Are People Really Your Most Important Asset?
Chief executive officers (CEOs) often say that “people are their company’s most important asset,” and that it is the strength of their work force that will carry the company through tough times. On the other hand, executives are taught that “cash is king” – especially in a business downturn.
So what should business leaders do in the face of the current economic crisis? Should they focus on maintaining cash or people? What should they make their top priority?
Here’s the debate:
|Focus on cash
“Cash is king. Everything else is a distant second.”
|Companies that don’t reduce costs will lose their competitive edge or go out of business.||Guess what? People are your competitive edge.|
|When unemployment rises, it’s easy to find people.||When unemployment rises, it’s easy to find bodies. Real talent is always in short supply.|
|First things first. Deal with the downturn now; worry about people on the upside.||If you lose your key talent now, there may not be an upside later. You may not have the products you need, or be able to retain the customers you want when the market comes back.|
|Focus on people
“People are our most important assets.”
|Long-term success hinges on getting – and keeping – talented people.||The “long term” could be years in the future – particularly if we’re facing a deep and extended recession. Also, your long-term success doesn’t just depend on talent, but on maintaining competitiveness throughout the downturn.|
|Short-term success hinges on having talented people and an engaged work force.||True. But that doesn’t mean you need to treat every single person like a precious asset. Identify your most talented people and make sure to take care of them.|
|Although the financial crisis is getting all the attention, the talent crisis didn’t just magically disappear.||Actually, it sort of did. This might sound harsh, but the recent market crash may actually ease the talent crunch by forcing workers to put off retirement for a few years.|
Robin Lissak, Principal, Human Capital, Deloitte Consulting LLP
In the face of a severe downturn, you may have no choice but to reduce your work force. But that doesn’t mean you have to blindly start cutting. Given the importance of people to both your short- and long-term success, it pays to have a clear plan on how to lead in a volatile economy.
Avoid across-the-board cuts. If your goal is to reduce head count by 10 percent, it almost certainly makes sense to cut more in some areas and less in others. Be selective. You may have areas that need to grow, such as product development or sales in emerging markets. If you don’t worry about designing and building things that people will want to buy, then you may have no future when the market turns around.
Make sure talent is laser focused on what really matters. Whether it’s research and development (R&D), serving your best customers, or entering new markets, you need to deploy talent properly and let people know exactly how their activities contribute to the success of the business. And remember – we’re living in the Internet age, the era of instant communications. Saying something once in an e-mail or town hall meeting may not have the impact you expect. Reinforce your messages frequently.
Lead in the open. In an economic downturn, people look for a different kind of leadership. They want to be engaged and want you to tell them what’s going on, how they can contribute, that they’re part of the team and that there is hope for the future. During the last recession, one global high-tech company lost the hearts and minds of its people and although the business is now doing better than ever, it will still take many years to rebuild the lost trust in leadership.
Take advantage of competitors’ mistakes. Companies making wholesale work force reductions may inadvertently lose some of their most talented people. This is particularly true in industries facing bankruptcies or massive layoffs. Although it might seem odd to be looking for new talent while cutting staff, this could be a perfect time to recruit people who might otherwise be out of reach.
Don’t mortgage your future. Talented people are hard to find – and even harder to replace. If you erode your talent base, it could take a long time to rebuild it and you may get left behind when the economy turns around. Shareholders understand this and expect you to protect their investment on both ends of the cycle.
A view from the C-suite
Jeff Schwartz, Principal, Human Capital, Deloitte Consulting LLP
Talent costs — and impacts — loom large over corporate income statements. So it’s not surprising that talent issues loom large in the minds of CEOs and boards. During the final months of 2008, our global talent professionals interviewed CEOs, board chairs and other executives about talent issues and emerging concerns. Read more on this debate.
A view from the retail industry
Thomas McElroy, Principal, Human Capital, Deloitte Consulting LLP
The retail industry has been going through one of its most challenging periods in the last half century. An economic crisis, declining consumer confidence, rising prices for groceries and gasoline and a credit crunch have all combined to create a perfect storm. And because retailers employ more U.S. workers than any other industry, managing work force costs while retaining talent is more critical than ever if they are to make it through these difficult times. So how can retailers weather the storm while still retaining their top talent? Read more on this debate.
A view from the insurance industry
Steve Hatfield, Principal, Human Capital, Deloitte Consulting LLP
The economic volatility in recent months has created a set of challenging business problems for many insurance companies. Many insurance companies have lost significant market value. The sudden loss of value has created a set of immediate business challenges that include managing profitability, share values and market capitalization, liquidity, customer retention and talent. Read more on this debate.
A view from the life sciences industry
Alice Kwan, Principal, Human Capital, Deloitte Consulting LLP
The current credit crisis provides an opportunity for large, cash-rich pharmaceutical companies to acquire smaller biotech businesses at low valuations. As the smaller biotechs struggle with private equity funding, they may need to merge or expand their alliances with larger players to survive. However, these merger and acquisition (M&A) deals will add to the industry’s already full plate of talent challenges: an aging work force; a shortage of science and engineering graduates; rising operating costs; a need to drive future R&D growth and innovation; and, for some companies, a need to expand globally to reduce labor costs and increase the supply of technical, engineering and scientific talent. Read more on this debate.
A view from the automotive industry
Richard A. Kleinert, Principal, Deloitte Consulting LLP
The retail industry had been going through one of its most challenging periods in the last half century. An economic crisis, declining consumer confidence, rising prices for groceries and gasoline and a credit crunch have all combined to create a perfect storm. And because retailers employ more U.S. workers than any other industry, managing work force costs while retaining talent is more critical than ever if they are to make it through these difficult times. So how can retailers weather the storm while still retaining their top talent? Effective talent management practices can help enable high-performing retailers to delight their customers, achieve their growth potential and drive bottom-line results, even in this economic downturn. Read more on this debate.
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