Recession Proof Your Business - Win Their Hearts And Minds

To recession proof your business, win the hearts and minds of your "most valuable asset". It always was, but is now patently obvious. The reward? Sustainable, perhaps transformational, business improvements that will recession proof your business. Now is the time to 'lead' your business out of danger.

Clearly, tougher economic times are bearing down on businesses globally. Historically, a popular solution to surviving a downturn has been to ‘downsize' - the practice of retrenching employees. And some businesses are following this path, with news reports the world over announcing the retrenchment of many thousands of workers.

But is this really the best solution for business today? I have evidence that this is a "fool's economy".

When overseeing 5,000 retrenchments in the 1990's, I not only saw havoc wrecked in many people's lives, but the actions didn't produce the financial outcomes desired by Boards. My first-hand view is now well supported by empirical research. Lower expense ratios, higher profits, increased return-on-investment, boosted share prices, and lower overheads do not materialise; and, in some cases, costs actually increase. One study of over 1,000 businesses that downsized during the 1990s, found more than half did not cut expenses, two-thirds did not increase profit, and more than three-quarters did not increase productivity.

Ongoing businesses that shed staff fare worse than those which do not. The reason is due not only to the direct financial costs of downsizing, but also to the damage staff cuts have on workforce productivity and business reputation - damage often underestimated.

Work is clearly a very important part of a person's life. There is considerable trauma associated with losing your job, often lowering confidence and self-esteem, sometimes leading to depressive illness, and occasionally to suicide. The costs to families and our community of this form of rejection is obvious. What is less obvious is the effect this has on the morale of those who do not lose their job.

The toll on survivors is so horrendous it now has its own clinical nomenclature - "Survivor syndrome" - with symptoms including increased fear, reduced trust, increased stress, lower commitment, increased absenteeism and turnover, decreased loyalty, reduced expectations regarding future prospects, and lower morale. Symptoms, which together, shatter the ‘spirit' of a workforce, and with it, the productivity potential of the business. Exactly the opposite of what is needed by business to ride through tougher times.

Two fundamental changes have occurred that business leaders should be extra mindful of today before deciding to cut staff:

Australia's natural demographic trend is causing a labour supply gap. Staff shortages are increasing, with some employers launching special efforts to attract more candidates including aiming to build a reputation as the "employer of choice" in their industry.

Key point: Staff cuts erode employer reputation, which make it harder to attract and retain labour.
There has been a momentous shift in Australian Industry to a services dominated labour market. But beware. High productivity in service jobs relies on employee "willingness" to do more than just the basics. Service workers choose how hard they work, with some research showing employees can operate at 30% of effort without getting fired.

Commitment is what motivates extra effort. The Corporate Leadership Council notes that moving employees from ‘strong non-commitment' to ‘strong commitment' can result in a 57% increase in effort.

Key point: Staff cuts erode employee willingness, commitment and effort, which wreaks instant damage to business productivity.

Why are some of today's executives adopting an archaic strategy in the face of this evidence?

The response of leaders to a business downturn can reveal much about their leadership capability. Do these leaders view staff as their first line of business defence, a cost to be unremorsefully cut when times get a bit tough; or do they genuinely view employees as their "most valuable asset"? Economic downturns make more visible leadership's true colours and capabilities.

So, is there an alternative? Absolutely! There are many positive strategies business leaders can take to recession-proof their business. But, it takes positive leadership, courage and a different attitude towards employees:

Staff cuts will not fix faulty strategy. The first line of attack when facing a downturn is to stimulate growth - to inspire new business generating ideas to emerge. This is leading with vision. Create a new positive growth vision for the business.
Engage with your employees like you've never done before. Seek their ideas on how to grow the business and how to implement that vision. Get them positively focused on creating a new future. Create an environment in which their creativity can flourish.
Review your management practices. Research shows that introducing high performance management practices will deliver substantial productivity benefits - in the order of up to 40% improvement.
Seed positive employee attitudes, such as optimism, confidence, happiness, and hope, which are known to grow high performance levels. The leadership attitude needed here is very different. It's positive, it's inspiring, it's encouraging. Encourage high performance, rather than whipping poor performance.

So, think carefully before choosing to cut staff. The impacts are often devastating to individuals, and do not provide the commercial benefits expected. There are positive alternatives.

Tony Vickers-Willis, MAPS, VW Corp. Tony is an MBA qualified organisational psychologist who provides advice to business leaders on how to unlock productivity through positive business transformations. Tony has substantial experience in advising executives on driving organisational improvement, in both large multinational private sector corporations and also in the public sector, in Australia, New Zealand and the UK. For further information please Email: tony@vwcorp.com.au or visit the Web site: www.vwcorp.com.au
First published: 5 February 2009.
Last updated: 5 February 2009.