My recent posts argued that managers spread resources evenly like peanut butter on a slice of bread, rather than making hard trade-offs. They do so to preserve a sense of perceived fairness among units and achieve compromise among tribes with conflicting interests. A boom provides the cash to spread around.
Despite their reputation as decision makers, managers often dodge hard calls. In many cases, the biggest obstacles are not insufficient information or uncertainty. Rather managers avoid tough decisions to preserve their organization’s social fabric and maintain truces negotiated among coalitions within the organization.
Leaders avoid hard decisions for a variety of reasons. Brute uncertainty may obscure the right course of action, for example, or executives may lack incentives to make the tough calls. Often the right choice is obvious and managers have strong incentives to make the right call. Yet they still avoid tough calls. The story of Firestone’s response to the radial tire illustrates this dynamic.
Executives, according to the conventional wisdom, are decision makers. Their job consists of laying out alternatives, calculating the relative merits of each using tools such as net present value, and making the hard choices on which deserve resources and which do not. Like a Roman emperor turning a thumb up or down in the coliseum, they make decisions and their choices have consequences.
Firms navigating through turbulent markets face many challenges. One of the most daunting, however, is how to develop their executives to effectively manage the range of diverse threats and opportunities that volatile markets generate. And how to provide this executive education in a way that offers good value for money and time.
In the current downturn, many companies have adopted a slash and burn approach to executive development. While a bit of pruning may well be in order, a wholesale dismantling of management training is short sighted. Well-designed programs provide benefits well in excess of their cost: They help managers who have never seen a recession avoid common mistakes; they allow top executives to drive their agenda. Employees, moreover, are highly motivated to learn anything that will help them navigate the current downturn.
Companies can hire stars in a downturn, but they can also develop existing employees. A recent survey of European HR executives found that the three least effective ways to cut costs in past recessions all entailed cutting back training and management development. Despite their negative impact on organizational effectiveness and employee commitment in the long-term, companies continue to rely on them to trim costs in the short-term. This is a mistake. In a downturn, management development is not a luxury to cut, but an opportunity to seize. Talent development in a downturn can create a sustainable competitive advantage in three ways:
A downturn creates a buyer’s market for resources, including high-performing employees. For complex jobs, including coding software, analyzing investments, and conducting scientific research, stars perform at levels ranging from two to ten times the productivity of average employees. Unfortunately, a star’s performance often deteriorates after switching employers. What steps can managers take to ensure that newly-hired stars continue to perform at a high level?
In a downturn firms can acquire resources that would be too expensive or unavailable in a boom. This logic applies to human resources as well as brand or hard assets. A recent survey found that hiring stars is among the most effective ways to enhance a firm’s talent pool during a recession.
Over the past few weeks, I have read dozens of special reports produced by consulting firms on managing in a downturn. Most are banal—heavy on data, light on insight, and devoid of non-obvious recommendations. There are exceptions. The Boston Consulting Group and the European Association for People management recently published an excellent white paper called “Creating people advantage in times of crisis” which provides some very practical advice on developing human resources during a downturn, as well as some surprising findings on what companies are actually doing.