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Riding Out the Storm

Riding Out the Storm | Human Resource Executive Online HR experts and practitioners at some of the nation's largest companies see the current downturn as a prime opportunity to take charge and prove the value of HR and the organization.

Thursday, January 1, 2009
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Although it took place more than a decade and a half ago, John Gibbons vividly remembers the day he had to inform 120 longtime employees that, thanks in large part to competition from low-cost offshore factories and the slowing economy, their jobs at a Rhode Island costume-jewelry plant were being eliminated forever.

"It was especially devastating because the New England jewelry industry was comprised of a close-knit, insular community of workers, so you had multiple generations of workers from the same families working at this factory," says Gibbons, who was the facility's HR director. "So, on that day, I was laying off brothers and sisters, husbands and wives, from the same families."

Gibbons, who went on to become director of HR for The Gap's Northeastern region and is now a senior research adviser at the New York-based Conference Board, still finds himself overcome with emotion when he remembers that day.

"For the rest of my career, I will always think of that day as the worst-case scenario," he says. "It was a turning point for me. I'd always think, 'What could I do to avoid having something like that happen ever again?' "

This year, many HR leaders will be finding themselves in similar situations. What began as a gradual downturn early last year has become a yawning chasm of a recession, one that many economists fear could become one of the most severe since the Great Depression.

Obviously, HR leaders have little to no control over the economic circumstances that have led to the current situation, and what's especially frustrating about the current downturn is that so many factors -- from the upheaval in housing to the government's enormous bailout measures -- are virtually unprecedented.

But they do have some control over how their organizations respond to it. If nothing else, a recession is a golden opportunity for employees to see their companies' values in action, says Gibbons.

"When times are easy, a company can espouse all kinds of wonderful values, but it's the hard times that let employees really see whether those values are genuine or simply platitudes," he says. "Employees understand that, during tough times, there are going to be difficult decisions about who stays and who goes. They get it. But how you handle the process is incredibly important."

It's important, not only for those who will be departing but also for those who will be staying, says Gibbons. It will be a key factor in whether they decide to remain with the company when the economy improves, and whether they will be engaged and productive in the interim.

"How we treat talent in the downturn is going to affect whether we retain talent in the upturn," says Patrick Wright, the William J. Conaty GE Professor of Strategic HR at Cornell University in Ithaca, N.Y.

In the Driver's Seat 

So given today's tough economy, how can HR leaders -- including those at some of the nation's largest companies (see list) -- position their organizations to ride out the storm and be ready for the eventual business upturn? Most experts agree the companies that are able to retain key talent, downsize with care, and maintain morale and engagement among the workforce have the best shot at surviving difficult times.

They also say HR executives need to be in the driver's seat, or as close to it as they can be, to ensure that the people-related aspect of their organization's recovery plan is properly thought out and executed.

Robin Lissak, a principal in New York-based Deloitte Consulting's human capital practice, works closely with chief HR officers at large companies, where, in many cases, the CEOs understand the importance of people as executors of their business strategies and expect their CHROs to play key roles in formulating and implementing them.

"The conversations I have with chief HR officers tend to revolve around developing their mandate for HR strategies, and designing and implementing it," says Lissak. "That strategy typically focuses on three things: What can we do to support revenue growth, what is our talent agenda and how do we achieve operational excellence in HR?"

Today, those same CHROs must adapt their plans to help their companies emerge from this latest downturn, he says.

"At the heart of that strategy is, 'What do we need to do to get out of this?' " says Lissak.

In the automobile sector, for example, U.S. companies must design better cars and trucks that will sell during a period of fluctuating oil prices, and manufacture them with quality and at a lower cost, he says. In the telecommunications industry, the focus is shifting from concentrating on mature markets to selling handsets in emerging markets. In the pharmaceutical industry, companies are struggling to find a new business model to replace the one in which blockbuster drugs emerged and the companies engaged vast armies of salespeople to market them.

"The question CHROs in those and other industries must ask themselves is, 'Am I involved in the process or am I just sitting back?' " says Lissak.

Proactive HR leaders, he says, ensure that all of the people-related dimensions of a change in business plans are properly addressed, whether it's ensuring that their organization has the right talent in the right places, that people in key positions have the resources necessary to do their jobs, that change management is carried out properly and that employees are kept in the loop on a consistent basis.

The last part -- keeping employees in the loop -- is key, says Lissak. Most experts agree that, during tough times, frequent communication between management and employees is of paramount importance, and HR has a very important role to play in ensuring that it's effective.

At Tyco International, a diversified industrial and services company based in Princeton, N.J., the worsening economy has prompted senior management to communicate more frequently to the company's 110,000 employees about the company's business approach and their role in it, says Laurie Siegel, senior vice president of HR and internal communications.

This year the company was hurt by rising commodity prices and a rise in the value of the U.S. dollar, which translated into lower revenues from its overseas operations. (More than half of the company's employees and business operations are based outside the United States.) 

"We had 275 business leaders all together recently to discuss our upcoming fiscal year, so we used that time to really confront the new reality," says Siegel. "Our CEO had two messages: One, great companies play offense during times like these in terms of strengthening our talent, our technology and growing and developing our markets. And two, we'll continue to invest in growth, because, at this time, we feel our dollars can go a longer way in terms of investments."

At Convergys Corp., the 75,000-employee company is taking extra steps to ensure that its managers understand the Cincinnati-based services company's business plan and current market position so they can, in turn, explain it to their employees.

During the most recent quarter, revenues for the company's information-management and HR outsourcing businesses declined, while its customer-management division experienced gains. For the coming year, Convergys plans to focus on improving the HRO division's cash flow, and it will weigh whether to sell the information-management division.

"After our latest earnings call, the CEO, the CFO, myself and the general counsel held a 'state of the union' call for our managerial-level employees to dial in so we could rehash what was said on the earnings call to make sure they understand [it] in a way that they can take back to their employees," says Clark Handy, Convergys' senior vice president of HR.

"We've also started executive luncheons in which executives host 20 or so junior-level employees at a time, ask them to submit questions ahead of time and then open things up to a more free-form discussion so they can ask whatever they want, and we've gotten great feedback from that."

At KeyCorp, an 18,000-employee banking and financial-services firm based in Cleveland, HR is playing a vital role in ensuring its employees feel adequately prepared to address customers' concerns. This is especially important for KeyCorp, given the huge amount of attention the banking industry has been attracting lately.

"We set up a call-center response unit especially to address questions employees have about the economy and the bank's position," says Thomas Helfrich, KeyCorp's chief human resources officer. "If an employee is dealing with a customer who has some specific questions about, say, our company's financial health, they can contact the call center and talk to someone to make sure they're armed with the appropriate information."

HR has also partnered with KeyCorp's investor relations department to create "Take Five," a series of five bullet points that employees can refer to when dealing with questions about the bank and the overall financial-services industry from friends, family members and customers, says Helfrich.

"People do expect us to be able to interpret what is a very complicated situation, so we're trying to arm our employees properly so they feel comfortable talking about the health and status of the company," he says.

Although it may strike many as intuitive, a surprising number of executives still don't get the importance of communication that is consistent, thorough and honest, says Paul Platten, global practice leader of human capital management at Washington-based Watson Wyatt Worldwide.

"I think that business executives do tend to feel they need to sugarcoat information they dispense to their employees, even when they're being completely honest with business analysts, and so they end up saying one thing to a group of workers and saying something else to analysts, and you get that dichotomy," he says.

Responsible Reductions

Sometimes, of course, sugarcoating simply isn't an option, especially when organizations decide that circumstances leave them no choice but to downsize their workforce. In such cases, it's important that HR not only ensure that reductions are carried out in as humane and sensitive a way as possible, but that the cuts are articulated around their company's long-term business strategy.

"I've found that, during past recessions, the companies that downsized the right way and then were able to thrive when the recession ended were companies that had a plan and knew what they were going to do differently with their people and they cut systematically," says Platten. "They didn't say, 'Here's an early retirement package for anyone who wants to take it.' The problem with that approach is it can cut into areas that are the heart of your business."

All too often, says Platten, downsizings follow a similar pattern: Executives decide that the workforce must be cut by 5 percent to save money, the cuts are apportioned across the workforce, and then the HR executive is asked to oversee the reductions and ensure the process doesn't violate any laws or regulations.

"There's no talk about how the downturn has specifically impacted the business and how [to] trim people to match the new realities of the business. Instead, it's just a bunch of executives sitting around saying 'How do we get rid of people?' " 

Companies that have a rigorous performance-appraisal system in place will be the most prepared to ride out the economic storm, says Steve Darien, CEO of the Cabot Advisory Group in Bedminster, N.J., and former senior vice president of HR at Merck.

"I've been through so many of these downturns and it's always the same thing: Companies don't do a good job of pruning when there's no recession, and so, when a recession occurs, they have a difficult time figuring out who to let go," he says.

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Darien says the so-called "rank-and-yank" approach, in which companies annually cull the bottom 10 percent of employees from their workforce, is a sound strategy.

"I believe it's the correct thing to do, and it's even good for the people who get terminated because, in many cases, they go find better jobs where they're happier," he says, adding that this approach was used by Merck when he headed HR, but was later abandoned because of managerial resistance. "Every year they chipped and chipped away at it and eventually they just went back to the old way of doing things."

Darien acknowledges that, while rank and yank "sounds Darwinian," it's an approach that serves companies well during hard times. "They'll have already cleaned out the deadwood."

Josh Bersin, CEO of Oakland, Calif.-based talent-management consultancy Bersin & Associates, has a different take on rank and yank. "I'm not a fan of it," he says. "Getting rid of the bottom 10 percent every year is expensive, because you're going to have to replace them. That money would be better spent on recruiting top talent and putting in place a coaching-and-development approach to performance management."

At Deloitte Consulting, Lissak says, he's advising clients not to do across-the-board cuts, but to focus on their business strategy and use it as a framework for any personnel reductions.

"As an HR person, you need to be present and engaged at meetings where the questions are, 'What are we going to do to make it out of this downturn?' and 'How are we going to grow our revenue?' -- you have to be an active participant in that process," he says.

At the large companies he consults for, HR leaders play an active role as those firms decide, for example, how they're going to deploy their people to new and emerging markets and the skills they'll need in order to succeed there. "HR needs to play offense in terms of people," he says.

One of the most important roles for HR to play on that front, says Lissak, is helping employees stay focused on their missions, and that's where maintaining engagement comes in.

At Tyco, HR is launching a new cycle of training for the company's 10,000-plus managers around the world to ensure they're properly equipped to keep employees engaged during these tough times. The training has three areas of focus, says Siegel: employee communication, performance management and goal deployment.

"We know that employee engagement and retention is really tied to the quality of their managers," she says.

The training, which was internally developed and will be delivered on-site by HR managers at the company's global locations, will cover areas such as delivering "straight talk" to employees, how to give meaningful and productive performance reviews and, in terms of goal deployment, making sure that each employee understands how what he or she does helps drive Tyco's business objectives, says Siegel.

"It's old-fashioned stuff, but it goes a long way," she says, adding that the training will pick up from earlier managerial training programs deployed in 2005 and will be accompanied by an online ethics course developed for Tyco by Wayne, Pa.-based Kenexa.

The company is also doing everything it can to ensure the employees in its various divisions aren't overwhelmed by unrealistic sales or production goals, says Siegel. This includes making adjustments to Tyco's business plans to account for recent events such as global currency fluctuations and wild price swings in commodities.

"You need to know when to adjust your plans. If you don't, then you'll lose credibility as an organization and you'll end up holding employees accountable for goals that just aren't credible for them," she says. "By doing this, I think we went a long way with our workforce to say, 'We get it, and you'll be fairly measured and rewarded.' " 

Committed to Talent Management 

At Convergys, Handy says that, although the difficult economy is prompting the company to look for ways to save money, it is not pulling back on its talent-management efforts. If anything, it's relying on those programs to help it through the recession.

"We're hiring more from within, and we've created a new position called 'internal talent recruiter,' to allow employees to have someone to talk to about their careers and other opportunities within Convergys," he says. "It's kind of a career-counselor role, which most HR departments gave up on years ago as a luxury, but we think it's helpful during times like these for people to have someone to talk to about their career."

The company is also relying on its coaching and mentoring programs to keep employees engaged, says Handy.

"I've certified all my vice presidents as 'certified leadership coaches' through a program offered by [Burlington, Mass.-based consulting firm] Linkage, we've invested in external and internal coaching for all our managers, and we've created an online mentor-matching tool called MentorNet to match mentors and mentees," Handy says.

"All of these efforts were put in place within the last 18 months and they've turned out to be a lifeline of sorts in these tough times," he says.

"Employees these days are dealing with issues that go way beyond whatever building they happen to work in," he adds, "and they're seeing their friends and neighbors go through challenges, so having these resources available to them helps our people deal with the many stresses they're experiencing today -- personal as well as professional."

At KeyCorp, Helfrich is also helping the bank's workforce stay responsive to customers' concerns by delivering focused training as speedily as possible.

"When customers had all these questions about whether the FDIC would protect their deposits, we were able to put together in a short amount of time an FDIC refresher training course for all our branches," he says, adding that the company is relying on a combination of podcasts, Webinars and computer-based training to get new materials out to employees quickly. "The point is for HR to be as agile and as focused as possible. Relying on traditional solutions is not going to work."

Despite the stress and uncertainty that the economy is inflicting on HR and employees alike, Helfrich is firmly convinced that it also represents a golden moment, of sorts, for HR.

"We are in uncharted waters, and at times like these, the opportunity for HR to step up and make significant contributions has never been better," he says. "I think the demand and expectation for HR to play a significant role has never been higher."

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