Newsletter - February 2009
Is the Leadership in Your Company in a Downturn Alongside the World Economy?
February 12, 2009 - Irina Ivan
In the conditions of the emerging economic crisis, all attention that the HR function had gained during the last few years seems to have vanished, leaving space for expectation, a lot of confusion, and uncertainty. Words like "motivation” and "personnel development" are being pronounced less and less 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 notice around us are overreactions or extreme measures being taken. 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 of the focus on people and the work environment that all company leaders stood up for so far. With all this turmoil, is it still worth it for companies to remain people oriented or should the focus move onto 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 U.S.-based companies, 86 percent of them expect to see their HR programs affected by the crisis in the financial market during the next 12 months. The survey shows that 26 percent of the companies expect layoffs or personnel downsizing, 25 percent expect hiring freezes and another 28 percent are revisiting merit increases budgets in 2009 and decreasing it by an average of 32 percent.
Whether we like it or not, economic downturns are a part of the business cycle and, as in 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 nine 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 months after the crash in '29. At that time, anyone would have considered that launching a glossy outrageously expensive magazine ($1.00 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 team’s 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 decline, motivate their teams to increase it and cover for the missing members where downsizing and layoffs were required. Adopting a "you're lucky you still have a job" attitude, watching everybody's move or evading explanations when these are expected will not ensure people have a better understanding of the crisis. 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 to test their responses to various scenarios and analyze 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 peoples fear by displaying strong leadership in a positive and constructive way. This implies first 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 that 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 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 away and these can impact a business forever.
Irina Ivan is a web content editor within People First (Romania). For more articles from the same author, please visit http://www.peoplefirst.ro
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