DEATH BY A THOUSAND CUTS

Businesses are facing the most challenging times ever. Some believe that there are green shoots but others are not so sure. Some will not survive in the short-term others will go on to fail after this recession ends, remarkably having survived in tough times. Mark Egan, Non-executive Chairman of SureSkills and Principal at XL Management, reflects the issues and plots a chart for those keen to position themselves for the inevitable upturn pointing out that survival may not be enough.
Survive, Survive, Survive!
In the first half of last year1, the Hay Group of business consultants predicted the severe level and scale of turmoil to be exacted on UK businesses. In hindsight Irish CEOs could only have wished we would get off so lightly now. Few of us expected the cataclysmic set of events that followed here in Ireland.
Instinctively we as business managers have looked for ways to reduce costs and importantly improve productivity. Most of us have been successful in doing this, save for the Government derived cost increases, this has resulted in:
· a decrease in marketing spend and a suspension of training and development budgets
· a reduced headcount – the more experienced/expensive employees ‘let go’
· the remaining employees working harder and smarter, foregoing pay rises in the short term to remain in employment
The name of the game is to ‘survive the recession’; however, as many companies have found to their cost in previous recessions, the opposite is often the case with companies managing through a downturn, only to find themselves unable to take advantage of the up-turn when it comes – as it will. The two main causes of this are:
· a ‘talent crunch’
· the ‘survivor syndrome’
The Talent Crunch
A survey of nearly 5,000 managers and executives by the U.S-based Boston Consulting Group2 and the World Federation of Personnel Management Associations is in the US has identified managing and retaining talent as the critical challenge uniting HR professionals and managers around the world. Having to let senior experienced workers ‘go’ sends their experience, skills and market knowledge to work for competitors, severely jeopardising our ability to remain competitive through ‘corporate amnesia’ - a failure to capture the tacit knowledge of their former employees.
As a result, when the economy starts to recover companies that have jettisoned talent and experience in order to make a spreadsheet work will not be positioned to take full advantage of market opportunities, or to fully meet customer’s expectations of products and services. In addition, the competitive threat we will be faced with in the upturn will be stronger as many of our former employees will now worked for other companies (some now self employed).
Survivor Syndrome
The still-employed, who by all rights should be grateful for having jobs, end up losing their identification with, and even resenting, their bosses. A big reason: Fewer hands on deck means more work for those still around, which can lead to stress, anger and betrayal, especially if the survivors don't feel the company is committed to their future – the ‘survivor syndrome’3. As a result of which:
· morale falls, and with it productivity and overall performance – one of the key objectives of the down-sizing
· loyalty is compromised – when the up-turn comes, many of the survivors will look to jump ship and seek employment elsewhere
So we as employers are left with a situation where we have met our objectives in relation to costs, but we are also reducing their own capacity to ‘survive in the long term’.
Out of necessity, we are already addressing the ‘credit crunch’ – this will enable us to survive in the short term. For the longer term, we need to deal with the ‘talent crunch’ (to ensure product/service quality and customers relationships), and the ‘survivor syndrome’ (to ensure continuity and growth of operations).
Investment in training has some of the answers
Yes this means spending money – but it is investment in human capital which will have the following outcomes:
· Training increases the skills base of the organisation – addressing the talent crunch
o performance and productivity improve, not just in the immediate term but also into the future
o reduces dependency on out-sourcing and develops opportunities for diversification
o increases creativity, retains corporate intellectual property
o offers a competitive edge
o increases sales and customer satisfaction
· Training motivates – overcoming survivor syndrome
o employees feel they are valued and their efforts are recognised when companies invest in them
o employees are more likely to embrace change, providing a more flexible/competitive workforce
o retention rates improve/churn decreases
The aim of the training is to increase the revenue generating capacity of the organisation. In the medium term, training can be cost neutral. Companies can take advantage of the ‘down time’ provided by slower trading conditions to look at their skills base, identify training needs and support employees through their development. Government incentives are still in place and for example Skillnets are still operating in a number of categories.
In real terms, sponsoring an employee on a training course may cost only a fraction of a pay rise in more buoyant times, but have considerably higher intrinsic value to the individual. The CIPD Journal put it very clearly recently; ‘employers should hold their nerve and focus on retaining talent and investing in the skills of their people. It is these people, with their commitment, productivity and ability to add value, who will ultimately keep individual businesses … competitive, and put us all in a strong position to recover from the downturn quickly’4.
For my part, I’ve worked with over thirty companies this year alone reducing non-revenue generating activity, increasing sales and marketing activities, down-sizing and changing redundant working practises. What I don’t want is to see these companies survive the worst recession we have ever known, only to go bust in the recovery. What I refer to as ‘death by a thousand cuts’ which was previously a form of torture and execution common in Imperial China, now a very popular and dangerous business game.
1 Hay Group – London, 22nd June 2008
2Boston Consulting Group – Boston, June 2009
3 Journal of Managerial Psychology, Surviving redundancy: the perceptions of UK managers - Les Worrall, Fiona Campbell, Cary Cooper January 2000.
4 John Philpott – CIPD – 2nd January 2009