THE STRATEGIC MANAGEMENT OF THE ENTITLEMENT PROCESS IN THE EMPLOYMENTRELATIONSHIP

Over time, members of organizations develop entitlements-preferences a bout how they wish to be treated and beliefs about how they should be treated. The formation of entitlements is an important subject for str ategy researchers because employees resist changes that violate their perceived entitlements; thus entitlements constrain an organization's ability to adapt quickly in a changing environment. In this paper, we use psychological research to propose a two-part model of entitlements formation: (i) Preference formation makes people likely to resist cha nge because preferences adapt to experience, and thus change imposes p ainful losses; (ii) Belief formation leads to over-entitlement, and th is produces resistance because employees perceive changes to be unfair or unjust. Over-entitlement happens because (a) psychological limitat ions in judgement and (b) strategic distortions in the character and c ontent of information exchanged in relationships lead employees to per ceive their entitlements as richer and more systematic than intended b y the organization. Combined, the preference and belief formation proc esses can produce substantial resistance to change. In stable environm ents firms may have an incentive to allow entitlements to develop sinc e they enhance employee security and commitment. However, in changing environments, entitlements constrain firms' ability to mobilize resour ces to meet competitive challenges. After presenting our model of enti tlement formation, we use the model to organize and analyze a set of s uggestions about how the employment relationship might be managed to a void problems of entitlement formation, thus enabling firms to adapt m ore effectively in a dynamic environment.