Framing decisions to communicate change.

Spears, Martha C. ; Parker, Darrell

INTRODUCTION

When an organization is undergoing change, the manner in which change decisions are communicated determines the nature of the perceived risks involved in the change process and the extent of resistance to change. To illustrate the importance of communication in managing change, this paper draws upon the literature on risk preference and preference reversal for individuals facing uncertain decisions. Based upon the manner in which a change decision is communicated or framed individuals will alter their resistance to change alternatives. Framing occurs when the context or presentation of a decision creates a climate that influences the decision. In general, the issue of framing occurs when decision-makers evaluate a proposition on the context in which the outcome is presented, not just on the underlying outcomes (Parker and Spears, 1999).

Framing in the communication of human relation decisions is important for an organization facing restructuring, job loss, or change. Framing has been used to explore questions involving the importance of perceptions on insurance, gambling, and medical decisions. Experimental studies have documented that decision-makers react differently to the same proposition depending upon the manner in which it is presented. This phenomenon is known as preference reversal and violates a strict expected utility analysis of decision making (Machina, 1987). Framing is one aspect of the growing literature in behavioral finance. This research specifically recognizes the influence of psychology on the behavior of financial practitioners (Shefrin, 1999). Furthermore, framing is influenced by individual factors such as personality types and gender (Parker and Spears, 2002).

A survey instrument is used that parallels the classic framing of disease and death to analyze the framing of restructuring and job loss. This approach permits us to determine that framing within the communication of human relation decisions exhibits the preference reversal phenomenon for corporate restructuring issues. Since framing is a significant factor for decisions involving restructuring and change, the communication of change decisions will influence an organization's attitude toward and resistance to change. It is the purpose of this paper to explore the link between framing and managing the organizational change process.

THE COMMUNICATION OF CHANGE

Communication is an important aspect of organization design, change, and strategic management. Managing the communication of change is of vital importance to the organization and determines how organizations adapt to the environment (Daft, Bettenhausen, and Tyler, 1995). Communication by managers after both internal and external decisions are made is as big a part of a strategic initiative as gathering information is prior to decision-making. For example, the news of a Fortune 500 company making a large number of employee layoffs can be framed quite differently by internal and external communication sources. Is the company in trouble and destined for failure, or is the company making strategic changes that will strengthen the organization? Consequently, an announcement of layoffs may result in either increases or decreases in the stock price of the company depending upon the frame accepted by investors.

The framed structure can be defined as the configuration of information and control systems within an organization as well as the formalized configuration of roles and procedures for managing the communication process (Ranson, Hinings, and Greenwood, 1980). To be successfully objective about what change is required, a new frame has to be viewed. Since it is difficult to correctly identify cause-and-effect relationships, there is a blurring between "success" and "failure" as results become interpreted using personal perspectives and frames of reference (Van de Ven and Poole, 1995, Van de Ven, Angle, and Poole, Van de Ven, Dooley, and Holmes, 2000). Management controls the implementation process by influencing the personal networks, personal relationships, and organizational frame created among employees.

Although change is a natural process and instability is a normal state, employee resistance is the cause for most failures of organizational change initiatives (Critchley, 1996). "For change to succeed, it has to be accepted by the workforce physically, intellectually and emotionally" (Spiker, Lesser 1995, p. 18).

Poole, Van de Ven, Dooley and Holmes (2000) and Johnson and Blanchard (1998) conclude that resistance to new ideas is expected and that those who champion the change must embrace this philosophy as evidence of innovation and progress. Mintzberg (1994) indicates that planning and change represent a calculating style of management, but should represent a communication style that engages people in an undertaking that everyone helps to shape.

FRAMING AND PREFERENCE REVERSAL

When the emotional context that is communicated rather than the outcome drives managerial decisions, the issue of framing arises. A reference point may influence the manager. For example, it is the issue of whether change is communicated as a source of loss or gain that provides a reference point. The frame of reference influences whether an uncertain choice is perceived as a gamble, (with a chance to win) or as insurance (where the certain choice limits loss) and influences the subject's decisions (Schoemaker and Kunreuther 1979; Hershey and Schoemaker 1980; McNeil, Pauker, Sox, and Tversky 1982; and Slovic, Fischoff and Lichtenstein 1983). To demonstrate this concept, alternate scenarios are presented with the same expected value outcomes. Tversky and Kahneman (1981, 1986) present the following classic decision for a life or death scenario:

"Imagine that the U.S. is preparing for the outbreak of an unusual Asian disease, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed. Assume that the exact scientific estimates of the consequences of the programs are as follows:

If Program A is adopted, 200 people will be saved.

If Program B is adopted, there is 1/3 probability that 600 people will be saved and 2/3 probability that no people will be saved.

Versus

If Program C is adopted, 400 people will die.

If Program D is adopted, there is 1/3 probability that nobody will die and 2/3 probability that 600 people will die."

If presented with saving lives through choices A and B, 72% choose the certain outcome A, however when phrased in terms of deaths 84% were willing to gamble on Program D. The resistance to the treatment described by Program B and D varies greatly depending upon whether the issue is communicated in terms of certain death for the alternative.

FRAMING TO COMMUNICATE ORGANIZATIONAL CHANGE

These same types of influences play an important role in decisions involving human relations. A survey instrument was developed and included multiple decisions in the face of radical change and potential loss including the classic framing question listed above. In order to investigate the sensitivity of organizational decisions to framing a question on job loss was included. The following question illustrates the framing of organizational loss:

The manufacturing division of a U.S. company is having problems competing in the global marketplace. The company must decide how to reorganize this division of 12,000 U.S. workers. Two strategies have been proposed.

A By contracting operations overseas 4,000 jobs will be saved.

B With an internal reorganization of U.S. operations there is 1/3 probability that all 12,000 jobs will be saved and a 2/3 probability that no jobs will be saved.

Versus

C Operations can be moved out of the U.S. eliminating 8,000 jobs.

D With an internal reorganization of U.S. operations there is 1/3 probability that nobody will lose their jobs and a 2/3 probability that all 12,000 will be unemployed.

METHODS

This research extends the analysis of framing and organizational loss by directly analyzing the extent of framing among managers and human resource professionals. The question is to what extent the framing results are found in an analysis of employed professionals.

An institutional survey was mailed to a sample of 635 full time employed business professionals with either a MBA or BS degree in business administration. The survey topic involved performance appraisal, training, and organizational change. In addition, the two framing research questions presented above were included in the survey instrument. The respondents were randomly assigned one of the two sets of survey scenarios. The survey instrument was formatted and designed to yield a high response rate. A total of 283 surveys were returned for a response rate of 44.6%. A total of 260 respondents answered each framing question by selecting one of the two strategies.

FRAMING LIFE AND DEATH DECISIONS

The results for the sample of working professionals are similar to the results for framing found elsewhere. Overall, when faced with a life or death choice, 68% of respondents preferred the gamble to the certain outcome. As shown in Table 1, there is apparent framing based upon the presentation of the question.

When the certain solution was expressed in terms of lives saved, 46% were willing to select the certain decision and 54% were willing to gamble on the uncertain strategy. However among those respondents who were faced with the certain solution stated in terms of deaths, only 16% selected the certainty answer while 84% were then willing to gamble on a better outcome.

An F test was performed to determine whether the two groups of respondents for this question exhibited the same variance. The table further reports the results from that test. The sample variance was statistically different between the two groups of respondents. Hence, a t test for samples with unequal variances was performed to determine the statistical significance of the framing behavior exhibited. The results from this study indicate that decisions involving the loss of life are framed. The framing is statistically significant at the 99% level.

FRAMING ORGANIZATIONAL CHANGE

An analysis of the questions regarding the loss of jobs shows that framing is evident although not as dramatic for issues involving the loss of jobs. Overall when faced with decisions regarding job loss, 43% selected the certain outcome while 57% were willing to gamble. As Table 2 illustrates there is framing apparent, based upon the manner in which the decision is presented.

When faced with an organization decision communicated in terms of jobs saved, 47% chose the certain outcome and 53% selected the gamble. However, when phrased in terms of job losses, the respondents displayed a stronger appetite for risk. When communicated as job losses the number of respondents selecting the uncertain strategy increase to 61%. Correspondingly, the number selecting the certain choice declined to 38%.

An F test was performed to determine whether the two groups of respondents for this question exhibited the same variance. The sample variance was not statistically different between the two groups of respondents. Hence, the hypothesis that these respondents were pulled from the same sample cannot be rejected. Consequently, a t test for samples with equal variances was performed to determine the statistical significance of the framing behavior exhibited.

The results from this study indicate that decisions involving the loss of job are framed. The framing is statistically significant at the 90% level. Attitudes depend on the manner in which decisions are presented or framed.

FRAMING IMPLICATIONS FOR MANAGERS

The understanding of framing offers insight into response to proposals involving change or loss. Framing is a part of managerial decision-making and influences decision-makers' attitudes toward acceptance or resistance to change. The reference point communicated is shown to be a key determinant of whether individuals are resistant to a strategy with uncertain outcomes. Individuals are more willing to gamble to prevent loss. If the certain strategy is seen as saving something, then the uncertain strategy will be resisted. If the certain strategy is shown to be associated with losses, then individuals are willing to gamble on an uncertain strategy to prevent loss.

Since framing is a significant factor, the communication of change decisions influences an organization's attitude toward and resistance to change. Specifically, when communicating change, it is important to articulate the cost of maintaining the status quo. When the reference point is the loss associated with not changing, then resistance to change and uncertainty decreases. If the reference point focuses on the benefits and gains of the status quo, then resistance to change is increased. Therefore, within the organizational change process managers determine the response to change through the frame selected.

FUTURE RESEARCH

This paper illustrates the importance of communication in managing change. Business professionals do exhibit framing when presented with hypothetical scenarios involving organizational change. The research method employed was based upon hypothetical scenarios and does not necessarily reflect the extent of framing behavior when the organizational change is the individual's own company. The proximity of the change to the individual's well being may further enhance the framing effect. A natural extension of this research would be to develop a case analysis of specific organizational change decisions and the extent to which framing apparently occurred or was influenced by the managerial change process.

REFERENCES

Critchley, B. (1996, March). The myth of management change. Leadership & Organization Development Journal, 17(2), 48-53.

Daft, R. L., K. R. Bettenhausen, & B. B. Tyler (1995). Implication of top managers' communication choices for strategic decisions. In George P. Huber And William H. Glick (eds.) Organizational Change and Redesign (112-146). New York, Oxford: Oxford University Press.

Hershey, J., & P. Schoemaker (1980, March). Risk-taking and problem context in the domain of losses--An Expected Utility Analysis. Journal of Risk and Insurance, 47, 111-32.

Johnson, S. & K. Blanchard (1998). Who moved my cheese? Penguin Putnam, Incorporated.

Machina, M. (1987, Summer). Choice under uncertainty: Problems solved and unsolved. Economic Perspectives, 1(1), 121-154.

McNeil, B., S. Pauker, H. Sox, & A. Tversky (1982, May). On the elicitation of preferences for alternative therapies. New England Journal of Medicine, 306, 1259-62.

Mintzberg, H. (1994, January). The fall and rise of strategic planning. Harvard Business Review, 66-75. Parker, D. & M. Spears (1999). Framing as a marketing tactic for equipment leasing. Journal of Equipment Lease Financing, 17(2) 20-25.

Parker, D. & M. Spears (2002). Personality, Gender, and Risk: A Framing Analysis. Economics and Economic Education Research Journal, forthcoming.

Poole, S. M., A. D. Van de Ven, K. Dooley, & M. E. Holmes (2000). Organizational change and innovation processes. New York, NY: Oxford University Press.

Ranson, S., B. Hinings, & R. Greenwood (1980). The structuring of organizational structures. Administrative Science Quarterly, 25, 1-17.

Schoemaker, P. & H. Kunreuther (1979, December). An experimental study of insurance decisions. Journal of Risk and Insurance, 46, 603-18.

Shefrin, H., (1999). Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of Investing. Harvard Business School Press.

Slovic, P., B. Fischoff, & S. Lichtenstein (1983, September). Preference reversals: A broader perspective. American Economic Review, 73, 595-605.

Spiker, B. & E. Lesser (1995, March-April). We have met the enemy.... Journal of Business Strategy, 16(2), 17-23.

Tversky, A., & D. Kahneman(1981, January). The framing of decisions and the psychology of choice. Science, 211, 453- 58.

Tversky, A., & D. Kahneman (1986, October). Rational choice and the framing of decisions. Journal of Business, 4(2), 251-78.

Van de Ven, A. H. & M. S. Poole (1995, July). Explaining development and change in organizations. Academy of Management Review, 20(3), 510-541.

Van de Ven, A. H., H. L. Angle, & M. S. Poole (2000). Research on the management of innovation, New York, NY; Oxford University Press.

Martha C. Spears, Winthrop University

Darrell Parker, Georgia Southern University

Table 1
Framing the Loss of Life

 Lives Saved Deaths Total

Certainty 46.21% 16.41% 31.54%
Gamble 53.79% 83.59% 68.46%
N 132 128 260

F-Test Two-Sample for
Variances

Death Variable 1 Variable 2

Mean 0.537313 0.839695
Variance 0.250477 0.135643
Observations 134 131
df 133 130
F 1.846589

t-Test: Two-Sample Assuming
Unequal Variances

Hypothesized Mean Difference 0
df 244
t Stat -5.61056

Table 2
Framing the Loss of Jobs

 Jobs Lost Jobs Saved Grand Total

Certainty 38.64% 47.66% 43.08%
Gamble 61.36% 52.34% 56.92%
N 132 128 260

F-Test Two-Sample
for Variances

Jobs Variable 1 Variable 2

Mean 0.613636 0.527132
Variance 0.238897 0.251211
Observations 132 129
df 131 128
F 0.950979

t-Test: Two-Sample
Assuming Equal Variances

Pooled Variance 0.244983
Hypothesized Mean Difference 0
df 259
t Stat 1.41167

From sample responding to satisfied.