A Cook Associates Report
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"When things are low and everyone else is selling, if you have the means, it's time to buy."
- John Barrett, Managing Director |
The reality of the current economic condition is keeping many CEOs up at night. The U.S. Department of Labor noted that the American economy lost 240,000 jobs in October, putting the total for the year at a daunting 1.2 million jobs. Credit has tightened, consumer spending is down, and the next few quarters could be some of the toughest in recent history.
The tendency for many CEOs at a time like this is to hunker down, start cutting budgets and trimming employees across the board. Yet talent experts, as well as many forward-thinking CEOs, caution otherwise.
According to John Barrett, Managing Director with Cook Associates, now may be just the right time to invest in talent. "Of course CEOs need to be responsible at a time like this. But it's similar to the stock market," he says. "When things are low and everyone else is selling, if you have the means, it's time to buy."
Ted Stimpson, President & CEO of Imagitas, a targeted marketing company and subsidiary of Pitney Bowes, agrees. "I consider this to be a time of three parts defense, one big part offense. I am constantly asking myself, ‘are there undervalued assets out there that I could reach out and grab?' I'm starting to get the sense that there are."
Where we are
Historically, people are drawing comparisons to the recent memory of the dot-com bust earlier this decade. Yet important differences are making this economic cycle unique.
First of all, Barrett notes that people are reacting much more quickly. "In 2000, companies were slow to react to the downturn and then took a chainsaw approach to trimming staff once things got really bad." He points out that this approach created longer periods of recovery for companies, many of whom took years to get back to fighting form.
"This time around, companies of every size are reacting immediately, and taking a more proactive, targeted approach. The trend is to try to be slightly ahead of the market, even with its unpredictability, and tighten where it makes the most sense. To borrow a popular analogy used in the recent Presidential election, people are turning to the scalpel vs. the hatchet."
This is wise in a downturn, because it offers some protection that the company will have the strength to react when things improve. "A lot of firms after 2001 just weren't ready to resppond to the market when things got going again," Barrett adds "Survival is key, but it's important not to lose sight of the fact that this is a cycle, and in time, things will get better."
What to do now
The current climate can create opportunities for many CEOs, and the following tips can help them capitalize while many others sit back and watch.
Consider where you want to invest: By taking the more targeted approach outlined above, CEOs are able to look at their organization as the unique entity that it is, and adjust their talent plan.
One of the biggest mistakes Barrett sees CEOs make in a downturn is officially declaring a "hiring freeze." This can lead an organization to miss opportunities as the market presents them.
"When most people invest they will do so in sales to shore up the revenue stream," Barret says. "But maybe you are a technology company and there are some really bright minds hitting the market, and you decide now is the time to invest in R&D. That may be exactly the right move to help you gain competitive advantage."
Now is the time to consider where in your organization you'd like to upgrade and to start identifying key players that can help take your company to the next level.
Over-commuicate: Stimpson shares that at his most recent quarterly meeting, he spent much of the time addressing employee concerns about the comany's state. "I spoke, but also asked the heads of marketing, sales and finance to share their perspectives," he says. "If there is silence coming from top management, employees will naturally fill the void, most times with things much more dire and sensational than what is really happening."
Barrett adds, "By treating every member of your team as if they each had an ownership stake in the company, you can capitalize on the ability to create loyalty when you may not be able to financially offer other incentives. Be open and transparent about the company's performance and challenges. People who feel invested in the business are much more likely to be productive, and may turn out some of the best ideas for cutting expenses ro creating value for the company."
Be vigilant about performance: Stimpaon shares that he has always subscribed to a philosophy of differentiation. Now it has taken on an even greater importance.
"CEOs are in a time where we find ourselves scrutinizing every line item of the budget. When your people are one of the biggest ticket items, there is just no room for people who aren't carrying their weight. Be proactive on working them out of the organization."
Be ware of who you're turning to: Many CEOs find themselves spending most of their time in a downturn with the CFO - sometimes without realizing it. While this is wise, practical and completely necessary in watching the bottom line, both men caution not to forget about other key members of the management team.
"As a general rule," Stimpson says, "I have my ear constantly to the ground. I am finding particular value now from mulitiple sources. Sales always has a good sense of what the clients are saying. Marketing has an eye on industry trends and can help me innovate. Our advisory board offers an outside perspective."
The variety of sources, opinions and perspectives can help a CEO see a more robust picture, and be invaluable in pointing the direction on what to do next.
In closing: Barrett and Stimpson encourage CEOs to be a little gutsy and treat this as a great opportunity to get a leg up on the competition. Barrett even suggessts the possibility of a "war room" to closely track what's happening in the market, as well as with your competitors, and figuring out how you can best respond.
"It's not the time to follow the crowd," he says. "You know your company best. Be thoughtful about which levers you can pull in your business to give you the advantage."
He adds an additional analogy as to the investment in human capital. "Many venture capital firms will tell you that the companies they invested in during the last downturn have showed them some of the most significant returns over the past few years. The promise of high returns can hold true for all companies with investing in the right people during this downturn."