Down Time: What are the main challenges of managing staff in a downturn?

By Matt Buttell, Deputy Editor

What are the main challenges of managing staff in a downturn? Are layoffs inevitable? What about recruitment? Is a downturn actually a great time to hire proven-results players from an expanded pool of jobseekers?

Training, development and learning are becoming crucial

“You’re making these changes now so that you’re stronger in three or four years. If you don’t make them now, you simply won’t be left standing when there’s havoc in your industry.”
-Moncef Slaoui, Chairman of R&D at GlaxoSmithKline (GSK)

Recession, economic slowdown, inflation, credit crunch, market uncertainty. These are all words we have become accustomed to hearing on a daily basis, and fear surrounding the global economy is growing ever more potent. Over the last 12 months, some of the most seemingly untouchable and prolific players on Wall Street have witnessed a complete meltdown. While the US government is stepping in with a $700 million program to bail out the banks, it’s no longer just the financial sector that is being affected. The crunch has permeated outside the boundaries of Wall Street, and Washington faces a long battle if it is ever to successfully re-imagine the American Dream.

Indeed, the collapse of such blue chip giants as Bear Stearns and Lehman Brothers and the public castigation of those firms’ CEOs was a blunt reminder to organizations and C-suites across the economy about their people management responsibilities – it doesn’t matter what the economy is doing, as a senior executive you are still responsible for creating growth and managing your staff. In other words, regardless of the market conditions, companies still need to hire, still need to manage their talent and still need to fill positions.

A tough economy is certainly no excuse for a lack of performance, but during these tumultuous times, concentrating on innovation, change and growth is surely easier said than done. Otherwise, wouldn’t all companies be doing this already, instead of downsizing and making cutbacks? “It is very challenging to tell people they’re going to lose their jobs because we can’t continue to do the things the way we used to and are having to redesign our organization,” says Moncef Slaoui, Chairman of R&D at GlaxoSmithKline (GSK), who recently announced a number of job cuts, particularly within the R&D area. “It’s a very difficult message. It’s one that definitely impacts the morale of the organization and the motivation of both those employees that are losing their jobs and those that are staying and watching the process unfold. It’s one of the greatest challenges of changing an organization.”

The challenge really lies in the sad fact that, for many people, losing their role during a tough economy isn’t necessarily because they have failed individually. As Sloaui points out, it is because there is a enterprise-wide element of failure (or at least limited success), that drives companies to make these changes. As any CEO will know, tough decisions like cutbacks happen because leadership needs to focus on long-term success: “You’re making these changes now so that you’re stronger in three or four years,” says Sloaui, adding: “If you don’t make them now, you simply won’t be left standing when there’s havoc in your industry.”

There is certainly no easy answer, and to face employees knowing you have to let them go must be difficult for even the most hardened executive. An anonymous source at hereisthecity.com wrote: “I wanted them to retain some dignity, especially as they would all be told to leave the building after being advised that they were being let go,” before concluding: “It was only after the deed was done that I went to the ladies room to compose myself. I locked myself in a cubicle and silently cried. I felt terrible for what I had done – even though it was my job. All in all, I'd had better days.” And, as Sloaui points out: “It’s hard to relate it to an individual who may be losing his or her job today, but it’s something that, after deep reflection, we just have to do.”

With these issues now affecting companies across all sectors, the danger is that organizations could be getting things very wrong when it comes to tackling redundancies and redeployment. John Bateson, Chief Executive of global talent assessment firm SHL Group, says that companies who have become well versed at using assessment tools and techniques for recruitment need to apply the same rigor when looking at these issues. “Too often it is easy to look to historic data about an individual’s performance, or even adopt the highly inappropriate ‘last in, first out’ approach,” he says. “The first option is not based on future potential and could mean that the company fails to have the right people in the right roles for future growth; the latter could easily land a company in court as they risk flouting equality laws.”

He raises several important issues that many executives across the economy are facing. For example, Edith Cooper, Global Head of Human Capital Management (HCM) at Goldman Sachs, says: “There are always challenges that present themselves, regardless of the market circumstances. Our job in HR has to be to make sure we have the right people in the right seats, and that’s particularly true during challenging times.”

In terms of laying people off and redeploying employees throughout an organization, Bateson agrees with Cooper. “It is an extremely unsettling time for staff when their company faces downsizing, so to be able to demonstrate objective reasons for letting some people go and redeploying others is vital,” he explains. “It’s not just a matter of ticking the legal boxes, it’s about being a responsible employer and ensuring that staff who exit the company go with dignity, a clear understanding of why they do not suit the new structure and the knowledge of where their strengths lie – which will be invaluable when meeting with potential future employers.”

Concentrating on the deluge of job losses and the economic crisis certainly paints a drab picture of the market, and John Challenger, CEO of outplacement consulting firm Challenger, Gray & Christmas, agrees: “Without doubt, it is a bleak time in the job market. Unemployment is growing and there are 2.2 million more people unemployed in the US today than there were a year ago,” he says. Having said that, Challenger is also keen to point out that there is potential to put a positive spin on this growing labor pool. “Companies have their pick of whom they want to a much greater degree than they did during the expansion period,” he notes. He goes on to say that in many places, where a lot of people are flooding into the market at the same time, from the same industry, companies can try to select the best and the brightest.

While Challenger’s outlook may be one-sided – jobseekers who enter the labour pool at the same time from the same industry don’t always see these benefits, as there are fewer jobs and more candidates – it does make sense. “That’s what happens in an economy, isn’t it?” he says. “As it shifts, different sectors hold sway.” Think back to either the automotive industry in the 1960s and 1970s, or housing in the 1990s, or technology and banking in this last decade and it’s a paradigm of Challenger’s point. “The economy shifts, and talent flows where it’s most in demand,” he adds. “The top talent always flows to where the most successful companies are that can pay the top dollar.”

Perhaps then, the answer to our economies latest conundrum is ‘re-skilling’. It’s certainly not just a simple case of all these financial services executives, for example, being snapped up by other financial services companies. There could be a greater degree of fluidity between industries with transferable skills, and a focus on re-skilling for those with more specialized abilities. “There are certain skills that are less portable or transferable to other industries than those in the technology, sales, relationship management, HR and marketing areas,” says Challenger. “There are certain types of skill sets that are very transferable and can move from industry to industry, and there’s certain ones where you get very specialized in an industry, and to move may require more re-skilling.”

Because of this, training, development and learning are likely to become crucial as companies bring in new people, especially those who come from different work cultures or different industries. “It’s about creating an inviting place to work,” concludes Challenger. “For some people, that means challenging work, new assignments, meaningful jobs, strong work cultures, organizations of people that trust each other; some people look for great bosses and gurus to go to work for, people that they can learn from and grow underneath; others look for good work/life balance and companies that recognize the issues people have in managing their lives; other people want education, learning, and access to tuition reimbursement programs.” The list is extensive, but it is fair to say, all are issues familiar to those working within the HR space.

It has been bandied about the industry that human resources needs to step up and play more of an operational role within its organization for some time; it now seems this downturn in the economy could be the window of opportunity that allows HR professionals to do just this. Goldman Sachs, for example, one of Wall Street’s lesser casualties of the crunch, is truly driven by its people. As Cooper says: “We are who we are because of the people that we have here and the culture that those people support. Our culture is one of working and prioritizing our clients’ interests, making sure that we have a great pipeline of talent coming up and reflecting the diversity of the businesses and the markets and the cultures that we work in.” She adds: “There’s a lot of excitement around human capital management here, and as we continue to focus on it, we will be able to support the firm’s effort for continuing growth around the world.”

No one can predict for how long Cooper’s word, for example, will hold true. After all, recession, economic slowdown, inflation, credit crunch and market uncertainty are all words that we will continue to hear day-to-day for the foreseeable future; but the time has come for executives to realize that while there are all sorts of ways they can make themselves attractive to new applicants, it is time to recognize the true value in our people. One thing is certain: human resources and human capital management are going to be huge for companies, not just the in financial services, but across the economy.

Extra info…

Tough love
Times are tough. And when times are tough, it’s time for HR to get going. Here are six things HR needs to do in this economic downturn.

1. Talk to the people running operations. That’s where the money is.
2. Take a deep look at your performance management system. Are you getting the real behaviours that you want, or is it a matter of who goes to the most meetings wins?
3. Ask not what your company can do for HR, but what HR can do for your company. How can HR contribute to the bottom line?
4. Fell the deadwood. If you have people in your organization who needed to go when times were good, that goes double now.
5. Let employees know what you know. People need reassurances when they’re appropriate, but they also need the truth.
6. Pay lots of attention to your top talent. Not every company is in a downturn, and top talent wants to be with winners. Pay attention to them now or else start preparing their departure packets.