October 3, 2010

Motivating, Not Mandating: Energizing, Not Firing, Employees in Recessionary Times

Cost-cutting efforts could be a reality for some time to come but layoffs need not be at the center of cuts. A study by the Katzenbach center, a Booz & Company combined firm, explores how to make cost cuts in ways that obtain positive emotional commitment and motivate employees to support decisions and to commit to behavioral change that reduces costs.

Cost-cutting efforts that obtain positive emotional commitment within the context of a company’s culture are a “tall order,” especially when layoffs are at the center of cuts. However, studies have shown cost-cutting and layoffs tend to fail when executives simply try to mandate attitudes and behaviors. These efforts will more likely succeed when companies make positive employee motivation an integral part of the process. A commentary by Jon Katzenbach, co-founder of Katzenbach Partners, explores how effective cost reduction capitalizes on and reinforces company culture—and integrates emotional commitment of the workforce with the strategic imperatives for the business.

Why Most Cost Reductions Fail

Under tremendous recessionary pressures, executives in a range of industries are currently considering, launching, or already grappling with cost reduction programs. Unfortunately, many of these efforts will be disappointing, to say the least.

“A common problem is that companies unwittingly put themselves into a suboptimal cycle of cost reduction that is both short-term and shortsighted”, said Bahjat El-Darwiche, Partner with Booz & Company. The second problem is that the initiative does not address fundamentals. Productivity does not improve, leadership systems are unchanged, and “cost-accommodating” behaviors persist.

“Mandating” vs. “Motivating”

So what should companies embarking on cost reduction do? They should probably start by asking themselves if “quick and dirty” costs reductions are all they want or need. If not, they should look honestly at the ultimate impact of any earlier cost reduction efforts. Fortunately, companies now have a more effective alternative to top-down, negative mandating, as well as to trying to engage employees superficially while the cost-cutting effort runs rough-shod over the positive elements of the culture. They can adopt the “positive motivational” approach.

“Positive motivation is not about engaging people broadly at a company-wide level while compelling them at their work stations to do what is prescribed from the top. It is about energizing employees to work with you on reducing costs, encouraging individual employee actions that cannot be prescribed, and recognizing employees with more than money when they take these actions,” said Chady Smayra, principal Booz & Company.

“Motivators” establish leadership cohesion and commitment at all levels, conducting a fair process for cost reductions. “Motivators” also recognize that employees care deeply about fairness—which means making the cost reduction process transparent, timely, and effective. “Motivators” create a positive emotional case in addition to a rational business case. Both need to be clear and well reasoned.

Executives also require objective data to make critical decisions around where and how to cut costs. Multiple approaches are required to get everyone onboard. “Too often, companies adopt one method and impose it on the organization, ignoring the complexity of what might be driving costs. As one executive said: You need more than one hammer,” said El-Darwiche.

Getting Through a Recession Requires “The Best of Both"

Mandates have their place in serious cost reduction efforts, but you also need “a little help from your friends” down the line. Cost-cutting has never been easy but companies will increase their chances of success by involving their employees in ways that obtain positive emotional commitment to decisions and behavior change.

“A great example of effective cost cutting is Texas Commerce Bank’s 1993 initiative to host hundreds of focus groups that involved almost half of its 9,000 employees in a major improvement initiative that replaced its monetary target with an aspiration of “eliminating what annoys our bankers and customers. The initiative eventually exceeded the initial target of $50 million in reduced costs, achieving savings that were around three times the target,” said Smayra.

In the end the Katzenbach study shows that companies may be able to mandate their way to an immediately lower cost structure, but if they also motivate people in positive ways that produce emotional as well as rational commitment, they will get more costs out sooner, and the benefits will be more lasting.