A new picture of the economy is emerging, one that may threaten large organizations when it comes to talent.
Companies keep cutting workers during the recession, and indications are they won’t rehire many during a recovery. A report this month from consulting firm Watson Wyatt Worldwide finds that 43 percent of firms expect a permanent decrease in staff size in three to five years compared with pre-economic crisis levels. Twenty-nine percent expect a permanent increase in staff size, and 28 percent expect no change.
Earlier this year, Wired magazine editor-in-chief Chris Anderson saw an economic tectonic shift in the works. Bigger corporations, he argued, have to make bigger, riskier bets with lower payoffs. And amid fast-paced change, larger organizations are likely to become less flexible given increased regulation.
“[T]he next new economy, the one rising from the ashes of this latest meltdown, will favor the small,” Anderson wrote in May.
Many top employees could be headed to new startups. Earlier this year, the Corporate Executive Board research firm found that one in four high-potential employees plan to quit over the next 12 months. As disturbing, the report found that disengaged workers are 31 percent less likely to quit than they were in 2006.
No wonder the study found that engaging employees was the top priority for this year among global heads of HR.
What is a Global 1,000 company to do? In general, large firms will want to get their culture headed in the right direction—toward a team orientation and history-making mind-set described by authors Dave Logan, John King and Halee Fischer-Wright in their 2008 book Tribal Leadership.
More than a specific contract with an individual or bargaining unit, I’m talking about the overall principles that guide a firm’s relationship with employees. In the last three decades, the compact has shifted from one grounded in a degree of economic security for workers to one more about arm’s-length, transactional ties with employees. Layoffs became ubiquitous and health care and retirement risks were pushed onto employees in the quest for higher profits.
But it’s becoming clear that this treatment of workers has its limits. An employee-employer bond built for lasting success, it seems to me, would include a bias toward sustained connections, transparency, shared decision-making and concern for the “whole” worker—including their overall economic security and the well-being of their community. These principles should lead to trust, engagement, productivity and even greatness.
Creating such a 21st century connection with employees is a major undertaking. But especially if small becomes huge in the economy of tomorrow, large organizations will need to think big today.
The recent murder of a steel plant manager by workers in China has lessons for both American businesspeople and Chinese officials.
The killing, according to The Wall Street Journal, occurred when employees at Tonghua Iron & Steel feared their jobs were in jeopardy. A group of the workers apparently beat Chen Guojun to death in an office.
Chen worked for a privately owned company promising to modernize Tonghua Iron & Steel. The company had just come to an agreement to take control of Tonghua Iron & Steel from the government, the Journal story indicated.
The idea of workers and management at odds over jobs and restructuring plans isn’t new to Western businesspeople. What may be surprising, though, is the Chinese reaction to the tragedy. According to the Journal, the official Xinhua News Agency criticized local government officials, asking: “Wasn’t the Tonghua incident really a matter of failing to consider the interests of workers during the restructuring process?”
And in response to the plant protest, with Chen missing and feared injured, the government said the deal for Chen’s firm to take over the plant was off.
In the U.S., the Xinhua statement comes across as excusing murderers. And the axing of the takeover plan seems like capitulation to thuggery.
What those reactions miss, though, is the deep-seated collectivism in China. While Americans are prone to focus on the individual act or acts of violence, Chinese are more likely to see the role of the wider social context. The restructuring of state-owned industries in China has been proceeding for years, often with little regard for workers who lose their jobs.
The Journal quotes Li Xinchuang, vice chairman of China Metallurgical Industry Planning and Research Institute, a state think tank that helped draft the government’s policy for the steel industry. Prior to the Tonghua riot, restructurings “were concerned only with benefits of local governments and companies,” Li says. “But the interests of employees should draw a lot more attention.”
But there’s also a lesson for Chinese officials in the murder of Chen Guojun. Protests not all that different from the one at the steel plant have become commonplace in China this decade. Public demonstrations are among the only ways average citizens can fight back against perceived injustices, given the lack of meaningful democracy in China.
I hope Chen’s death helps Chinese leaders see how vital more democracy is.
“The CEOs that are most likely to succeed are humble, diffident, relentless and a bit unidimensional,” Brooks writes. “They are often not the most exciting people to be around.”
More than ever, it’s possible for such efficiency hounds to chew on human resource data in their quest. I recently met with Brian Kelly, president of HR analytics specialist Infohrm. Kelly’s firm is at the leading edge of the push to scrutinize people management information in the same rigorous way finance professionals assess corporate money matters and marketing experts analyze sales.
Here’s a peek into the kind of HR science Infohrm can bring to an organization. Say an insurance firm wants to trim its staff of $100,000-per-year underwriters to save costs, without threatening future growth. By examining data on the performance and career paths of existing underwriters, Kelly says, an organization might learn that its best, most loyal underwriters tend to come up from the ranks of its own call center managers, who make $50,000. Such internal promotions also save tens of thousands of dollars per underwriter in recruiting fees.
An optimal choice, then, might be to cut underwriters now but load up on call center managers and actively shepherd them into the underwriting role over time.
But Kelly isn’t only about numbers. As important, he says, is the art of helping HR departments and corporate leaders develop new evidence-based habits. Infohrm typically begins work with clients with an emphasis on getting basic metrics straight.
“They do need to focus on some quick wins like headcount, turnover, etc. to build credibility and trust before moving on to more sophisticated stuff,” Kelly says.
So we’re learning the science (the best CEO are relentless and anal, people data ought to be crunched) and the art (we must deal with the human side of change). But I suspect they’re not enough if we’re talking about long-term success in an era of increased transparency and growing concern about corporate citizenship. That’s where the heart part fits in. Maybe the CEO is a grind, but he or she needs values like caring about employees and the environment.
At first blush, the recent news that Caterpillar is cutting its workforce by more than 20,000 people seems like another sign that American companies are in grave trouble during this recession.
But Cat’s story is more complex, as I recently learned during a face-to-face interview with Sid Banwart, the company’s chief HR officer. The iconic maker of 20-foot-tall trucks and other heavy equipment has been taking people management steps during the downturn that may result in Cat purring happily a few years from now.
For one, the Peoria, Illinois-based manufacturer is reducing its workforce according to a certain long-term logic. Banwart said that about 8,000 of the 23,000 jobs getting cut affect Cat’s “flexible” workers: contract, staffing-agency and part-time employees. Excluding its flexible workforce, Caterpillar’s headcount at the end of 2008 was nearly 113,000.
There’s a debate about whether the rise in temp and contactor jobs is a good thing for American workers, especially given the historic weakness of the U.S. safety net. Still, temps and contractors can help companies preserve key employees during downturns and ramp up quickly in a recovery.
Indeed, Banwart says Cat’s move to largely trim its flexible workforce follows a deliberate strategy to handle troughs in its business cycle. The plan is designed not only to lower costs in a recession but also to allow the firm to hold on to long-term talent. “It’s actually worked out quite nicely for us,” Banwart says of the strategy.
Even though it is cutting workers, Cat has made it clear that executives also are sharing the pain. In December, the company said executive compensation for 2009 would be cut by as much as 50 percent, while compensation for senior managers would be slashed 5 to 35 percent. Cat also suspended merit pay increases for management.
In chopping the overall pay of executives, Cat is tapping into a national mood of shared sacrifice and intolerance for fat-cat excesses. “We believe it is important to lead by example,” Banwart says.
What’s more, the equipment maker is doing its best to avoid getting stuck in the recession rut. Banwart says Caterpillar is looking ahead to 2020, when it sees revenue possibilities of $100 billion—double the $51 billion it took in last year. The downturn will pass, in other words, and the world will return to building schools, hospitals and roads.
“This is a time when we emphasize the power of the ‘and,’ ” Banwart says. “We must deal with the current reality and maintain the ability of the company to grow following the downturn.”
For example, Cat plans to spend $1.5 billion on research and development this year, Banwart says. And Cat is continuing efforts to develop future managers. Between now and 2020, Banwart expects the company to need thousands of new leaders.
It’s too early to say whether Cat has pounced properly with its cutbacks or if it has acted like a corporate ’fraidy cat—with potential harm done both to its employee morale and ability to ramp production back up quickly. Banwart says voluntary turnover has “shrunk almost to zero.” But that could be a reflection more of the dire job market than commitment to the company.
A key test will be if Cat’s employee engagement scores continue their seven-year rise despite tough times. If they do, that will be a good sign that this Cat, while wounded, has a lot more life in it.
Word that business leaders are backing a better safety net for U.S. workers displaced by trade is good—if belated—news.
For several years now, it has been clear that the global economy can have frightening effects not only on manufacturing workers but also the services workers who make up the bulk of American jobs these days.
In a study published by the Institute for International Economics in 2005, researchers found that U.S. workers in services industries that can be traded internationally, such as data processing, lose their jobs at a higher rate than workers overall do, and that job loss for them is costly. On average, the study found, full-time workers in tradable services fields who are displaced and then return to full-time work suffer a 21 percent drop in earnings.
Yes, there are many benefits to trade—including lower prices for U.S. consumers and opportunities for workers in less-developed nations. But America often turns a cold shoulder to those of its workers left behind by the global economy. Most glaringly, the U.S. provides skimpy unemployment benefits compared with other developed nations.
Paltry aid to many of globalization’s “losers” isn’t just callous, it’s counterproductive. Generous benefits and aggressive retraining programs can shore up consumer confidence, stimulate a slumping economy and ramp up workforce skills.
Meanwhile, unemployment jumped dramatically last month, and Americans are reporting significant pocketbook pain. In a recent USA Today/Gallup poll, 55 percent of Americans surveyed said their families are worse off financially than they were a year ago—the highest number since Gallup first asked the question in 1976. And with a trade deficit that has topped $700 billion for the last three years, support for trade has dwindled among Americans.
The business community took a big step in that direction this week with the launch of a group called the Trade and American Competitiveness Coalition. The group, made up of 26 businesses and trade associations, isn’t endorsing specific legislation, according to my colleague Mark Schoeff Jr. But it wants to see Trade Adjustment Assistance extended to workers in the service sector. It seems the formation of the coalition could help break a logjam over how to renew TAA.
It’s not clear why corporate leaders in the coalition have taken up the cause of displaced workers just now—it may be more out of concern that support for trade deals is faltering than out of genuine empathy for average Americans.
But the exact motivations may not matter. And even if the business community was slow to embrace the issue, it can still do some serious good. Better late than never.
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