This morning I was having a coffee accompanied by an interesting discussion with a good friend. Christos is the General Manager of a very well established company that offers business to business products and services.
My friend was telling me that likewise many sectors of the economy, in his domain things are not going that well and that he is now obliged to make some very important decisions.
“May and June were the first months that we recorded losses since the day we started our operations”, he said. We do not foresee any changes for the near future, so we need to do something to get prepared for an even more difficult period.
Will you downsize? Are you going to let people go I asked while looking directly in his eyes to grasp any change in his mood.
There has been a long debate in the executive suite for this. The rest of the executive team believes that the first thing to do is to minimize payroll and personnel expenses and cut anything related to training, development, reward etc. I am wondering if this is the right thing to do, he said.
Why wondering? What makes you feel uncertain? Isn’t it obvious, I said playing the devils advocate.
Yiannis, we are in the services industry and we are doing business with other companies. I have been spending so much time, effort and money to train the people and create the appropriate culture. Among all people you know how difficult this is. I cant just let them go like that. These people possess our intellectual property. What is going to happen in the moral of the company if we start firing people? What am i going to do when the economy rebounds? Hire and train from scratch? How long will this take me? What about my competitors? If they invest to maintain there competitiveness by keeping their good people today, they will be far ahead in the future. The moment that I will be focusing rebuilding the system and reach the appropriate operational level again, they will just harvest the market by signing contracts and develop further. I am sure many of those contracts will be with my customers.
Yes, but on the other hand you need to do something today to make sure that the company will exist tomorrow, don’t you, I pushed further.
This is true. What would you do? He asked
That was the prefect pass for me to start 
During an economical crisis, all the attention that the HR function had gained over the last few years seems to vanish. Especially in markets that were rapidly developing, companies seem to move from one extreme (just hire the first person that seem to be ok) to the other (cutting down any budget related to HR). Of course this creates confusion and uncertainty.
Concepts like “motivation”, or “personnel development” are demonized while financial terms like “lean processes”, “cost cuttings”, etc arise.
Leaders or simple employees, we all have the tendency of freezing all our projects until things settle down. If a general stand-by state can be considered somehow normal for a period like that, we cannot help noticing around us overreactions not to say, extreme measures. Layoffs, cutting costs to the point of transforming the color printing into a luxury, counting each minute of delay seem to come first now, ahead the focus on people and the work environment that all companies leaders stood up for so far.
With all this turmoil, the question, and i assume this is what you also ask here, is if it still worth for companies to remain people oriented or the focus should move on other assets. Which is the appropriate attitude and conduct to successfully go over the economic downturn?
According to a survey recently conducted by Watson Wyatt on 248 US-based companies, 86% of them expect to see their HR programs affected by the crisis in the financial market, in the next 12 months. The survey shows that 26% of the companies expect layoffs or personnel downsizing, 25% expect hiring freezes and other 28% are revisiting merit increases budgets in 2009 and decreasing it by an average of 32%.
The point here is that whether we like it or not, economical downturns are a part of the business cycle and, as any crisis, if it is managed correctly, can turn things around in one’s favor. A Rolls Royce leader in the 60s said that “if you can keep your head, when everybody around you lose theirs, then you will be about 9 inches taller than them… and that means you can spot opportunity sooner than they can”.
There were not rare the cases when in times of economic recession for the entire world some businesses reached a point of disruptive innovation and recorded a boom. Think about Henry Luce and his Fortune Magazine launched in February 1930, four month after the Crash in ‘29. At that time, anyone would have considered that launching a glossy outrageously expensive magazine (1 $ per issue) was pure insanity.
The success that the publication has today proves that it was a very inspired move. It also proves that when the business environment plunges into drowsiness, it could be an opportunity to look for breaches that will allow you to strengthen your position on the market. And, as this implies a collective effort, the teams’ cohesion and the support they offer to the business they work for are essential.
I hope i made a point here my friend. Let’s talk about it further soon.
