Articles

Is the leadership in your company in downturn alongside with the world economy? – Part I

Author: Irina Ivan

In the conditions of the emerging economical crisis all attention that the HR function had gained during the last few years seems to vanish leaving space for expectation, a lot of confusion and uncertainty. Words like "motivation", "personnel development" are being less and less pronounced and replaced by those related to finances.

Leaders or simple employees, we all have the tendency of freezing all our projects until things settle down. If a general stand-by state can be considered somehow normal for a period of crisis, we cannot help noticing around us overreactions or at least extreme measures. Layoffs, cutting costs to the point of transforming the color printing into a luxury, counting each minute of delay seem to come first now, ahead the focus on people and the work environment that all companies leaders stood up for so far. With all this turmoil, does it still worth for companies to remain people oriented or the focus should move on other assets? Which is the appropriate attitude and conduct to successfully go over the economic downturn?

According to a survey recently conducted by Watson Wyatt on 248 US-based companies, 86% of them expect to see their HR programs affected by the crisis in the financial market, in the next 12 months. The survey shows that 26% of the companies expect layoffs or personnel downsizing, 25% expect hiring freezes and other 28% are revisiting merit increases budgets in 2009 and decreasing it by an average of 32%.

Whether we like it or not, economical downturns are a part of the business cycle and, as any crisis, if it is managed correctly, can turn things around in one's favor. A Rolls Royce leader in the 60s said that "if you can keep your head when all around you are losing theirs then you will be about 9 inches taller than them... and that means you can spot opportunity sooner than they can".

There were not rare the cases when in times of economic recession for the entire world some businesses reached a point of disruptive innovation and recorded a boom. Think about Henry Luce and his Fortune Magazine launched in February 1930, four month after the Crash in '29. At that time, anyone would have considered that launching a glossy outrageously expensive magazine (1 $ per issue) was pure insanity. The success that the publication has today proves that it was a very inspired move. It also proves that when the business environment plunges into drowsiness it could be an opportunity to look for breaches that will allow you to strengthen your position on the market. And, as this implies a collective effort, the teams' cohesion and the support they offer to the business they work for are essential.

If, under the pressure of the moment, an organization has no more the possibility of offering financial incentives, leaders have to find alternative ways to avoid productivity fall and even to motivate their teams to increase it and cover for the missing members, where downsizing and layoffs were required. Adopting an "you're lucky you still have a job" attitude, watching everybody's move or evading from explanations, when these are expected, will not determine people have a better understanding on the crisis and close up. On the contrary, they will start seeing this crisis as a personal threat and, overall, the organization will grow weaker.
Brain and behavior studies show that when people are confronted with uncertainty, they tend to stop listening to their own judgment and follow the crowd. Gregory Berns, a neuroeconomist at Emory University in Atlanta who studies the biology of economic behavior, put people in magnetic resonance imaging (MRI) scanners for testing their responses to various scenarios and for analyzing patterns of their brain activation. Following tests, he discovered that when people are uncertain the brain's "fear center" (amygdala and insula) is activated, people start to doubt their own judgment and adopt the group's opinions and behavior.
One key measure to successfully overcome an economical crisis is to address people's fear by displaying strong leadership in a positive and constructive way. This implies first of all sharing information accurately. Once they are convinced that if something goes wrong they will be informed, people will stop worrying about rumors and bad signs and focus more on work. Besides information, people also need a leader able to inspire, motivate, reassure them, align them to the same values and work rhythm and make them feel as they are in this together.

Most important of all, business leaders must keep in mind that any solution for surviving an economic crisis goes through people. And that, even though it can last for years, a crisis eventually passes. But people's memories about the way they were treated during tough times don't go and these can impact a business forever.

Resources:

Bill Taylor, Innovate for S uccess in a Downturn, www.hbsp.com
Effect of the Economic Crisis on HR programs, www.watsonwyat.com
Greg Smith, Leading your workforce during an economic crisis, www.hr.com
Maggie Fox, During a crisis (financial or otherwise), we follow the crowd, www.neuroeconomicstudies.org