Executive Interviews, Elaine Eisenman on Managing Downturn without Downsizing

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Executive Interviews: Interview with Elaine Eisenman on Managing Downturn without Downsizing
June 2009 - By Dr. Nagendra V Chowdary

Elaine Eisenman
Dr Elaine Eisenman is Dean at Babson Executive Education.

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  • Two countries stand out as having the most developed and systematic approach: Japan and Germany, which both provide government subsidies to companies who keep on workers even though there’s little or no work for them to do. Both have recently extended their schemes.What is your assessment of such a tacit support from government? Do you see merit in this approach or do you think this would end up doing more damage (in the long term) than the short-term good?
    This approach is highly problematic for several reasons. First, when workers know that they have jobs regardless of whether they have useful work or any level of expected contribution they frequently “retire in place.” They begin to believe that they are entitled to salary and benefits merely for showing up, rather than for anything more. Very quickly all motivation dries up, and there can be little hope of recovery from the fact that there is continuing compensation for lack of drive and motivation to contribute. Then, when things change, and work is required, there will be anger and resistance that they must actually do something to be paid the same pay as they were paid for doing nothing. This is a very slippery slope and one that, once begun, is difficult to get away from. A second critical failing in this reasoning is the impact on innovation as a basis for climbing out of the turbulence. Germany and Japan, in particular, have far less entrepreneurial activity than other developed economies. This lack is reflective of highly restrictive laws and cultures that essentially punish risk-taking. For companies to become innovative and grow during downturns they must have the ability to be nimble and flexible in response to rapidly changing market conditions. Additionally, companies need to be able to create new ways of addressing both new and latent opportunities. Being forced to keep an underperforming and bloated workforce prevents the company from moving quickly to address the needs of new markets. In contrast to this approach, Schmidt-Hebbel, to be discussed in the next question, offers a far better strategy for recovery.

  • OECD’s chief economist, Klaus Schmidt-Hebbel argues forcefully that governments should do more to retrain workers and overhaul their labor-market policies to ensure that once recovery comes, new jobs are created in sufficient numbers to swiftly bring the jobless rate back down again. Should governments adopt job-preservation-schemes or should they concentrate more on jobcreation- schemes? On the private industry side, this challenge translates into the fact that the most short-term thinking is to cancel training and recruitment of good quality people externally. Should companies stop hiring fresh talent? Should they stop imparting the crucial skills required for their employees to become quality employees?
    This market downturn is different than any that we have experienced in our work lives. As a result, it is clear that the nature and focus of business will be fundamentally different than it was before. This coming reality was evident even before the markets crashed as businesses struggled to manage global teams that no longer worked from central locations during consistent time zones. That change, coupled with the growth of outsourcing and the introduction of the millennial generation into the workplace have required a considerable rethinking about how companies are led and grown. Under those conditions alone, it would not be possible to simply create static job preservation schemes in which employees are taught to simply think and behave the same way they did in the past. To be static in highly dynamic environments is a sure road to failure.

    When one overlays the impact of the market crash on this scenario, it becomes self-evident that the companies who are able to thrive and prosper in the future are those whose invested in developing their work forces to learn how to lead change; how to manage and exploit uncertainty as a basis for innovation; how to become entrepreneurial in thought and action so they can create opportunities rather than merely find opportunities; how to manage across global matrices; and how to perform the new skill requirements – in short all the new ways of thinking and acting that are essential for success when the downturn ends. As we have seen in the growth of our business at Babson Executive Education, there is a very high return on the investment of educating people to think and behave differently than they have done before. In our classes we work with participants to look at the growth opportunities in their company based on a clear assessment of competitors that may not yet exist. We teach executives how to proactively find opportunities that will enable their companies to grow and compete in new markets. They return to their companies well-versed in looking for growth as a basis for future success. Contrast this workforce with a workforce that has simply been allowed to continue doingwhatever it has done before without any investment in its growth and ability to think about the world differently. Once the downturn ends, this workforce will be unable to adapt and adjust to the new requirements of competition and performance. The company will still be locked into old frameworks for success that will not apply to a changed and more competitive environment, and by allowing this to occur, these companies are insuring their own failure and ultimate demise.

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