
A prevailing theme in the open-ended responses among public firms is characterized by the
following:
“…my unscientific assessment is that most of the people who
took the leave either did not return, or left within a year of
returning…”
From those in non-public firms, the attitude seemed more casual, as embodied by one
respondent:
“…I think in all cases it was just like coming back from a
long holiday, going quickly back to business as usual…”
Regardless of the differing attitudes between respondents for the two sectors, it remains
unclear why neither type of firm displayed any particular vigilance in trying to determine the
layoff alternatives offered.
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Two exceptions
It is worth noting that two firms in particular already had programs in place. By the
definition used here, such programs could be considered layoff alternatives, but in actuality
they existed prior to the downturn in the economy, thus not developed in response to it. For
one firm, the data collected from multiple respondents in various offices made it clear that
the policy was recognized and implemented firm-wide. In the other firm, based on the data
collected from multiple respondents in various offices, it became clear that only two offices
offered such a policy, so it cannot be concluded in this case that it is company-wide.
5.5.2 Firm differentiation
The findings on both public and non-public firms are at times permeated with
inconsistencies and differences. It is therefore necessary at this point to attempt to account
for them. There are several pertinent distinctions between public and non-public firms that
exist, going beyond the fundamental different ownership structures (i.e. partnerships vs.
stockholders). However, these structures alone are enough to dictate or influence the
mindsets and perceptions of certain individuals who are, or aspire to be, managers. For
example, in a firm that is owned by a group of partners, the partners could have a vested
interest not only in their firm’s overall performance, but also in how their individual offices
perform in comparison to others, due to pay and reward structures that are determined in
part by local results. On the other hand, where a firm is owned by numerous stockholders,
there may be less pressure on, or incentives for, individual offices, due to more bureaucratic
and less flexible pay and reward schemes. Delving further into this issue could help to
better explain the differences that exist between public and non-public firms.
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Other differences worth noting can be attributed to certain demographics. In general, public
firms have more employees than non-public firms. Although both types may have
operations worldwide, the number of employees in individual offices of public firms is
usually significantly larger than non-public firms.104 This difference in number could
influence how both individual offices and firms as a whole operate. This issue of size could
be coupled with the various types of firms (e.g. IT, strategy) the respondents represent. As
this was an industry study, the type of consulting firm was not factored into the analysis, but
could be incorporated into future, more in-depth research. Moreover, based on the type of
consulting firm and its capacity, client engagements and projects could have different
characteristics (i.e. large/small project teams, short/long term assignments). Overall, the
type, size, location, and ultimately the ownership structure, could be used as control or
contingency variables in subsequent studies.
5.5.3 Research question revisited
Again, the data revealed a plethora of differences among consultants’ perceptions, both
individually and among the firms they represent. When conducting exploratory research,
the data collected tends to be abundant and rich, thereby making it more challenging to
decipher. Addressing the main research question; ‘Is there a relationship between layoff
alternatives and firm performance?’ the answer at this point in time must consider the
parameters put forth in the conceptual framework in Chapter 3, as well as account for the
sometimes inconsistent results and findings in the data. It is not possible to assert that in
general, layoff alternatives ultimately enhance or weaken firm performance. Rather, various
perspectives and associations exist that impel a researcher to present them in a systematic
way, in order to offer a better understanding of the overall findings. Thus, categorization
104 An informal inquiry was made by the author via the internet and personal networks that researched a representative
example of each type.
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(public and non-public) is the appropriate first step, as discussed in Chapter 2. The data
presented in this chapter thus far has shown that certain tendencies exist within each
category, but at the same time there are ample differences within each category so that
generalizing among each one, although possible, could be somewhat misleading. Therefore,
the following (Tables 7-10) serve to synthesize the findings of the main concepts involved
when addressing the research question at hand.
Table 7 – Knowledge Retention Source: Author
A pervasive theme in the open-ended responses regarding knowledge retention involved the
notion that in several firms (both public and non-public), layoff alternatives were offered
only to lower level employees, who were not considered to have extensive or unique
knowledge, thereby implying that retaining knowledge may not have been an intended
consequence of offering layoff alternatives. Interestingly, one respondent from a public firm
stated that although the layoff alternative policy was implemented as being applicable firm-
wide, it was made clear that those with distinct knowledge and important client relationships
were either informally discouraged from participating or were denied the opportunity after
formally applying.
KNOWLEDGE RETENTION Implications • Perceived by public firms to
be important to a small or moderate extent, whereas in non-public firms responses covered the entire range from unimportant to greatly important. Difficult to conclude with certainty if overall public firms considered it less important compared to non-public firms.
Layoff Alternatives Offered: • Firms feel that their current employees do indeed
possess valuable knowledge and find it necessary to retain it.
Layoff Alternatives NOT Offered: • Firms are more confident in their knowledge
management capabilities and their knowledge sharing processes among current and former employees.
• Firms feel they can hire the knowledge that they may need in the future, thereby discounting the need to try to retain it.
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CLIENT RELATIONSHIPS Implications • Perceived by public firms on average
to be considered to a small extent, whereas in non-public firms this also held, however with the responses covering the entire range from no extent to a very great extent. Difficult to conclude with certainty if overall non-public firms considered it to a greater extent than public firms.
Layoff Alternatives Offered: • Firms realize clients should be considered
and will have policy target only those employees deemed not important to existing client relationships.
Layoff Alternatives NOT Offered: • Firms assessed effects on client
relationships and determined that the effects would be negative.
Table 8 – Client Relationships Source: Author
Similar to the sentiments associated with knowledge retention, it was expressed by several
respondents from both public and non-public firms that higher level employees with
important client relationships were not necessarily targeted. One non-public firm in
particular offered what was called ‘secondments’, where consultants would be temporarily
‘hired’ and employed by a client, receiving full pay and benefits from the client. Such an
option implies that clients were indeed considered by the firm, and possibly the reverse; the
clients were just as interested taking steps in order to maintain certain relationships during a
time of decreased demand.
The following open-ended responses reflect differing attitudes; the former stressing that
clients were considered, and the latter reflecting that there is not necessarily a reason to:
“Clients were considered; and were probably the major
reason why alternative layoff approaches were considered,
but not implemented at our firm. My sense is that full-time,
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dedicated client teams were judged more important than
keeping or transitioning important knowledge/skill sets.”
Firm H - Private
“Clients care about the talent of the onsite team that is
working on their projects, NOT the people who are sitting in
the office waiting to be staffed.” Firm B - Public
ORGANIZATIONAL PERFORMANCE Implications • On average public firms perceived
no-to-positive effects, whereas non-public firms on a whole perceived no effect. Unable to make definitive statements, either positive or negative, on the association between layoff alternatives and performance.
Layoff Alternatives Offered: • Firms should place emphasis on the
immediate and short term effects and consequences of the implementation of layoff alternatives.
Layoff Alternatives NOT Offered: • Firms are more concerned with short-
term cost cutting as opposed long term performance effects and being properly staffed for when growth returns.
Table 9 – Organizational Performance Source: Author
LAYOFF ALTERNATIVES Implications • Perceived by public firms on average
to have been unsuccessful-to-somewhat successful, whereas non-public firms successful. All respondents from firms who offered layoff alternatives said either yes or yes, with modifications, to keeping them as a long-standing policy.
Layoff Alternatives Offered: • Firms should ensure that there is
appropriate follow through and consistency in all processes associated with the implementation of layoff alternatives; communication, re-assimilation, policy assessment
Layoff Alternatives NOT Offered: • Firms could realize the potential benefits
of implementing firm policies that are beneficial in dealing with fluctuating demand.
Table 10 – Layoff Alternatives Source: Author
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Tables 9 and 10 synthesize the findings on organizational performance and layoff
alternatives. Both concepts share common possible explanations as to why differences in
perceptions exist. Public firm respondents’ propensity to express more positive effects could
parallel a public firm’s need to please its shareholders. At the same time it should be
reiterated that public firms are more likely to have a greater number of employees than non-
public firms, which could lead to more bureaucratic tendencies and characteristics. In this
vein, based on the open ended responses, there is broad sentiment that reflects the perception
that although the intentions of layoff alternatives were seemingly commendable, the
implementation and follow-through were inconsistent and at the end did not live up to them.
In non-public firms, ownership is usually based on a group of partners, which is much
smaller than the number of shareholders in a public company, thus implying relatively less
bureaucracy and more autonomy among the various offices. It was uncovered in the data
that two firms already had temporary leave policies in place before the recession of 2001105,
although a respondent from one noted that it was up to individual offices to decide on
whether to implement the policy or not. However, such flexibility may not necessarily be
perceived positively. For example, one respondent from a non-public firm stated
dissatisfaction with the policy’s ‘haphazard application’.
When assessing the relationship between layoff alternatives and firm performance, via
effects on knowledge retention, client relationships, and certain outcomes of organizational
performance, the previous discussion on associations between them calls attention to a lack
of conclusive findings. In spite of this, the data also presents a detailed and valuable
account of the notion of layoff alternatives in a knowledge intensive industry and thus
105 This could imply that non-public firms have been concerned with knowledge retention and client relationships in
the context of layoff alternatives for a much longer period.
147
provides a fertile ground for further research. The following chapter provides a summary
and discusses implications for theory and practice.
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Chapter 6 – Summary and Implications
6.1 Summary of Findings
It can be argued that for the consulting industry there are certain advantages to an economic
downturn; it prevents top or more senior consultants from leaving and it justifies the layoffs
of the least productive professionals. Nonetheless, it cannot be ignored when adopting the
latter attitude that fundamentally, these ‘least productive’ consultants may still possess the
necessary skills and abilities to contribute to the firm’s success. Firms should rather be
asking themselves whether these employees would indeed be ‘productive’, if there had not
been a decrease in demand due to economic conditions. Assuming that in certain instances
the answer is ‘yes’, then layoff alternatives, when properly designed, communicated and
implemented, can serve to keep valuable employees within the firm, thereby avoiding the
need to hire when higher levels of demand return.
The survey findings encompass a range of perspectives, opinions, and details about layoff
alternatives as both a concept and firm policy. In order to promote theory building, as well
as to sort out the abundance of data collected, the data was further analyzed in terms of
public and non-public consulting firms, which revealed differences from which one could
draw comparisons and see where potential associations may lie. In terms of the proposed
conceptual framework, which emphasized the importance of client relationships and
knowledge retention with regard to layoff alternatives and firm performance, different
perspectives exist among public and non-public firms. Public firms were perceived as being
moderately less concerned with both client relationships and knowledge retention than non-
public firms. Regarding aspects of organizational performance, it was difficult to detect
considerable differences, yet the subtle ones found represent a general tendency for non-
public firms to perceive layoff alternatives less positively; in other words the average
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responses were often closer to the perception of layoff alternatives as having ‘no effect’ on
most performance outcomes, with a few exceptions of having a ‘negative’ effect.
The question remains open as to what the intended goals of such a policy actually are and
for whom they are intended, from the perspective of those individuals who were involved in
the decision making process. Obtaining this data could reconcile the consultants’
perceptions with the firm’s actual intentions. A major challenge in the consulting industry is
gaining access to these individuals to collect an appropriate and representative set of data. A
researcher would then have to assess if the responses of such individuals would actually
acknowledge the policy’s true intentions. For example, would such a person ever state that
layoff alternatives were indeed a mechanism to get rid of ‘poor’ or ‘unproductive’
performers? And if so, would this reasoning ever be communicated to the firm as a whole?
These difficulties should not prevent one from pursuing more in-depth research.
In spite of specific issues or problems that individuals may have had with the way in which
their respective firms implemented a layoff alternative policy, the findings indicate the
overwhelming perception that layoff alternatives, either with or without modification,
should be implemented as a long-standing policy.
6.2 Theoretical and Practical Contributions
As HRM lacks perspectives that are needed to influence knowledge-based industries,
academics should seize opportunities to examine what firms are actually doing in practice
and provide industry with their findings and recommendations. The choice of empirical
setting here was deliberate. The dearth of empirical attention given to the consulting
industry from an HRM perspective should spark theoretical curiosity, as it did for this
researcher. As a good example of a knowledge-based industry, the consulting industry
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typifies the notion of employees and the knowledge they possess as a primary source of
competitive advantage. Moreover, by introducing the concept of contextualization in
Chapter 4, a medium was provided through which both academics and professionals may
better understand why it was chosen. This research revealed the effects and influences of a
new and innovative HR activity in an industry that appropriately underscores the
significance of the KBV in management research. Its contribution to both theory and
practice are discussed below.
6.2.1 Contribution to theory
The SHRM and strategy literature combined provide the foundation for the KBV of the firm
to emerge as a logical bridge between the two. With the evolving nature of the KBV in
strategic management research, in conjunction with the importance of the ‘human’ aspect of
HRM, the consulting industry was chosen as it can be said that the employees and the
knowledge they possess are the core to a firm’s success. In essence, SHRM does not allow
at this point in time for a universal model that could be applicable anywhere and anytime.
Working environments are so complex, rapidly evolving, and diverse that employees,
ranging from entry-level to top management, can face innumerable situations. This research
was carried out by first isolating a particular situation, the new phenomenon of layoff
alternatives, and then incorporating a research methodology and design appropriate to the
specific circumstances in which this phenomenon emerged and the context in which it was
intentionally placed – a knowledge-intensive industry experiencing a decrease in demand.
The case for descriptive theory building in SHRM research rests upon various factors. With
regard to the RBV, a firm’s resources, which are indeed sources of competitive advantage,
are converted into final products or services by incorporating a wide range of a firm’s other
assets and mechanisms (e.g. technology, incentive systems, training and development
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activities). However, in knowledge-intensive industries, knowledge is both the true factor of
production and the final product itself that is ultimately offered by a firm. When applying
the RBV in SHRM, human resources are just one particular resource, yet by applying the
KBV in SHRM, it is arguably the knowledge that these human resources possess that in turn
create the ‘resources’ that give a firm competitive advantage. Thus, when empirically
exploring a knowledge-based industry, it requires a perspective that isolates a firm’s true
source of competitive advantage.
The application of this ‘new’ perspective to SHRM and the examination of a ‘new’ HR
practice, support the case for an exploratory study. Moreover, the approach taken here with
regard to measuring firm performance deviates from the status quo in SHRM research, in
order to accommodate such a study, as discussed in Chapter 3. Before one can measure a
causal relationship it is important to establish a foundation on which to do so by putting
forth statements of association. Furthermore, by providing insightful description of a new
phenomenon researchers can avoid putting forth misleading concepts.
6.2.2 Contribution to practice
It is one thing for consulting firms to have superior methods and models that set themselves
apart from the competition, but it is even more important that they have the appropriate
consultants to create and deliver the firm’s services. The competition can attempt to imitate
successful firms’ methodologies and models, but what is easier is to acquire consultants
from those firms whose individual knowledge, skills and abilities could be the core to any
firm’s success.
Despite its broad reach, this research focuses on a specific practice, which can provide
useful data for decision makers behind such a practice, as well as for the HR practitioners
who would implement it. The findings have shown that in general layoff alternatives can
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have an effect on organizational performance outcomes, in both a positive and negative way.
It is of great significance that the findings have been provided anonymously by those
employees who are mostly affected by such a policy, thereby providing practitioners with
the truest sense or representation of how the policy is perceived by employees. Certainly,
such a study provides more accurate results than say an internal survey carried out in an
individual firm, where the employees are less likely to be forthright in their responses.
General recommendations, applicable to both public and non-public firms, with regard to
layoff alternatives are quite clear. First, there is a need for a certain level of consistency in
the communication of a firm’s decision to offer layoff alternatives. For example, learning
through grapevines or internet message boards does not necessarily instill positive
sentiments in individuals. In addition, if the policy is firm-wide, yet it is up to individual
offices whether or not to implement it, then those responsible in the individual offices
should communicate to their employees their decision to participate or not. Second, a
consistent method of internally assessing the policy and its processes should be
implemented. Thus, upon an employee’s return a simple meeting with the individual’s
manager or a representative from HR could take place.
The findings of this research also provide decision makers and practitioners in knowledge-
intensive industries with a better understanding as to why it could or could not be beneficial
to keep employees within the firm when fluctuations in demand occur, as well as insights on
how to implement similar policies. However, it is not implied here that the methods used by
firms involved in the study are or should be applicable in all types of knowledge-intensive
industries.
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6.3 Limitations
This dissertation is an exploratory study of the potential relationships between layoff
alternatives and firm performance. The scope of this research was far-reaching, to the extent
that it was an industry study and an initial inquiry into a new phenomenon. These final
sections describe the limitations of the current research and implications for future research.
Although the data in this study was broken down only into public and non-public categories
for a more in-depth analysis, this is not the only decomposition of potential utility. It could
be of interest to look at the industry based on differences in firm or office size and
geographical location; the industry could also be broken down in terms of the type of
consulting firm (i.e. strategy, IT). For example, during the follow-up interviews, the issue of
firm and office size, in both the public and non-public sectors, emerged as an influencing
factor on the individual’s perception.
Two of the non-public firms represented in the survey results already had policies in place
that were similar to layoff alternatives, as defined in this dissertation, even before the
recession began in 2001. It cannot be assumed that such policies were implemented in
response to the decrease in demand caused by the downturn in the economy. As such, the
respondents from these firms may have a different context in which to formulate their
perceptions, and thus these firms may not necessarily be representative of non-public firms
in general.
6.4 Future Research
While the size of the sample is satisfactory compared to other studies, one should be
cautious when attempting to generalize the results. As the present research examines
potential relationships, generalization of the results is not the immediate goal. It would be
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useful to reinforce the present research findings by obtaining, if possible and examining if
possible a larger, more homogenous sample, and in turn generalize the results. With an
appropriate data set, it would be worth using regression analysis to help explain correlations
between the variables under study.
All data was collected using the subjective reporting of the perceptions of the consultants. It
may be said that their views are significant, regardless of any biases that may exist, in terms
of an initial exploration into the phenomenon of layoff alternatives. However, this brings
into question the reliability of individuals as a sole data source and this suggests looking for
complementary sources. This limitation could be addressed in further studies in which one
can gain access to individuals who could provide policy information (e.g. partners/owners of
the firm, top management, and HR professionals). For example, it was clear in the data that
firm management/partners were ultimately responsible for decision making regarding firm
policy. It would be worthwhile however, to examine what their reasoning was behind their
decision to consider and/or implement layoff alternatives, thereby providing an indication of
whether or not the views of decision makers are in agreement with some of the theoretical
frameworks presented. Exploring such views could add credence to the rhetoric/reality
debate discussed in Chapter 2. In addition, if a similar study were implemented in another
knowledge-intensive environment, whether it be a firm or industry level study, it could help
explain the extent to which academically driven HRM ideas have affected the minds of
practitioners or vice versa.
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173
APPENDIX Appendix A – Overview of Empirical Research
Source: Boselie (2002)
174
Appendix B – Survey Template
Layoff Alternatives and Firm Performance
1. Introduction
In an aim to provide some ‘fresh thinking’ when looking strategically at employee retention, this survey is intended to explore the notion of layoff alternatives and at the same time establish how layoff alternatives may enhance firm performance. The questions have been constructed to hone in on various aspects and are intended to elicit and measure the effects of layoff alternatives. Please note that it is one thing to
gather scaled data, to allow for a more systematic analysis, but the ‘open ended’ questions are meant to complement this, allowing you to provide a deeper understanding of your experiences and perspectives. When answering, it would be best to reply simply with what ‘comes to mind’! Please be assured that your responses will be kept confidential, and as this is a web-based survey, individual responses are not linked to specific email addresses. However, your willingness to provide personal, specific information in the following questions, would be very helpful and allow for a richer analysis.
1. Name of current firm (former firm)
2. Current position (former position)
3. Please describe this firm as one of the following: Public Non-public
4. Are you currently working as a consultant? Yes No
5. Have you participated in a layoff alternative? Yes No
175
6. If you answered 'yes' to the previous question, please give your position at the time you participated.
7. Again, if you answered 'yes' to Question 5, please state the time period and briefly what you did during this time.
8. Years with firm (former firm)
9. Approximate Nr. of employees in firm (former firm) 0-100 101-500 501-1000 1001-5000 5001+
10. City and country of your specific office (former office)
11. Approximate Nr. of employees in your specific office (former office) 0-50 51-100 101-300 301-500 500+
Layoff Alternatives and Firm Performance
2. Layoff Alternatives
In general, layoffs may not be a panacea to improve a firm’s performance. When faced with this possibility, firms should view their employees and the knowledge they possess as value-creating, and perhaps consider other alternatives. The following questions serve to reveal the context in which these issues were considered.
12. In light of the downturn in the economy, what did you perceive to be the reason behind your firm's need to reduce its staff? Please check all that apply.
To survive
To get rid of ‘dead weight’
Reduce costs (i.e. reduced salary/benefit expense)
Decrease in
demand for
services (more 'down time')
Satisfy
shareholders Satisfy
stakeholders
Reaction to competitive
forces
Other
(Please specify in the next question)
176
13. Please specify 'other' from previous question.
14. How was this (from Question 12) communicated to you? Please check all that apply.
Formal conversation with superior
Informal
conversation Email Telephone Grapevine
Media (e.g. newspaper)
Other (Please specify in the next question)
15. Please specify 'other' from previous question.
16. From whom did you receive this communication?
Firm Management
(i.e. Partner, Principal, Director, etc.)
Direct Supervisor
(i.e. Senior
Manager, Manager, etc.)
Consultant (i.e.
Analyst, Associate, etc. )
Project/Team
Leader HR/Administrative
Staff
Other (Please specify in the next question)
17. Please specify 'other' from previous question.
18. How effective was this communication (from Question 14)? Very Effective Effective Neutral Ineffective Very Ineffective
19. Please explain your answer to the previous question (i.e. could it have been done differently?).
20. Assuming that at some point recently or in the past few years, when potential layoffs were looming, was there any discussion about offering potential alternatives?
177
Yes No
21. With regard to the previous question, who was involved, to the best of your knowledge, in this decision making process?
Firm Management (i.e. Partner, Principal, Director, etc.)
Direct Supervisor
(i.e. Senior
Manager, Manager, etc.)
Consultant (i.e.
Analyst, Associate, etc. )
Project/Team
Leader HR/Administrative
Staff
Other (Please specify in the next question)
22. Please specify 'other' from previous question.
23. To the best of your knowledge, who was ultimately responsible for making this decision?
24. Assuming at some point recently or in the past few years, when potential layoffs were looming, from whom did you learn of your firm
actually pursuing any alternatives?
Firm Management (i.e. Partner, Principal, Director,
etc.)
Direct Supervisor
(i.e. Senior
Manager, Manager, etc.)
Consultant (i.e.
Analyst, Associate, etc. )
Project/Team
Leader HR/Administrative
Staff
Other (Please specify in the next question)
25. Please specify 'other' from previous question.
178
26. How was this (from Question 24) communicated to you? Please check all that apply.
Formal
conversation with superior
Informal
conversation Email Telephone Grapevine
Media (e.g. newspaper)
Other (Please
specify in the next question)
27. Please specify 'other' from previous question.
28. How effective was this communication? Very Effective Effective Neutral Ineffective Very Ineffective
29. Please explain your answer to the previous question (i.e. could it have been done differently?).
30. What did you perceive to be the reasoning for and/or goals of the firm’s offering of a layoff alternative? Please check all that apply.
To get
rid of ‘dead weight’
Reduce
chance for
'burnout'
Reduce costs (i.e. reduced
salaries, avoidance of future hiring costs)
Retain ‘talent’
until demand picks up
Maintain client
relationships
Favorable public
relations (i.e ‘look good’ to
shareholders/public)
Give employees
opportunity to seek other
employment
Other (Please
explain below in next
question)
31. Explanation from previous question.
32. To the best of your knowledge, what employees were considered for taking part in these alternatives? Please check all that apply.
Firm
Management Direct
Supervisor Consultant
(i.e. Project/Team
Leader HR/Administrative
Staff Other (Please
179
(i.e. Partner, Principal, Director, etc.)
(i.e. Senior
Manager, Manager,
etc.
Analyst, Associate, etc. )
specify in the next question)
33. Please specify 'other' from previous question.
34. What aspects of, if any, potential alternatives to layoffs were communicated to you and the firm? Please check all aspects that apply.
Leave without pay
Leave with partial pay
(Explain in
Question 36)
Benefits
(e.g. health insurance, 401K, etc.)
intact
Benefits (e.g. health insurance,
401K, etc.) partially intact
(Explain in
Question 37)
Guaranteed re-
employment after pre-determined
period of time (Explain in Question 38)
Signed contract
Other
(Please explain in
next question)
35. Please describe any aspect (not mentioned in previous question) of a
layoff alternative (i.e. reduced hours) that was indeed offered by your firm.
36. What percentage of salary would one receive per year of service? 0% 10% 20% 30% Other
37. What benefits were actually intact?
38. After what period of time were you to be brought back? 1-3 Months 4-6 Months 7-12 Months 12+ Months
39. Please describe briefly in words what you perceived to be the intended benefits of a layoff alternative to each the following: Consultants (Question 39) Clients (Question 40)
Firm as a whole (Question 41)
180
40. Benefits to clients:
41. Benefits to firm as a whole:
42. If having participated in a layoff alternative, did you seek other employment during this time?
Yes No
43. If you answered 'yes' to the previous question, in which industry did you seek other employment?
Consulting 'Client Side' (industry of
former client)
Other (please specify in
next question)
44. Please specify 'other' from previous question.
45. If you were to participate in a layoff alternative, would you seek other employment during this time?
Yes No
46. Please explain why you did (or would) participate in a layoff alternative.
Layoff Alternatives and Firm Performance
3. Firm Performance and Client Service
Creating and implementing policies is a first step, but sometimes, inadequate attention is paid to actually measuring their effects on firm performance. And, measuring firm performance does not necessarily have to be done so by financial indicators (i.e. stock price). The following questions aim to gather unique perspectives and search for a rich understanding of the issues. With client service considered one of the core aspects to a consulting firm’s success, the following questions also attempt to draw insights into how firm performance may/may not be ultimately affected by layoff alternatives.
181
47. Please describe briefly your perception of how, if at all, the clients were considered when implementing layoff alternatives.
48. In what context were those employees (engaged in layoff alternatives) still a part of the client relationship?
Not at all Employees available to be contacted directly by
client
Employees available to be contacted via
colleagues
Not sure
49. To what extent do you perceive layoff alternatives affecting the client relationship?
Very great extent
Great extent Moderate extent Small extent No extent
50. Please explain your answer from the previous question.
51. How would you describe the effects of a layoff alternative on the client relationship?
Positve Neutral Negative No effect
52. Please describe what types (if any) of measurement/assessment processes exist(ed) that you were aware of, in order to monitor the effects of layoff alternatives on the client relationship.
53. From your perspective, please indicate the effects of a layoff alternative on the following aspects of the organization's performance:
Very
negative Negative No
effect Positive
Very positive
Relations among employees in general
Relations between management and
other employees
Ability to retain key employees
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Ability to attract key employees
Employee morale
Employee’s sense of loyalty/commitment
Productivity
Quality of service/products
Quality of service delivery
Development of firm expertise and knowledge
54. Please describe what types (if any) of measurement/assessment processes exist(ed) that you were aware of, which were used in determining the effects of implementing layoff alternatives, on the performance of the organization.
55. What types of measurement/assessment processes, which you are
aware of, were in place to monitor the effect of layoff alternatives upon an employee's return (after having participated)?
Questionnaire/Survey of returning employees
Interview/Meeting with returning employees
No formal process implemented
Not sure
56. Based on the previous question, please explain (if possible) what did in fact occur upon an employee's return from participating in a layoff
alternative.
57. How satisfied were you with the return/re-assimilation to the firm at the completion of your temporary separation (answer only if applicable)? Very satisfied Satisfied Neutral Dissatisfied Very dissatisfied
58. Please explain your response to the previous question.
183
59. How would you rate the overall success of the layoff alternative policy reaching its intended goals?
Extremely successful
Very successful Successful Somewhat successful
Not successful
60. Please explain your response to the previous question.
61. Would you like to see layoff alternatives implemented as a long-standing, permanent firm policy?
Yes Yes, but with modifications to what and how it is currently offered and administered
No
62. Please explain your answer from the previous question.
Layoff Alternatives and Firm Performance
4. Knowledge Retention (Almost done!)
Knowledge can be considered the core asset of a consulting firm. However, it is an asset that can be thought of as ‘intangible’ and thereby difficult to measure and/or quantify. And, without knowledge, consulting firms can’t deliver their products effectively. Please keep this in mind when answering the following questions.
63. From your perspective, to what extent was this notion of knowledge retention considered by the firm in deciding to offer layoff alternatives?
Very great
extent Great extent Moderate extent Small extent No extent
64. How important do you consider the notion of knowledge retention, as an aspect used in determining a firm's decision to offer layoff alternatives?
Very important Important Somewhat important Not important
184
65. Please explain your response to the previous question.
66. Accepting that employees possess the knowledge to ultimately contribute to a firm's success, to what extent are layoff alternatives necessary for a firm to retain such knowledge?
Very necessary Necessary Somewhat necessary Not necessary
67. Please explain your response to the previous question.
68. Please describe how you see layoff alternatives ultimately playing a role in a firm retaining its knowledge.
Layoff Alternatives and Firm Performance
5. Last few questions...
69. Would you be willing to participate in an interview (phone/face-to-face)?
Yes No
70. If you answered 'yes' to the previous question, please provide your con- tact information.
71. Would you like to receive the results of this research?
Yes No
72. If you answered 'yes' to the previous question, please provide your con- tact information.
185
Appendix C – Sample Cover Letter
Dear XXX,
I am a Ph.D. candidate at the University of St. Gallen in Switzerland and am currently
working on my doctoral thesis as a Visiting Researcher at INSEAD. In doing so, I am
kindly seeking your collaboration (given your experience in the consulting industry) in my
empirical research regarding the emerging concept of 'Layoff Alternatives'. My research
focuses specifically on the consulting industry and aims to examine how such alternatives
ultimately affect firm performance. Layoff alternatives are defined here as measures offered
to employees, which do not incorporate an official and total dismissal from the firm (e.g.,
'Flex-leave', 'Sabbatical', 'Leave of Absence', etc). They are temporary in nature so that
when the economy picks up or demand circumstances change, they are then asked to return.
It is already known in the public domain that consulting firms are finding ways and
instituting policies to keep certain employees within the firm. Therefore, it is imperative
that individuals, involved in both research and practice, learn and discover just how these
initiatives affect firm performance.
Below is a link to a web-based survey (your name/email address will in no way be
associated with your individual responses) that should take you less than 30 minutes to
complete. If you have any questions about the survey or the topic in general, please do not
hesitate to contact me.
Thank you for your participation and help!
Sincerely,
Marla
186
Appendix D – Research Topics and Issues in Management Consulting*
• The Consulting Industry Structure and Dynamics – Does size matter – are the top 5 more profitable than the next five? Do different fee structures lead to better or worse results for clients? Do low performing clients use consultants less frequently than high performing clients? Is increasing concentration affecting the performance of consulting?
• Roles, Values and Behavior of Consultants – Do certain roles and styles of intervention produce better results? Do consultants from the same firm behave similarly across the firm, and differently from other firms?
• Knowledge Creation and Knowledge Transfer – How do consultants create and use management ‘fads’? What happens when US based firms apply their methods abroad? Do firms that promote their own knowledge and models perform better? What are the issues in implementing knowledge management – what leads to more effective use?
• Methods and Models in Consulting – To what extent do firms adhere to certain proprietary models and standardized solutions? Are certain models more effective than others? Under what conditions are certain types of intervention more effective?
• Impact of Technology on Consulting – How is the web changing how consulting is conducted? Its pricing? Can objective consulting be conducted when a firm also sells hardware and software?
• Client Needs and the Value of Consulting – Does consulting, and what kinds, actually improve the performance of firms? What contingent conditions are necessary to facilitate successful consulting? Does the client’s reason for hiring consultants affect what happens to the process and results?
• Governance and Performance of Consulting Firms – How do management practices differ between consulting firms, in size, between IT and GM? Does having a board make any difference? Do better performers invest more in R&D? Do firms perform better or worse after going public? Does the selling of outsourcing compromise the consulting firm’s objectivity?
• Consulting as a Profession – How do consultants and firms define their standards for ‘good’ work? Do firms with ethical codes actually behave according to them? What role do trade associations play in setting and enforcing standard of professionalism and ethics?
187
*This list was adapted from a distribution by the Management Consulting Division at the
2004 Academy of Management meeting in New Orleans.
Appendix E – Management Consulting Research Websites
• Ohio State Strategy Oriented Web Site
http://fisher.osu.edu/~leiblein_1/Strategy%20Resource%20Links2.htm One of the more comprehensive, non sales-driven web site with links to a wide range of information sources, including professional associations, consulting firms (management, accounting and IT) and strategy, government, international, small business, industry and company information sources. Courtesy of Professor Michael J. Leiblein of Ohio State’s Fisher School.
• University of Texas Business School http://www.bus.utexas.edu/students/tca/links.htm Site with numerous consulting related resources, including directories and registries of consulting firms and consultants; publications, job search information and salary information.
• Kennedy Information http://www.kennedyinfo.com/mc/overview.html Proprietary but useful site about management consulting from one of the most important industry resources, Kennedy Information. Good source of data, magazines and books on consulting.
• Consulting Information Services LLC www.consultinginfo.com/cislogo.htm Current news items about trends and developments in the management consulting and IT fields.
• The Wall Street Journal http://www.careerjournal.com/salaries/industries/consulting Salary, compensation and career information for positions in large, medium and small-size consulting firms.
• Top-Consultant.com http://www.zambeasy.com/top-consultant/default.asp A comprehensive consulting industry site, with special interests in careers, firms and consulting jobs.
188
Appendix F – Consulting Research Sources – Journals* * Listed in order from more ‘scholarly’ to more ‘practice’ oriented. • Journal of Applied Behavioral Science
- http://www.sagepub.com/
• Human Relations - http://www.sagepub.com
• Journal of Organizational Change Management - www.emeraldinsight.com/rpsv/jocm.htm
• Journal of Management Development - http://miranda.emeraldinsight.com/vl=11067841/cl=29/nw=1/rpsv/journals/ jmd/jourinfo.htm
• Research in Management Consulting - http://www.infoagepub.com/product.htm
• Academy of Management Executive - http://aom.pace.edu/AME/
• Consulting Psychology Journal: Practice and Research - http://www.apa.org/journals/cpb.html
189
Appendix G – Interview Question Template Downturns can give cause to reduce staff, so it can be implied that layoffs are not necessarily based on poor performance alone. Firms are challenged with finding an effective, possibly systematic way of dealing with this. Layoff alternative: All respondents from public firms replied that ‘yes’, layoff alternatives were considered. At the same time, respondents from non-public firms replied both ‘yes’ and ‘no’, implying a potential fundamental difference (i.e. could shareholders be the key to this?). 1. Was there an overall sense in your firm that offering these ‘layoff alternatives’
were a way to get people to ultimately leave? If so, why? Did this sentiment exist in your local office?
2. Would it have been better for your firm/office to have ‘across-the-board’ layoffs
(even it they were minimal)? Why? 3. Respondents from the same firm (not office), regardless of public or private, had
varying aspects to their layoff alternative policies. Should it be a firm-wide plan? Or up to regional offices/management? Why?
4. How effective/important was the role of the HR department? 5. When were layoff alternatives first offered? Are they still being used? Knowledge Retention: From an academic perspective, I’m exploring the construct of ‘tacit’ knowledge, which is knowledge embedded in behaviors, contexts, etc. – ‘stuff’ that can’t necessarily be put into Knowledge Management (KM) systems. Some respondents noted that KM systems capture the necessary knowledge, while others imply that that is not enough, by acknowledging the importance of keeping certain employees within the firm. Therefore, the issue of Knowledge Retention (KR) can be looked at in the following ways: KR via KM systems vs. KR via People 6. Which is more important in the short-term? Long-term?
190
When considering layoff alternatives, roughly half the respondents thought Knowledge Retention was taken into account by the firm to ‘no or a ‘small’ extent, while the other half responded either to a moderate, great or very extent. 7. How should a firm ultimately deal with the issue of Knowledge Retention? 8. What do you feel consultants actually take with them when they leave the firm
(under any circumstances)? Is this the same if they were to leave temporarily? Client Relationships: Consultants on a whole didn’t think ‘client relationships’ were important to consider when contemplating layoff alternatives, but a partner reported that the clients were the reason their firm did NOT pursue any alternatives. And, roughly half of the respondents said layoff alternatives had a positive effect on client relationships, while the others said there were no effects. However, there were a few ardent supporters of there being a negative effect (e.g. via reputation). 10. How would you account for these differences? 11. Can you distinguish between the short-term and long-term effects regarding the
client relationship in terms of layoff alternatives?
Firm Performance: Regarding any measurement or assessment of the effect of layoff alternatives, only 4 respondents said definitively that there was a meeting with those employees returning after having participated in a layoff alternative. 12. How necessary is it to measure the effectiveness of a layoff alternative policy?
Why? Last questions: 13. In retrospect, what did you perceive the reputation of your firm to be as it was
dealing with the downturn? 14. If your firm has been experiencing an upswing, do you think that layoff
alternatives saved the firm time and resources (in terms of future recruiting efforts)?
191
Appendix H – Alphabetical Listing of Firms Represented by Survey
Respondents Accenture Artur D. Little AT Kearney Bain & Co. BearingPoint Booz Allen & Hamilton Boston Consulting Group Cap Gemini Ernst & Young CSC Consulting Deloitte Consulting IBM Consulting LEK Consulting Marakon Associates McKinsey Mercer Management Consulting Mercer Oliver Wyman Pittiglio Rabin Todd & McGrath Right Management Consultants Roland Berger TNK-BP Towers Perrin Value Partners
192
Appendix I – Aggregate Results – Organizational Performance
0%10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
From
you
r persp
ectiv
e, pleas
e indicate th
e effects of a layo
ff alte
rnative on
the follo
wing as
pects of th
e orga
nizatio
n's
performan
ce:
Very positive
Positive
No effe
ct
Negative
Very negative Very positive
5%8%
13%
5%8%
8%5%
0%0%
0%
Positive
44%
44%
46%
33%
38%
38%
33%
18%
21%
21%
No effe
ct21%
15%
26%
49%
21%
18%
41%
72%
59%
41%
Negative
28%
31%
10%
10%
23%
21%
18%
10%
21%
33%
Very negative
3%3%
5%3%
10%
15%
3%0%
0%5%
Relations
among
employee
Relation
s
between
managem
Ability to
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Appendix J – Various Layoff Alternatives Offered *Leave without pay and benefits still intact (at employer’s expense)
• 1-2 month sabbatical
• 1/3 salary paid by company, 1/3 salary paid by client
*Leave without pay and benefits still intact (only if employee continues paying) Leave with partial pay and benefits intact
Salary: ranged from 20-30% of annual salary Benefits: health insurance, life insurance, disability, 401(k), profit sharing, stock purchase program, and flex spending. Vacation was paid out when leave started and was not earned during the leave period. Period of Leave: ranged from 1-12 months, average 6-8 months
Guaranteed re-employment: yes/no Signed contract: yes/no *Part-time work *Secondments to clients - received full pay and benefits *Move to other business unit *Transfer to other office *MBA (firm sponsored) * Denotes layoff alternatives only offered in non-public firms
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CURRICULUM VITAE Marla M. Kameny Education UNIVERSITÄT ST. GALLEN, St. Gallen, Switzerland
Doctor of Business Administration; Spring, 2006
CORNELL UNIVERSITY, Ithaca, NY
S.C. Johnson Graduate School of Management and NYS School of Industrial and Labor Relations
Master of Business Administration, Master of Industrial and
LaborRelations; December, 1999
UNIVERSITÄT ST. GALLEN, St. Gallen, Switzerland
International Study Program (MBA Exchange Semester), December,
1999
BINGHAMTON UNIVERSITY, Binghamton, NY School of Management
Bachelor of Science, Management, May, 1993
Honors INSEAD, Fontainebleau, France
Visiting Researcher, 2004 Louisiana State University, Baton Rouge, LA E.J. Ourso College of Business Administration
Visitor, Fall, 2003
64th annual conference of the Academy of Management, 2004 Selected to participate in Human Resources Doctoral Consortium
Grants Schweizerischer Nationalfonds zur Foerderung der
Wissenschaftlichen Forschung (Swiss National Fund for the Advancement of Scientific Research) - One year grant to carry out doctoral research
Presentations 2004 “Layoff Alternatives and Firm Performance: Improving Research and Practice Through Theory Development”, Presented at the 64th annual conference of the Academy of Management, New Orleans
Publications von Krogh, G. & Kameny M. (2002) “Leap Before You Lay Off: Look
for Creative Alternatives”, European Management Journal, Vol. 20, No. 6, pp. 664-670. (refereed article)
195
Kameny, M. (2002) Commentary on feature written by Antal, A.B. & Krebsbach-Gnath, C. based on “Auf der Suche nach ‘internen Aussenseitern’”, in “Wo waeren wir ohne die Verrueckten? Zur Rolle
von Aussenseitern in Wissenschaft, Politik und Wirtschaft,” eds. Antal, A.B. & Krebsbach-Gnath, C., Berlin: edition sigma, pp. 165-203, 2001), Reflections - The Society of Organizational Learning Journal, MIT Press, Vol. 4 No. 2.
Franz, M., Freudenthaler, K., Kameny, M., & Schoen, S. (2002) “Communities of Practice: The Development of the Siemens Knowledge Community Support”, case study included in the Knowledge Management Case Book: Siemens Best Practises, eds. Davenport, Thomas H. & Probst, Gilbert J.B., Second Edition, John Wiley & Sons.
Leadership UNIVERSITÄT ST. GALLEN, St. Gallen, Switzerland Experience Executive Director, International Study Program, 2000-2003
Professional Experience PHILIP MORRIS USA, New York, NY Summer 1999 Organizational Development Intern
Summer 1998 SUN MICROSYSTEMS, INC., Palo Alto, CA
Educational Development Intern
1996-1997 CARNIVAL HOTELS & CASINOS, New York, NY Human Resources Manager
1995-1996 BLACKROCK FINANCIAL MANAGEMENT, INC., NY, NY Human Resources Coordinator
Personal English (mother-tongue), German (fluent) PHR (Professional in Human Resource Management), 1996-2002 Enjoy tennis, downhill skiing, travel, crossword puzzles