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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  • At the beginning of this century, everywhere there was talk of talent management prophesying time and again that people are the key assets. And everyone complained of talent crunch. Now that there is cash crunch, in the name of either managing a downturn or restructuring, every company resorts to sacking the employees mercilessly. In fact, some CEOs advocate their divisional heads not to be emotional and sentimental and take a knife and chop off. Why this U-turn?
    There is not a simple answer to this phenomenon. I do not believe that it is a U-turn in thinking about talent; I believe that it is a knee-jerk reaction to feeling out of control of the environment and using a classic means for regaining control – layoffs – since salaries and benefits are typically the source of greatest cost within a company. It is, however, important here to distinguish between companies that are slashing because they have so little resources remaining that the wholesale firing represents a last- ditch effort to ward off bankruptcy, and those companies that are being far more judicious and strategic in their restructuring attempts. I will focus on strategic cutting where there are alternatives. Companies that have the cash resources and necessary lines of credit and customer bases to be strategic and planful are stepping back and taking a tough look at all of their assets, employees included, in order to decide how best to survive during the downturn. Unfortunately, in good times, companies tend to over hire and are less worried about overstaffed divisions that, in truth, may not be strategically important to the company. When all is well, average performers, and even poor performers, may be tolerated far longer than should have been the case. Suddenly, a downturn enables executives to take the action that they were reluctant to do in the past. Inmy consulting, I see many situations that existed because the executives were too tolerant and were not forced to make survival decisions. Now they have no choice and housecleaning begins. This can also occur when a new executive is brought in and takes a tough look at what exists in order to better position the company to achieve new objectives. While this can be seen as ignoring the importance of talent management, it may be exactly the opposite. When viewed strategically, allowing poor talent to continue to hold jobs and block the progress of top talent may have been the bigger problem for the company.

    Smart companies who are truly poised to take advantage of this downturn will fully evaluate how well they were positioned for the future before the downturn, and use the answer to determine if the right talent is in place. After all, the right talent in the right place at the right time is the only competitive advantage that a company can have over its competitors. There is no other resource that cannot be matched or copied. Babson’s research on talent leadership demonstrates that the companies who are poised to win in the future are the ones who know this and understand that the talent question is part of a broader organizational readiness question that focuses on the integration of culture, strategy alignment, governance, processes, and technologies.

  • Even while giving the benefit of doubt to the companies pursuing lay off policies, what happens to the morale of all thosewho fortunately get managed to survive (because they happen to be the ‘best’ employees) and hold on to their existing jobs? Can companies expect best performance from their ‘best’ employees?What happens to all such companies resorting to massive layoffs as regards to image and longterm standing? Do you think people would excuse them for being treated as inanimate objects especially during such traumatic times?
    There is no one-size-fits-all answer to this question. At base, it is inexcusable to treat employees as inanimate objects, regardless of the work situation. In my experience, companies that care about their employees care about them in good times and bad. Rarely does a company suddenly change its philosophy of how employees are treated. More and more, company values are a critical selling point in attracting top talent, so image can determine future success. Employees will not commit to high performance in firms that do not treat them with dignity and respect. That said, much of the employee and future employee response to layoffs is a reflection of three factors: the communication by senior leadership about the reasons for the layoff as well as reassurance that there is a long-term goal for the company’s success; the way in which decisions are made as to who stays and who goes; and the way in which the layoff itself is handled.

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