People, performance and transition: A case study of psychological contract and stakeholder orientation in the Toyota Australia plant closure

Abstract

Operations managers often manage in times of change that exert pressure on values and methods usually developed during more stable eras. With increasing global volatility, companies open and close plants because of demand shifts, cost and reshoring considerations, and government-induced and market forces. Impacts of plant closures on local communities, employees, suppliers, and other stakeholders have been documented, but plant closure processes have not been extensively studied. This paper describes an engaged research study of Toyota Australia's manufacturing closure processes. We apply psychological contract theory, particularly of contract breach, to examine the “respectful” approach Toyota used to close its assembly operation in Melbourne. We examined the role that stakeholder theory plays in describing managerial motivations. Toyota allocated resources beyond typical expectations to prepare its workforce for their post-Toyota careers and lives. During the 4-year transition process, employee performance, and engagement improved, supporting propositions that reserves of employee goodwill can come into play when a psychological contract breach occurs. Further, leadership actions can moderate the negative impacts predicted by that theory, beyond outcomes that more transactional views would predict. Our study offers an elaborated model of psychological contract breach that future researchers can apply to plant closures and related operational contexts.