Leaders urged to keep nerve in face of economic turmoil

by 22 Jul 2008

TODAY’S TURBULENT times have the potential to be a severe test of leadership skills for many organisations, but adopting a siege mentality is unlikely to deliver future success, according to a recent UK report.

It argues that organisations willing to seize the opportunities to recruit, reward, retain, train and develop talent, despite tougher times, are the ones likely to benefit from a competitive edge when the economy picks up gain.

“Knowing how and when to batten down the hatches is undoubtedly an important leadership skill,” said Jackie Orme, chief executive of the Chartered Institute of Personnel Development (CIPD).

“And it may be enough to deliver a survival strategy. But this approach won’t support growth or deliver competitive advantage for the longer term.”

She said the leaders who will really excel through uncertain times are those with the courage to ride out to meet the storm – and the integrity to convince others to come with them.

The report is the first in a new series called Futures, designed to reflect the current and future challenges facing leaders in organisations.

Linda Holbeche, director of research and policy for the CIPD, said in the report that last time there was a downturn, many companies responded to pressure from money markets and laid off key staff.

“End result: come the return of growth, the organisations which had been most single-minded in getting rid of people or in sweating their human assets found that the very people they needed to fuel growth were not there,” she said.“The immediate short term had scuppered the medium term. They also stopped investing in the staff they retained, including leadership development.”

It soon became obvious that without that leadership capability, Holbeche said it was easy to get distracted by competing activities and the next crisis that came along.“Wasted effort spiralled. Treating people as disposable assets also led to much more transactional relationships with the employees who remained. Good performance came at a price and formed part of a heavily incentivised deal from then on,” she said.

However, those companies which stayed committed to talent and kept faith with employees reaped the rewards of innovation, performance and growth.

She said that maintaining and growing commitment to talent and leadership development will pay off, especially in uncertain times.“It’s what will distinguish those organisations that successfully ride the waves of change to emerge stronger and more capable than when we first heard the phrase ‘sub-prime’.”

Neil Roden, group director of HR at Royal Bank of Scotland, said in the report that in times of uncertainty, deterioration in business performance and productivity can kick-start a vicious cycle in which self-confidence and belief also starts to fall.“That can undermine your ability to attract and retain great people at a time when that’s never been more important,” he said.

“During uncertain times, therefore, there’s more pressure than ever on leadership and management teams to hold the workforce together and deliver business success.”

Ironically, he said the ability to manage in uncertain times is in short supply, but it does provide invaluable experience for future leaders, and allows people to shine who otherwise might not have had the chance.

Roden said the bank’s strategy for building its capability centred on seven fundamental points: excel in leadership and management capability; drive engagement in people; actively manage talent; deliver superior customer experience; improve efficiency and innovation; work collaboratively; and align HR and business strategy.

Jeffrey Pfeffer, professor of organisational behaviour at Stanford University’s Graduate School of Business, said in the report that waves of hiring and layoffs in an industry frequently drive talent out of an industry.

“People need to work, and if an industry offers uncertain employment conditions, employees will seek environments that offer more stability,”he said.

“Moreover, as we should have learned from finance, risk and return are related – industries that provide more certainty in employment can pay less because they are not asking people to assume as much risk of unemployment.”

He said the oil and gas industry illustrates the problems of talent retention when employment fluctuates widely. Dramatic fluctuations in employment on oil drilling rigs, corresponding to swings in the price of oil, have left the industry with a severe skills and labour shortage now that oil prices have apparently settled at a much higher level, according to Pfeffer.


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