Survival Training

Early last year when the economy and the stock markets were hunky-dory, training managers had a difficult time convincing executives to take time out for training activities. Line managers were reluctant to let employees attend training, lest they lost out on the frenzied revenue earning opportunities. Today the training manager faces a different obstacle; budget cuts.

In a manufacturing economy, we would intuitively keep lubricating and maintaining our plant and machinery; failing to do so would mean seizure of the resource that justifies our existence. Take that premise, place it within the context of the knowledge economy, and we have the clear analogy that failing to lubricate and develop the collective mind of the workforce risks the stagnation and decay of the very resource that will sustain an organisation through this slowdown as well as help it grow once we reach the inevitable stage of economic recovery. It is then counterintuitive for businesses to cut budgets for training when they have the manpower resources available for learning and development activities. There is also a significant body of work suggesting a strong relationship between training and business sustainability. “Businesses must resist the temptation to slash training to cut costs. Why? Because businesses that don’t invest in talent are two and a half times more likely to fail, whereas those that carry on training will recover more quickly,” says John Denham, Secretary of State for Innovation, Universities and Skills in the United Kingdom. The numbers come from a peer-reviewed report called ‘Training and Establishment Survival’. The key finding of the report was that the strong association between training and survival was found to be true across establishments in nearly all sectors, of all ages, sizes and types. The evidence does suggest that training is a key component of a great many business strategies for adaptation or survival in recessionary conditions, as well as for growth in better times. But it is only one component of the overall business strategy and cannot produce results in isolation, and therefore the strong case for aligning learning strategies with organisational strategy.

When the economy slows, corporations are forced to respond. Because cash flows take a nosedive, there is simply much less money to spend, and budget cuts are a fact of life that we must adapt to. This then is the time for the HR division to take a hard look at budget allocations across the spectrum of learning and development activities, cut down the frills, and focus on activities that are direct responses to the slowdown. We need to use learning and development strategically, and when I say strategy I mean it in the classical form of defining for ourselves a position that gives us a competitive advantage. While developing the strategy, it is also imperative that we look beyond the horizon of the recession and position ourselves for a robust and competitive economy. Organisations that are able to give their workforces the tools and skills to innovate and collaborate, by leveraging core competencies within key individuals and the organisation, are the ones that will prosper. Organisations that take the axe to training by making broad and sweeping budget cuts in learning and development may not survive to see the benefits of their cost cutting exercises.

Tomorrow Can Arrive Today

A Chief Executive’s job is dramatically complex. Background, experience, education, and talent may not prepare you for the all-encompassing, globally-pressured, quarterly-earnings-report work that comes with leadership at the top. In a world where most starry-eyed, young business graduates dream of becoming CEOs by 40, about 40% of CEOs fail within 18 months. Demands on leadership alongwith increased accountability of corporate boards have compelled many companies to place a premium on the way they plan for leadership change. A constant, collaborative process is crucial for a successful transition; and to counter the countless examples of failed successors, it must begin the first day a new CEO takes the helm. Unfortunately, many Boards allow CEO succession to be handled through an ad hoc, political process. This leaves the bigger question of what sort of long-term leadership the company truly needs unanswered.

Despite some notable examples of organisations that have succeeded in making smooth leadership transitions by investing in and nurturing internal bench strength, most boards do not take succession planning seriously as they can always fallback on external talent acquisition. A Booz Allen Hamilton study shows that home-grown CEOs deliver 1.9% more shareholder returns than externally appointed CEOs. In the face of such concrete evidence when boards decide to hire externally it sends a dangerous message to employees that they are seen as incompetent.

Promoting internally through a short list horse-race has its own pitfalls though. There is a real danger that once a candidate has risen to the top, companies can end up forfeiting talent that has been nurtured for leadership role to competitors. The ‘losers’, who no longer see a future at the company, decide to leave for greener pastures, often taking their key people and clients with them. To avoid these problems, companies that employ the horse-race succession approach successfully require ‘teamwork’ among the candidates during the trial period, testing for their ability to work collaboratively. Organisations need to find ways to recognise ‘losers’ after the transition by elevating them to senior Board-level positions.

The process of acquiring or promoting a leader must be at least as rigorous as that of acquiring a high-value asset or choosing a strategic partner. With both processes fraught with risks, whether a board considers internal or external candidates or both, the starting point should be a specification for a CEO who reflects the strategic vision of a company’s future, not its present. The specification should reflect the best characteristics of world-class leaders in the company’s business segment. This strategy requires consensus on the board about future growth and a vision of where the company should be in five years. And while we want the future CEO to embody the organisation’s future vision, the specification cannot overlook the unique history, culture, and present-day situation of the organisation. Leadership changes are not easy, nor are they stamped from a mould. A highly skilled or a highly successful leader in an organisation may end up being a complete failure in another.

In a world characterised by the scorching pace of change, the succession planning process cannot remain static and needs to be revisited ever so often by the Board to incorporate contextual change. Boards of Directors must embrace the fact that few things matter more to an organisation than having the right leaders in place today and in the wings for tomorrow - recognising that tomorrow can arrive today.

Time to Get Altruistic?

Over the last couple of years we have seen the notion of sustainable growth emerge from the woodworks of academia into the real and robust world of business. The sustainability game is changing from one of reluctant compliance to that of business gains in the green space.

The notion of triple bottom line (People-Planet-Profit) or 3BL has given a new perspective on what a carbon-constrained world might look like; not a negative cramping of human and business potential but the sort of paradigm shift offered by the digital revolution - only bigger. Evidence of this business potential is today visible all around. One estimate has China’s clean-tech market increasing to US$186 billion by next year and a massive US$555 billion by 2020. Japan is busy working on a solar-powered ship. The Netherlands is developing neighbourhoods based on cradle-to-cradle concepts. Cisco Systems is building a water system for the community in a developing country where it is expanding. Greenpeace is advising the Chinese national government. Dr. Nick Axford of CB Richard Ellis, who coauthored the CoRE 2010 research, refers to the acceptance of 3BL as “altruistic self-interest.” Companies as significant as AT&T, Dow Chemicals, Shell, and British Telecommunications, have used 3BL terminology in their press releases and annual reports.

Our expectations from workplaces are changing, and an increasing number of prospective employees pre-assess the social and environmental commitment of companies before choosing an employer. The pride shown by the winners of employee benchmarking initiatives (such as Fortune’s ‘Best Companies to Work For’) highlights the importance attached to workplace issues as a source of corporate reputation. While there is little evidence that people apply for jobs on the basis of CSR ranking, the quality of performance on benchmark issues, and the organisation’s contribution to the environment and society are important criteria for more and more employees.

Sustainability is not a window-dressing or peripheral programme that can be deferred or discarded in tough economic times. It is a vital and robust strategy for tough times. Over the short term, it offers quick, money-saving fixes with significant return on investment. Over the long term, it cuts costs and generates revenue, giving your company a competitive advantage over less sustainable rivals. Green buildings reduce energy costs by about 35%, water use by 30-50%, and waste costs by 50-90% when compared with conventional buildings. Sustainable facilities also help companies make money by improving productivity by 6-16%, according to several studies.

But - and it is a big ‘but’ - in today’s difficult economy, businesses must focus on embedding genuine sustainability in their corporate culture, not just in their press releases. No more self-congratulatory announcements about the branch manager who sometimes rides a bike to work to reduce the bank’s carbon footprint. Environmental issues are understood to be more serious today than they were during the first iteration of green marketing (think climate change), and consumers are shopping with a vengeance - and a conscience. The industry has been duly warned to adopt more responsible marketing courses or risk inviting regulation on dubious green marketing practices. Note the rise of grassroot bans on polluting products such as bottled water, supermarket shopping bags, and the like.

Is sustainable growth for real or are its benefits exaggerated? The mounting trends and results suggest it is not overkill. Profits must happen but not at the cost of people or the planet. The business case for 3BL is crystal clear; it simply is a better business model.

In Praise Of Productivity

Economists will tell you that the surefire solution for coming out from the slowdown and achieving economic nirvana is rapid growth in productivity. But then, we hear new voices saying that growth in productivity is a double-edged sword for an economy in turmoil, and more often than not leads to a surge in unemployment. Since advances in productivity will more than account for the expected 7 to 8 percent growth, India Inc., having shed about 1 million jobs in 2008, will now create 0.3 million jobs less in 2009.

Are we then caught in a vicious cycle of productivity growth that will continue to cause less job creation and hence prevent us from making a complete recovery? Is it because productivity and efficiency growth are not keywords that we associate with most of our PSUs that we find them to be stable in uncertain times? Surely not. We will argue that it is just the opposite. It is the unusually robust productivity gains that we have achieved (been forced to achieve, some would say) during the slowdown, that is laying the groundwork for the stronger demand that will justify next year’s new hirings. It is productivity growth that has helped support and shore up overall demand at a time when a long list of other factors unrelated to productivity have suppressed it.

Because of the elimination of the inventory excesses, the terror attacks on Mumbai and Delhi, the corporate scandals, and a hostile neighbour, overall demand rose at an annual rate of only 2.2 percent during the last two quarters. With productivity rising at twice that pace, it is clear that companies have been able to satisfy demand growth even while cutting payroll costs. However, we have started seeing better news lately, with Wipro and Infosys posting good results, and giving analysts some confidence about the fundamentals of the Indian economy. Satyam alone cannot undo the good work that the industry has done in recent years. As we keep the economy on its feet, we will see these drags either fading away or completely gone. Consequently, 2009 can be the year when the benefits of a faster pace of productivity begin to lift demand across a broader swath of the economy. In short, both businesses and households can be winners next year, and creation of more jobs is likely. The caveat: keep improving productivity.

A long-run trend in productivity growth, now generally accepted as inevitable, means the economy has to sustain growth for the payrolls to expand. But that is only part of the story. The more important part is that faster productivity growth boosts demand by lifting profits and workers’ pay. It also adds to wealth as the result of a bull run in the market. The crucial link between productivity and demand is income. When an economy generates higher output, it creates an equal amount of higher income that translates into higher salaries or business profits. The key is that faster productivity growth allows the same worker to generate more income, a process that has post-liberation added handsomely to business profits and real compensation of the salaried professional.

That is the beauty of productivity gains: everyone wins. In the end, it is income growth that determines economic performance, and that is why the premise of ‘perils of productivity’ is on shaky ground.

Growth in productivity will not hold job growth and the economy back in 2009. It will spur them on.

You didn’t know that, did you?

In his first five years as the CEO, he decimated 100,000 jobs in his company. When he retired, after a few more years, he had fired more than 500,000 people! This man, called “America’s Toughest Boss” and “Manager of the Century” (awards from Fortune), said that “people before strategy” has been his mantra all his life. One doesn’t need to look farther than the above details to understand why. The man is the legendary Jack Welch; and the company in question is General Electric.

Even before one starts criticising him, is the biggest learning Welch gave to the management world – that recession or no recession, firing poor performers has to be standard management policy. Sadly, as the noted Sirota Consulting proved, “Companies do a poor job of facing up to poor performers; it’s always the most negative finding.” BCG consultant Grant Freeland writes in a BusinessWeek report, “Few things demotivate an organisation (and its top performing employees) faster than tolerating and retaining low performers.” And believe it or not, a Forbes report shows how “employee retrenchment (of poor performers) actually increases loyalty!” If your organisation has been one that belongs to the category that has been forced to live with poor performers till date, I should suggest that recession is a supremely good time to kick them all out en masse.

At the same time, I should also say that this is the time to fundamentally change the way we plan and strategically think about our human resources. For starters, rather than using HR to mollycoddle employees (oh, haven’t we heard and had enough of outdoor motivational training exercises, perks, and all that jazz), use them to push down the throat of complacent low performers that whatever be their designation in the organisation – and even CEOs be damned, for all it matters – those are profits and profits that matter the most! (Booz Allen Hamilton reports, “Under-performance is the primary reason CEOs get fired.” They show that shareholder returns improve significantly ‘when poorly performing CEOs are axed’). Truly, as bottomline pressures force headcount reductions, it is also very easy to lose top performers, damage morale and the company’s reputation amongst employees, or curtail staff development programmes. By emphasising talent and productivity in cost-cutting efforts, employers can create a positive perception among current and potential employees and position themselves strongly for growth, when conditions improve. At the same time, a nimble HR, during relatively low growth times, should ensure a flexible and multiskilled workforce composition, where concepts like temporary staffing – depending on relevance – play a significant role in the manpower planning process. The pace at which technology is progressing, we will soon see present skills becoming redundant and a requirement will crop up for employees with multiple skills.

In conclusion, managing talent in the downturn for HR does not at all mean having to put up with lower than world-class employees just because you cannot afford the best. Rather, it means ensuring that the organisation and its employees perform at never before seen productivity benchmarks. As our theory goes, brilliantly productive CEOs/VPs/Directors/Managers/Employees/Humans for short, will become narcissistic and complacent given the first opportunity to slack. The job of HR is to ensure that that never happens. The job of HR is to, therefore, promote intellect over clerical work, to support youthful exuberance over aged experience, to believe in people with passion than people with egos... And in reality, this job of HR doesn’t change whether in downturn or out of it... For people will always remain before strategy. You didn’t know that, did you?

Employees First. Always.

Well-meaning organisations have always strived to ensure that employees are broadly satisfied with their working conditions; somewhat reminiscent of a benevolent feudal set up, where employers are part of an extended family. However, leading organisations today realise that employees, like customers, have an array of options, to stay, commit, engage or move. To keep employees loyal and at their productive best, it is no longer enough to provide them with the regular set of compensation-driven packages. It is time to start afresh and put together a benefits-driven package, with HR managers treating employees the way businesses treat customers.

Once we are able to change our mindset from that of a benefactor to a service provider, there is much that we can learn and borrow from recent developments in marketing to create a ‘wow’ experience at the workplace. From a marketing perspective, branding involves the creation of values and perceptions that help the target audience to positively relate their knowledge with respect to a particular product, service or organisation. Branding, however, is not only an opportunity to shape customers’ perceptions, it is an opportunity to shape employee perceptions as well. A brand today represents the relationship an organisation has with its employees just as much as it represents the relationship that it has with its customers. The difference though is that an employee is engaged and involved with the organisation’s brand for a much longer time and in more ways than a customer is. The now oft quoted term “Employer Branding” is in most ways an extension of traditional branding, but we do need to realise that “employer branding” encompasses a much larger environment and is a rather delicate proposition, which by its very nature requires the brand building process to be more transparent and robust.

The need of the hour is to engage leaders from across functions to commit resources to this process. Successful employment branding develops a theme and establishes an image of the employment experience at an organisation (most often aligning with the company’s corporate brand), and attracts and retains the right employees to the organisation. It is not always necessary for the corporate and employment brands to be aligned, but it makes sense to do so for various reasons. Research shows that the more an organisation’s brand persona is internalised by the employees, the better employees communicate this to the external stakeholders; and in these times of turbulence you will always find it easier to garner resources if you show a synergistic relation with the bottomline. A number of organisations with strong employer brands like Google, Honeywell and Fedex have managed to keep attrition low while making significant improvements in employee productivity.

As we keep hearing whispers of “right-sizing” in the corporate corridors, it is even more important to build the “employer brand”. Employer branding is here to stay, and those of us who are not prepared will lose the very talent we want to retain. This is a market focused on keeping the best, and we need to keep improving in order to successfully retain and expand our market share.

Feeling Bullish on Governance

You may be wondering what corporate governance and executive compensation is doing as the cover story in a Human Resources magazine, and rightly so. An audacious statement it may be, but I would gladly say that if we want to set high ethical and governance standards, HR is the function rightly poised to deliver results. After all, as every CXO loves to say, “it is all about people”.

Today when we look around, we see mammoth organisations being reduced to debris. As we probe further we realise that most failures can largely be attributed to lax governance and a culture of short-term profiteering. It then becomes obvious that what is required is a cultural shift in organisational thinking and hence a cultural change in the executives who direct the organisational strategy.

HR has evolved over time to become a key strategic player in the new-age organisation, in productivity and efficiency initiatives by sourcing work and talent for better leverage, outsourcing non-core work, and moving some talent costs from fixed to variable. For HR to remain a strategic partner in these new, anxious and unstable times, it must answer the call to support and systemise governance through a cultural shift that ensures growth without crossing the fine line between performance and greed.

A study by J. Richard Finlay, Chairman of The Centre for Corporate and Public Governance (Canada), shows that many boards devote more time and energy to executive compensation than to assure that their company adheres to its own stated standards of financial integrity and corporate responsibility.

In 2001, when Oracle made a record payout of $706 million to Larry Ellison (he exercised his stock options), the full board met only five times and acted formally or by written consent only thrice, in contrast to the compensation committee which acted 24 times in written consent or formal session.

The challenge for HR, and hence our focus till date has been to instill an entrepreneurial and business reward driven culture in our executives, in the hope of transforming corporate behemoths into nimble competitors. The challenge in the coming years will be to create corporate cultures that encourage and reward integrity as much as robust bottom lines, innovation and entrepreneurship. To do that, executives need to start at the top, becoming not only exemplary managers but also the moral compass for the company. CEOs must set the tone by publicly embracing the organisation’s values. Boards and CEOs need to be forthright in taking responsibility for shortcomings, be it an earnings shortfall, a product failure, or a flawed strategy; and show zero tolerance for those who fail to do the same by integrating these factors to pay and performance indices.

Overcoming the crisis in the corporate sector will take more than a single initiative or few. The breakdown has been so systemic and far-reaching that it will require major reforms in a number of critical areas. The HR community can play a vital role, as culture and hence people, starting at the top to the frontline, will need to transform in order to embrace a more inclusive business philosophy.