Wednesday, January 21, 2009

Eight Ways Leaders Increase Process Fairness and Cuts Costs

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Consider two companies experiencing layoffs:

A. Company “A” provides a safety net for laid-off workers that includes a generous severance package, extensive outplacement counseling, and continuing health insurance for a year. On the other hand, senior management never fully explains the rationale behind the layoffs or the process used to eliminate jobs.

B. Company "B” does not spend nearly as much money providing a safety net for its laid-off workers. However, senior management explains their strategic reasons for the layoffs on many occasions prior to implementation. Managers at all levels make themselves available to answer questions and share their concern for all those affected by the layoffs. Management also works closely with Human Resources throughout the process.

Fairnessbd06691jpgNine months later, Company A is mired in numerous wrongful termination suits and another round of layoffs due to low productivity. NONE of the laid-off employees at Company B file a wrongful termination lawsuit and performance is better than it was prior to the layoffs.

What made the difference between these two companies? Although Company B did not spend as much money on the severance package as Company A, Company B invested heavily in process equity. Equity is defined as "the quality of being fair or impartial.” The employees in Company B felt they had been treated fairly, that there was equity in the layoff process. Professor Joes Brockner points out that when leaders practice process equity, often called “process fairness,” employees support new strategies, promote innovation, and boost the bottom line. (1) When process fairness is not practiced, companies pay the high cost of low ethics.

Professor Brockner cites a study of nearly 1,000 people that found only 1% of laid-off employees who felt that they were treated with a high degree of process fairness filed a wrongful termination lawsuit versus 17% of those who believed they were treated with a low degree of process fairness. The researchers calculated the cost savings of practicing process fairness as $1.28 million for every 100 employees. In addition to keeping companies out of legal hot water, paying attention to equity process in decision-making has also been shown to cut down on employee theft and medical malpractice suits. People and patients don’t retaliate because they receive poor treatment; they lash out because they don’t believe that they receive explanations about the process.

To increase equity in your team, it is important to address the three components of process fairness:

  • Input fairness. How much input do employees feel they have in decision-making? Do their opinions count?
  • Decision fairness. Are decisions based on accurate and unbiased information? Is adequate notice given? Is the process transparent? Are decisions consistent with espoused values and previous decisions?
  • Implementation fairness. Does management explain why a decision was made? Do they treat employees respectfully by listening actively and empathetically?

Whenever you are implementing a major decision or change, you can increase process fairness by addressing all three of the components listed above and adapting the five tactics described below:

1. Involve employees early in the process. Harvard Business School Professor Michael Beer recommends the interview technique. Select a group of well-respected managers and ask them to interview a large number of employees from different parts of the company to learn about the pluses, minuses, and consequences of implementing the decision. Increasing involvement increases commitment.

2. Show the data. Show the employees the data used to make a decision. The more transparent the process the more buy-in it receives.

3. Explain the why behind the what. Let employees know why the decision was made and what other alternatives were considered.

4. Practice two-way communication. I once consulted with the company where the CEO often stated that “anything worth communicating is worth over communicating." He confused broadcasting with communication. He had no mechanism to detect the response to the signals he sent. His major change initiative failed miserably. Feedback keeps you on track because it allows for course correction. Find multiple channels to listen to the people during the change.

5. Warn and educate leaders. Leaders who deliver difficult news must be warned about the negative emotions that they will experience internally and from employees. Studies show that educating leaders about process equity benefits both the leaders and employees.

What will you do to increase your fairness?

Keep eXpanding,

Dave

1. Joel Brockner; Why It's So Hard to Be Fair, Harvard Business Review, March 2006, 122 – 129.

1 comment:

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