Managing in a downturn: Strategies for Success Part I

The first thing to remember: treat the downturn as an opportunity not a threat; attitude makes all the difference!

As may be apparent from my earlier posts on common mistakes made by CEOs in the downturn, there are a few key areas that CEOs can focus on, as a means to navigate any downturn.

The first relates to talent management.

This area can be managed in four ways. I have dwelt on the first method in some detail while discussing the reduction of headcount as a knee jerk reaction to a downturn. A planned, structured and analytical approach to the rationalization of headcount can help organizations manage the downturn successfully. So, I will not repeat myself here.

The second method pertains to the retention and motivation of the talent that the company chooses to retain after a well structured rationalization of headcount. Closely associated with this is the issue of enhancing productivity, since a rationalized headcount is expected, justifiably, to contribute in a greater measure, especially since the basis of the rationalization is to retain the best talent in the key areas of growth, both present and future.

This can be tricky, but not impossible. Any reduction in headcount causes discomfort, at best; and anxiety, at worst, among the workforce that survives the exercise, no matter how sensitively it is handled or how reasonable the logic behind the decisions. Morale dips. Motivation sags. In such a climate, simply maintaining employee morale is a herculean task.

So how does one go about the added objective of enhancing productivity?

There are several ways of doing this, beginning with the basic task of tackling employee morale and motivation issues. Transparency is critical at this point in time. Employees must know where they stand. Any uncertainty can lead to speculation and guessing games, which not only affects productivity, since employees spend more time in speculation than working; but it also affects morale further, when no clear answers are forthcoming. Honesty and transparency can go a long way in improving morale, by simply settling apprehensions and anxieties.

Avoiding negative pressure is another way of enhancing productivity. No one--including you and me--likes to work under negative pressure. It is easy, in a downturn, to be negative. Criticism, doubts about performance and commitment, fault finding and passing the buck are common occurrences when things start going wrong. And all of these have an immediate and perceptible impact on employee morale and motivation. What is required at this time is the ability for senior managers to be calm and composed. The downturn cannot be wished away. But it can be managed. The recognition of this simple truth can help. Managers should consciously steer away from negative communication. Positive feedback, encouragement, proactive support and appreciation, all go a long way in enhancing morale and motivation.

And the best thing is, if managers are honest and positive with their teams, the natural corollary is that employees will reciprocate. This creates an all round climate of transparency and positivity within the organization.

In fact, involving employees in the decision making and planning process while strategizing for the downturn is a great way of not only improving productivity, but also of getting new ideas. First, employees feel great about being involved. It gives them immense satisfaction in contributing to the organization when it is facing difficulties and also gives them a sense of value. Second, it gives them ownership of the final strategy, which always enhances productivity and performance. Third, you’ll be surprised at the ideas employees can come up with when asked…all you need to do is involve them! One great way of doing this is through coaching and I’ll dwell on that in a bit.

Increments is yet another way of managing morale and productivity. Most organizations freeze increments across the board in a downturn. What if organizations were to be creative about this. For example, the hardest hit by an increment freeze are the staff at the lower levels of the hierarchy. Suppose the organization were to give them nominal increments, but freeze increments at the managerial levels, where the pinch is felt less? How do you think that would go down with employees?

Stop here for a moment, and go back to the methods I’ve just described. Do you see a pattern emerging? Put yourself in the shoes of an employee who is managed thus. Do you see your morale and motivation improving? And I hope that by now you would see how this has a direct and tangible impact on productivity.

There are many methods to improve productivity. But I would I like to spend some time on yet another very powerful method of enhancing productivity, albeit one that comes at a cost. And that is: coaching employees. Coaching is not about giving advice. It is not about counseling them on their performance. It is about helping employees find their own solutions to enhance their performance or achieve specific job related goals. It is also not meant so much to fix problem behaviours. It is more to help valued employees find solutions to enhance their own performance and contribution to the organisation. Coaching believes in the potential of each employee to deliver the goods on their own; and the coach simply facilitates the way, invisibly and silently. Coaching employees, especially key team members who have a significant impact on the business, can go a long way to improve performance and productivity.

The third method of talent management relates to the training and development of existing talent. This is also a method that enhances productivity. A downturn, where employees may not be fully occupied, is a great time to enhance skills and learning, along with self development. I will dwell upon this in a bit more detail when I write about preparing for the upturn.

The point about training and development I would like to highlight here pertains to managers, especially senior managers. The present downturn is unprecedented. A synchronized downturn of this nature has not been seen since the Great Depression. However skilled, competent and experienced a manager may be, and irrespective of his/her level within the hierarchy, there is no manager in the world today who has experienced a downturn of this nature. Which means that the skills to manage the present downturn are woefully inadequate. But this blog is about any downturn, and hopefully in the future there will be fewer downturns like the present one.

Some managers ride high with the good times, during which time their strengths are highlighted and, indeed, put to good use for the growth and gain of the organization. But along comes the downturn and their weaknesses are exposed. This is not to say that they are incompetent or that their usefulness to the organization has been outlived. It is simply that their skill sets do not include skills to manage the downturn. It is critical to identify such managers and equip them with the skills necessary to successfully navigate the storm. It is not such a difficult task. And coaching, as I have mentioned earlier, is a great way to create self realization about the way forward.

The fourth method of talent management is the redeployment of skills. This is also closely linked to enhanced productivity. With employees being more productive, they may have time to look at other areas that they may be able to manage, but have not had the time or the inclination to focus on earlier. Profitable redeployment of skills is possible and has been successfully implemented by many organizations.

Managing in a Downturn :Mistakes CEOs make - Headcount Part 2

There's one more point which I forgot to mention in my earlier post regarding cost cutting through headcount reduction.

And that is, quite simply, that a downturn is actually a good time to hire. While I have earlier discussed the rationale for careful, calculated headcount reduction based on skills and performance, there is also a very strong case for careful, calculated hiring based on long term needs, skill gaps within the organisation and growth strategy.

Let's not forget that most companies recklessly cut headcount without the kind of skill/talent based analysis I've advocated earlier. This results in a sudden availability of talent, which may help resolve two problems of talent acquisition in the good times:

a) the sheer unavailability of suitable and good talent due to competition between employers for the best and the brightest

b) even if suitable talent is available, it may be costly; the dynamics of supply and demand in a growth situation leads to salary increases which may not be affordable in the short or long term

However, in a downturn, good talent is suddenly affordable, especially if the recruitment is carefully tailored to strategy. This kind of hiring is also good because it shows a new hire a solid growth path within the organisation, which can lead to high retention levels if the organisation is careful. More on that later.

Therefore, it is imperative that cost reduction is done carefully; you dont want your best talent working for your competition simply because they've been more careful than you about how to reduce headcount!

Managing in a downturn: Mistakes CEOs make- Headcount

Lets start with one of the most common actions taken by CEOs when faced with a downturn or with unfavourable market conditions or with a need to simply cut costs: slashing headcount.

It is probably one of the easiest measures to take, with a considerable impact on the bottomline (apart from slashing marketing budgets, which I will dwell on shortly). Alas, it is also a step that can have far reaching consequences, if not managed properly.

Let me explain what I mean. There are two methodologies that can be used to reduce headcount. The first is by examining processes and functions to determine which ones have excess headcount, thereby identifying redundancies which can be eliminated. So far, so good.

The danger arises when the decision to eliminate jobs is taken on the basis of numbers rather than talent or skills. If a certain function is determined to be redundant, the easy decision is to remove that function or a position/s within the function, thereby eliminating one or several jobs. The impact on the bottomline is immediate, significant and measurable.

But the gain may be short term. What if some of the best and brightest talent of the the organisation is lost in this process? Diehard supporters of this method of headcount reduction will argue that if the function is not required, neither is the talent.

Quite true. But that is true only in the short term. The mid term and long term are more difficult to predict both, from a business environment as well as from a resource requirement point of view. By getting rid of talent in the short term, is it not possible that the organisation ends up compromising its opportunities in the long term, when that talent may actually help in boosting the bottomline?

This kind of short term thinking with a disregard for consequences that are seen to have a minimal probability of occurring is one of the key reasons for the financial crisis that has dragged down global economic growth over the last few months. And it is this thinking that can put brakes on an organisation's growth as well.

Let's not forget; "talent" is an anagram of "latent". Not all talent shines all the time. Talent and skills are need and opportunity based. They need to be employed when the time is right for best results.

So, what is the option?

The second method of reducing headcount. Not by numbers, but by talent management and assessment. It is relatively easy, given the tools available to HR managers today, to identify talent that needs to be retained, as well as tag employees whose contribution to the organisation is either sub optimal or minimal. Organisations need to have in place processes that continually identify, tabulate and rank employees on the basis of their positive contributions. If this process is followed meticulously and consistently, then, when the organisation needs to reduce headcount, it has a ready reckoner which enables it to quickly identify employees at the bottom of the barrel. By making these employees redundant, it is obvious that the performance of the organisation will not be affected either way; however, their elimination will have a significant impact on the bottomline.

And, it will ensure that the right talent is retained for the long term, to exploit the relevant opportunities for growth, as and when they arise. More on talent management and retention in a later blog.