Managing Talent at a Time of Crisis: A Cross-Industry Look at Challenges and Opportunities
Managing talent always ranks high on the CEO agenda. However, the current global economic downturn presents some unique opportunities and challenges. Whether companies are in the midst of restructuring, recruiting and developing talent on shoestring budgets, or struggling to maintain and motivate top talent, changes of this magnitude must be actively managed. Meanwhile, this is also an ideal time for companies to recruit top talent, improve workplace attractiveness, and adopt a holistic, long-term human resource strategy.
Varya Davidson Ashley Harshak Soon Rabb Louisa Blain
Managing Talent at A Time of Crisis A Cross-Industry Look at Challenges and Opportunities
This report was originally published before March 31, 2014, when Booz & Company became Strategy&, part of the PwC network of firms. For more information visit www.strategyand.pwc.com.
Contact Information London Varya Davidson Partner +44-20-7393-3468 [email protected] Ashley Harshak Principal +44-20-7393-3405 [email protected] Soon Rabb Principal +44-20-7393-3515 [email protected] Louisa Blain Senior associate +44-20-7393-3730 [email protected]
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Managing talent always ranks high on the CEO agenda. No matter the state of the economy and financial markets, companies will always need to maintain, recruit, and develop their best talent. However, the current global economic downturn presents some unique opportunities and challenges. Whether companies are in the midst of restructuring (most notably in the financial services and automotive industries), recruiting and developing talent on shoestring budgets, or struggling to maintain and motivate top talent, changes of this magnitude must be actively managed—with workforce capabilities as a key consideration. Meanwhile, this is also an ideal time for companies to recruit top talent from within their own or other sectors, address brand perceptions that relate to workplace attractiveness, and adopt a holistic, long-term human resource strategy.
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TALENT CONSISTENTLY A TOP CEO CONCERN
When the Economist Intelligence Unit surveys the world’s leading CEOs each year, it comes as no surprise that retaining talent and its associated issues consistently features among the top three or four risks facing companies.1 After all, from 2005 to 2007, companies experienced unhindered growth and increased investment, creating many new employer and employment opportunities. All this came to an abrupt end during the summer of 2008, when the financial crisis, led by the credit crunch, rocked global financial and economic systems. As companies and economies strain under this pressure, it is easy to imagine that leading CEOs will let talent management slip to the bottom of their priorities, except when faced with the daunting task of cutting costs and reducing head counts. But the reality is this: No matter the status of the economy and financial systems, companies will always need to maintain, recruit, and develop their best talent. In these tumultuous times, it takes a cool head to distinguish opportunities from challenges.
TRADITIONAL WORKFORCE CHALLENGES TAKE A BACKSEAT
At first glance, the financial crisis comes as a relief to many companies struggling to recruit and retain enough talent. As economic doom and gloom prevail, employees’ fear of uncertainty, lack of income, and difficulty in finding new jobs decreases the natural attrition in workforce capacity experienced under typical circumstances. Employees tend to wait out the storm in the comfort of their current employer rather than look for new positions with others, where their value may not have the same equity. In the same vein, staff retention naturally becomes less of a concern for companies faced with a rampdown in activities as an unfortunate consequence of the financial crisis. As projects come to an end and fail to be extended or new projects are abandoned, staff contracts won’t need to be
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AMPLIFIED CHALLENGES IN UNUSUAL TIMES
Unfortunately, where there are winners, there are losers, and not all companies are equally equipped to face the financial crisis. For many, workforce capability challenges will only be amplified. Restructuring One of the biggest challenges companies in affected industries such as automotive and financial services will face is company and/or industry restructuring. Although restructuring can be a good opportunity to get rid of deadwood, it will be critical to hold on to the right talent to first stabilize and later enable future growth. Boston-based Fidelity Investments did this well in the past through an active talent management strategy. Prior to executing a cost-cutting initiative, the company first underwent a talent assessment exercise. Fidelity evaluated what skills it needed to retain, identified the people with these skills, and informed that particular group of individuals that they were needed and wanted, and thus were not at risk in the upcoming cost cutting. Informed and engaged, this group was less likely to be lost to the competition or a higher bidder and was able to actively give shape to the new organization. Recruiting and Developing on a Shoestring Budget Despite being one of the career issues found to be most important to employees, employee development is likely to be affected by a lack of funding. Not only do established training and development programs risk being reduced or cut entirely, but on-the-job development of skills will be limited by a lack of projects to assign individuals to, an issue especially pertinent in the service industries. For those actively recruiting during this turbulent period, the ability to focus on the long term while dealing
renewed. The lower-cost “last-in, firstout” approach to staff reduction is becoming increasingly common among large-scale employers in financial centers such as London and New York. To many companies, particularly those in countercyclical industries, the large number of layoffs in this economic environment represents a welcome flood of previously scarce resources. In financial services alone, more than 180,000 jobs were lost globally during the past year, with more expected to come.2 In the U.S. automotive industry, as many as 3 million jobs are at stake nationwide if the Detroit Three are not able to make it through the current situation.3 The increased liquidity in the labor market that results allows recruiting companies to cherry-pick talent to fill staffing needs.
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with cash or other limitations in the short term will separate the winners from the losers even long after the crisis has passed. In the immediate future, cuts in budgets, particularly discretionary spending, negatively affect recruitment activities and possibly reputation, as companies are forced to scale back campus activities, dinners, branding exercises, and so forth. In the long term, systematic decreases in recruiting and increases in layoffs will result in not only a damaged reputation but also a capability gap similar to that currently experienced in the oil and gas industry. The oil and gas industry provides a valuable lesson to those willing to learn it. When the price of oil hit a
low of $10 per barrel in the 1980s and ’90s, recruiting freezes and extensive layoffs severely diminished the workforce. Twenty years later, this has resulted in a gap in skills and middle management that severely limits the industry’s ability to grow and companies’ abilities to compete. The good news is that, according to Andrew Cockerill, BP’s director of university relations and former director of capabilities within group technology, the oil industry has learned from its mistakes and now embraces a long-term strategy: “As an industry, we must put things in place that will last through the next down cycle in pricing. The worst thing we could do would be to pull the plug—everything that has been set up must endure.” This view
was echoed by a vice president in BP’s exploration and production segment who explained that indeed “capability building remains a priority.” BP is not the only energy company to follow this trend. Shell has also confirmed that it will continue its recruiting campaigns and internal staff development initiatives. Shell, BP, Total, and ExxonMobil have all led international recruiting drives at key recruiting schools such as London Business School, picking up the talent that financial services companies are no longer able to recruit. Other industries today would be wise to watch and learn. Retaining and Motivating Top Talent Companies will also need to find ways to attract and retain talent through
Companies will need to actively manage, rather than passively endure, any changes that occur, and focus on communicating with stakeholders— particularly employees.
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means other than financial reward. In certain industries requiring specialized skills, focusing only on financial reward can cause an unsustainable escalation of labor costs, as experienced in the oil and gas sector. In others, particularly those benefiting from significant government investment, such as financial services, there are likely to be salary caps or bonus pool cuts, requiring companies to be more creative with employee benefits and to actively publicize them. The introduction of flexible working hours proved instrumental in retaining maturing talent in the oil industry, and it may also be a solution for problems in the automotive industry today by attracting more diverse talent and allowing a company to ramp workforce capacity up or down when needed.
Managing Change Managing any or all of these challenges comes down to just that: managing. Companies will need to actively manage, rather than passively endure, any changes that occur, and focus on communicating with stakeholders—particularly employees. Good practice dictates being as open and transparent as possible, which will make employees more accepting of necessary changes and give them a stake in those changes, making it easier to maintain high levels of dedication and motivation. Telling employees what is being done to protect them from negative repercussions will go a long way toward workplace satisfaction, avoiding knee-jerk reactions or loss of talent to other employers.
OPPORTUNITIES FOR THOSE WHO CAN GRAB THEM
Desperate times don’t always call for desperate measures—the new environment brought about by the financial crisis creates a number of opportunities for companies positioned to take advantage of them. Acquiring Talent One of those opportunities is strategic acquisitions. Volatility in markets and commodities has resulted in lower company valuations in certain industries, something oil majors flush with cash from last summer’s recordbreaking oil prices have been quick to recognize: “We are well-placed
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to weather the prevailing financial storm and to benefit from the business opportunities that may well arise from a downturn,” Tony Hayward, CEO of BP, announced along with solid third-quarter earnings.4 For oil majors still dealing with the capability gap resulting from aggressive downsizing 20 years ago, this is a unique opportunity to develop an acquisition strategy focused on talent as well as operational benefits to fill this gap. Recruiting Cross-Sector Nimble companies would do well to look beyond their usual horizons to locate additional talent, including
talent that they may not usually have access to but that is suddenly available due to downsizing and layoffs. According to the International Labour Organization, sectors hardest hit by the fallout of the financial crisis will be construction, automotive, tourism, finance, services, and real estate, resulting in a global unemployment increase of 20 million people by 2010.5 For industries still recruiting, these may be fruitful hunting grounds: For oil companies constantly struggling to staff oil rigs, construction workers may have transferable skills; utilities and mobile telephony may also welcome talent with technical
skills; and financial services professionals may seek out the stability of public-sector positions at this time of unrest, allowing the public sector to benefit from an injection of privatesector skills. Rebranding through Restructuring For a company faced with restructuring, whether as the result of a merger, an acquisition, or downsizing, this may be a welcome opportunity to rethink its workforce capability strategy. In addition to reorganizing roles and functions, a company can redevelop the perception of its employer brand, repositioning itself as a good place to
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work, fixing reputations, reassessing its values, and developing employee pride and, thus, loyalty. E.ON, the world’s largest private energy provider, was able to make itself stand out despite being in an unpopular industry: “The message we settled on was ‘Your energy shapes the future.’ This phrase reflects the huge difference that this company, and its employees, can make for the environment and, consequently, the world in general. For the individual employee, this presents a rare opportunity to make a significant personal impact through highly challenging work,” said Christoph Dänzer-Vanotti, chief HR officer.
Culling and Growing As we saw with Fidelity, there are ways to retain good staff even when downsizing. A careful assessment of skills available and skills needed allows a company to maximize its core strengths while minimizing its weaknesses. Selective capacity reduction at a time of crisis allows the company to first create stability and then prepare for the eventual upturn in the economy, a prospect often forgotten when companies are tempted to focus only on survival. Cisco, Compaq, and Xerox are just a few examples of companies that have successfully taken this approach in the past. As much
as possible when downsizing, they maintained a positive relationship with employees they were forced to let go, limiting reputation damage. At the same time, these companies were able to reshape the talent they retained and emerged as more customer-oriented organizations. Adopting a Holistic, and Long-Term, HR Strategy What has become evident in recent months is that even the best-laid plans may not always prepare a company for every situation. People strategies need to be dynamic and adaptable to ensure success, whatever the economic
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EYES WIDE OPEN TO WEATHER THE STORM
outlook. This means adopting strategies with a whole-system approach to performance management that recognizes the larger impact of internal behaviors. The blank sheet that the economic downturn has created for some also presents opportunity. In the financial services sector, Booz & Company is working closely with institutions to develop and implement a whole-system approach to performance management—rather than one focused on short-term gains and financial reward—to ensure that the mistakes that were considered key contributing factors to the financial crisis are not made again in the future.
There is no one-size-fits-all solution for successfully managing the people challenges and opportunities brought about by the financial crisis. Companies will need to be nimble and self-aware to embrace the opportunities that will arise and to avoid the pitfalls of panicked reactions in the face of an unpredictable economic landscape. Long- and short-term solutions will need to be considered in tandem, not as trade-offs, to avoid capacity issues when the economy recovers. Finally, organizations will need to maintain confidence in, and communication with, their existing talent to navigate through these uncertain times.
People strategies need to be dynamic and adaptable to ensure success, whatever the economic outlook.
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1Economist Intelligence Unit, CEO Briefing: Corporate Priorities for 2005, CEO Briefing: Corporate Priorities for 2006, and CEO Briefing: Corporate Priorities for 2007. 2Financial 5International Labour Organization press release, October 20, 2008, “ILO Says Global Financial Crisis to Increase Unemployment by 20 Million.”
3Center for Automotive Research press release, November 5, 2008, “Center for Automotive Research Estimates the Economic Impact of a Full or Partial Contraction of the Detroit Three on the United States Economy; Ripple Effect Will Impact Suppliers, International Manufacturers and the Entire U.S. Automotive Industry.” 4BP press release, October 28, 2008, “BP Delivers On Promises and Is Well-Placed to Weather the Storm, Hayward Says.”
About the Authors Varya Davidson is a partner in Booz & Company’s Organization, Change and Leadership practice, based in London, where she specializes in strategic transformation and organizational capability with a focus on the upstream oil and gas sector. Soon Rabb is a Booz & Company principal based in London. She specializes in organizational development, human capital management, and change management for the public sector, energy, and transportation industries. Ashley Harshak is Booz & Company principal based in London. He specializes in change management, organizational development, and large scale transformations for the public sector and financial services. Louisa Blain is a Booz & Company senior associate based in London. She specializes in human capital, organizational development, and change management for financial services and energy companies.
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