We are clearly entering some form of economic slowdown. Our most recent index of talent management executives (January of 2008) showed some significant changes from May of 2007: 21% greater interest in cost-reduction, 18% lower focus on product introductions, and a significant increase in focus on building new leadership (18% increase). So let’s assume your business does see a downturn (and if you are in financial services or housing-related industries, this is already happening), what should you do?
First, a little history. I lived through severe downturns in several companies. I worked for IBM in the 1980s (1981-1992) and saw the company start to disintigrate as the computer business shifted from one of monolithic providers (IBM) to one of seperate product and software companies (Dell, Compaq, Microsoft, Cisco). The company had become far too complacent with its “deserved market share” and watched its businesses rapidly decline. For almost three years the company issued multiple early retirement programs, restructurings, sold off businesses, and lost many of its best and brightest. Luckily Lou Gerstner arrived in time to remind IBM that the company had strong core values in its customer service, innovation, and employee focus. In the subsequent years the company shed its money-losing technology businesses and emerged stronger.
I also worked for Sybase, one of the fastest growing companies in Silicon Valley. Sybase rocketed to almost $700M in revenues during my tenure, and became a magnet for many of the smartest, brightest minds in technology. One day Sybase woke up and realized that Microsoft and Oracle had “figured out” client/server computing (Microsoft had the benefit of actually licensing Sybase technology), and in a few quarters this fast-growing company ground to a halt. Sybase had beem through a torrid pace of acquisitions (one company a quarter for almost four years) and had done little to build the talent culture it needed to weather the downturn. When the tornado hit, there were tremendous layoffs (several waves of them), and the company whittled itself down to a core – losing many of the innovators who built the company. As the new management team entered they focused on one thing: making a profit. To do this the new Sybase leadership team continued to cut products, reduce sales commissions, and lose people. Eventually the company did become profitable, and only then could they start to implement a growth strategy to re-emerge.
A third company I lived through was DigitalThink. This company was also a high-flyer. When I entered the company it was a 300 person fast-growing developer of e-learning solutions. It felt like Sybase and IBM in the early days: the best and brightest were all there. The leadership team had big goals and the company was run like a huge rugby team: everyone took to the field, banged into each other, and marched down the field. Many of us had conflicting opinions about what strategy to pursue, but we had a big market ahead of us so we all focused on the areas we felt were most important. But the company had little or no real talent management program. When DigitalThink hit the wall, the company woke up one day and found itself in shock. Again, layoffs occurred, and again in painful stages. And the strategy which seemed so brilliant only a few months ago was in question. Today DigitalThink is gone, having been acquired by Convergys.
As I have studied many companies and talent management strategies over the years, I have learned many lessons. As we enter a rough spot in the economy, let me try to share a few of them here.
1. Downturns should be expected, so plan for them. Do not be surprised or panic.
The first lesson is simple: prepare now for a downturn. What would you do if you lost 20% of your revenue next quarter? What programs, organizations, and people would you cut? What program would you maintain? Would it challenge your business strategy? Or would you see it as an inevitable cycle? Where would you cut and where would you invest? Think about this now.
Every business and every market is dynamic. You must constantly expect challenges: new competitors, product cycles, buyer changes, and economic downturns. Plan now. And when the downturn occurs, pull out the plan and implement it.
One of the funniest quotes I ever read was this: “Only when the tide goes out do you know who has been swimming without a bathing suit.” (Warren Buffet I believe.) Dont swim naked. You should constantly investigate the weaknesses in your business and find the areas of long-term strength. Invest in them during good times and bad (Merck invested heavily in R&D during its recent downturn, HP invested heavily in its imaging technology during its hard times, and IBM never stopped its R&D labs throughout its tough times) — these are your “bathing suit” - you’ll need them when the waters thin.
When a down turn occurs, rather than cutting across the board, focus on building your strengths and cutting your weak areas. Invest in your strengths during a downturn, and cut the areas which were already weak, failing, or were perhaps propped up by the “good times.”
2. Maintain and invest in your talent programs. A downturn will remind you that “talent is all you have.”
We have studied hundreds of companies and constantly look at the maturity of their talent management strategies. Again and again I comment to people that the most well-developed talent management strategies happen to reside in companies that endured terrible economic or business cycles. These organizations have been forced to search their souls, and what they found (if they survived), was that “talent is all we have.”
Consider the rapid product cycles in almost every industry. Your organization’s success is totally dependent on your workforce’s ability to innovate, reinvent itself, provide excellent customer service, and remain loyal and dedicated when tough times come. You cannot build this culture during a crisis. You must build it before the crisis, and use it to weather the storm. IBM had an enduring culture far before its downturn hit. Sybase and DigitalThink did not.
This means several things: do not sacrifice your values, principles, and people. If you do need to lay people off, do it surgically - focusing on the people, projects, and organizations which most need change. Across-the-board layoffs will dramatically impact your employee loyalty and engagement. And the process of downsizing can be humane. I’ve lived through two unhumane examples and one humane example. When and if layoffs do occur, you do not want the “survivors” to worry. It must be done in a positive way.
And do not forget to reward your high performers. Even during a downturn you will find many people performing a high levels of performance. In fact you are likely to find that many people “rise to the occasion” and perform at greater levels during stress. Operations managers cut costs and improve productivity. Sales teams find new approaches to solving customer problems. Internal personnel find waste and manage internal projects aggressively. You should recognize and reward these people. Give bonuses and rewards. Recognize tremendous achievement. Such an approach will build an enduring culture, one which will help you survive a downturn and grow when the good times come back.
3. Continue to search for great talent. Consider this an opportunity.
If we do have a real broad downturn, the job market will soften. This means that many of the best engineers, sales people, marketing people, managers, and executives will be looking around. Rather than “freezing all hiring,” you should use this as an opportunity to upgrade your own organization. During the last economic downturn in my career (2000-2001), many of my most talented friends were looking for work. These were people who were “proven winners.” Keep looking for these people and hire them wherever you can. Consider it an opportunity to “upgrade” your workforce.
4. Communicate honestly and clearly.
One of the most powerful things that happens during a crisis is that people pull together. They talk to each other a lot. They look for leadership. They want to know what is happening. And if you are not communicating clearly and realistically, they will worry. This is your organization to clearly explain your “rainy day plan” - where you are going to invest - and how you plan to bring the company out of the problems it is in.
I have found that people are actually very loyal to their organization. If you clearly state the truth, and provide a clear, well-developed plan for survival and growth, most people will get on board. If people have been well managed in the past, they will rally to the cause.
This is when leadership is tested. Can you leaders clearly communicate a plan? Can they convince people to come together in the interest of the organization? Do they really understand what and where to cut, and where to invest? This is when your leadership development programs, culture, and core principles will really be important.
When IBM went through its dark days, I do remember that the company continued to invest in its people. Even though the company lost money, it did not eliminate its employee development programs or its R&D labs. The company’s strong culture of customer service remained. It took a new strategy to turn the company around, but once this strategy was clear, Lou Gerstner communicated it vigorously and clearly.
5. Turn outward, not inward.
Avoid spending time standing around the water cooler. When a downturn occurs there is a natural tendency to spend a lot of time and energy on internal efficiencies. While this must be done, you should make sure you spend even more time focusing on customers. Now is the time to remind youself what business you are in. What products and services are doing well? Which are not? How has the economy affected your customers? What are their new needs?
When we saw a downturn at DigitalThink, we rapidly shifted our product mix from “growth-enabling” solutions to “efficiency-producing” solutions. If you stay close to your customers they will tell you what to do.
In my personal experience this is often the hardest rule of all. When a company starts to lose money or market share there is an immediate reaction to “fix things.” While this must take place, it should also be an opportunity to “see new opportunities” and move into new markets. And if a broad economic downturn is affecting your customers, it is important to see this quickly, so you can adapt your business to go in different directions.
During the 1980s Intel, one of the most successful high technology companies in the world, went through a major upheaval. The company suffered major losses through its investments in the memory business and the delay of a major new product. It was a tough time, and several of my friends worked there. The company implemented what they called the “10% solution.” Every employee took a 10% pay cut and was asked to work 10% harder. The company buckled down and reinvested in its core. It spent even more time with customers. And it identified new strategies, eventually creating the Intel Pentium, one of the most successful products in the company’s history.
Five simple lessons:
Plan ahead. Don’t swim naked. Cut strategically.
Continue to invest in talent. Reward high perfomers. Keep the culture in tact.
Look for great hires. Dont freeze all headcount.
Communicate clearly and honestly.
Living through a business downturn is not always fun, but it can be a tremendous opportunity. Consider this an opportunity focus on your core, strengthen your talent programs, identify weaknesses, and reinvent your company. As HR or business leaders, you can use these proven approaches to help your organization thrive if times get tough.