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Updated 11:00 AM November 1, 2004
 

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  Research
Companies in crisis: Money, relationships aid in recovery

Firms need both adequate financial reserves and positive employee relationships to confront crises, rebound more quickly and continue to flourish, says a business professor.

These two building blocks—relationships and reserves—also are key factors in the recovery process, according to Kim Cameron, professor of management and organizations at the Stephen M. Ross School of Business.

"Organizational resilience in the face of crisis depends on maintaining positive employee relationships," Cameron says. "However, wanting to preserve human relationships in troubled times is different than having the ability to do so. Companies with sufficient financial reserves can reduce the need to rely on layoffs, thus preserving the employee relationships that boost an organization's ability to bounce back after a crisis has passed."

In a new study of organizational resilience, Cameron and colleagues Sandy Lim of the psychology department and Jody Hoffer Gittell of Brandeis University examine data on major U.S. airlines following the Sept. 11, 2001, terrorist attacks.

Most companies, the researchers say, implemented employee layoffs almost immediately as a strategy to improve their chances of survival. Short-term pressures also prompted U.S. Airways and American Airlines to renege on their previously established commitments regarding severance packages and employee benefits.

A few companies, however, pursued alternative strategies. Continental Airlines announced layoffs but provided severance and furlough benefits for affected employees. Southwest Airlines and Alaska Airlines went a step further by refusing to downsize at all, in the interest of preserving employee relationships.

The results of these different strategies illustrate how relational reserves help organizations cope with crises and how financial reserves enable organizations to maintain their relational reserves, the researchers say.

"Airline companies that avoided layoffs and invested in preserving relationships—by maintaining commitments to employees and their relationships to the company—showed more resiliency than those that violated contractual commitments, instituted layoffs and cancelled severance benefits," Cameron says. "By foregoing downsizing, these companies created coping resources that enabled their employees to respond cohesively to the crisis in innovative ways and allowed organizational performance to return more quickly to pre-crisis levels."

The researchers say that following the 9/11-related layoffs, U.S. Airways and American Airlines were sued by their employees, senior leadership was replaced and bankruptcies occurred. On the other hand, the preservation of relational reserves helped Southwest Airlines and Alaska Airlines recover financially and regain previous levels of traffic, revenue and stock performance.

"The relationship-based performance of Southwest and Alaska contradicts the leveraged buy-out movement of the 1980s and 1990s when corporate leaders were encouraged to rid their organizations of financial reserves, with the promise this action would make them efficient, lean and more accountable to shareholders," Cameron says. "The fact that there would be few reserves in place to preserve relationships and commitments in the face of crises, thereby risking a decline in organizational resilience, is the often-neglected aspect of that phenomenon."

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