These really are uncertain economic times. Alan Greenspan predicts that ‘the current financial crisis in the US is likely to be judged in retrospect as the most wrenching since the end of the Second World War’. (FT, 16 March 2008). Martin Wolf, Economics Editor of the Financial Times, describes the rise of China and India as ‘the most important event of our era’, and the current financial crisis in the West as ‘a turning point in the world financial system’. And capital shifts are only one of the mega-trends producing economic uncertainty. Add to that global demographics, migration, massive infrastructural spend, rapid consumption of natural resources including fuels, environmental risk and international terrorism, and you have a pretty volatile mix. And what typically happens next? Businesses panic and shoot themselves in the foot. Once again recruitment freezes, major cut-backs in development budgets, and lay-offs in the City are already evident.
Let me state my position clearly: I believe that leadership is going to be crucial if organisations are going to survive the downturn and even thrive. Maintaining your investment in developing the leaders of the future will produce significant pay-back and enable you to gain competitive advantage through turbulent times.
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. The immediate short term had scuppered the medium term. They also stopped investing in the staff they retained, including leadership development. What soon became obvious was that without that leadership capability, 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. But those companies who stayed committed to talent and kept faith with employees reaped the rewards of innovation, performance and growth.
What distinguished the bare survivors from the thrivers back then was leadership and a determined commitment to building performance and growth through people.
After all, creating a high-performance workforce is not an easy task. So have we learned nothing from the recent past? Some things have changed since 2000. It is now much clearer that knowledge workers are becoming the primary sources of economic growth. And there are growing talent shortages in every sector, especially at the high-skill end of the jobs spectrum. According to a global study of worldwide HR challenges in 2008 by Boston Consulting Group, ‘companies may soon find talent scarcer than funding, as individuals gain more employment options’.
If talent is the fuel which gives you competitive advantage, and it is not easy to replace, you have to be careful how you manage it. Lose a key player and you lose not just their intellectual capital, but also their social capital – including their customer relationships, and their potential to add value to your business tomorrow. Most boards now recognise the link between talent and competitive advantage and understand that talent and leadership decisions have a deep connection to organisational effectiveness and strategic success. The challenge is to show you understand by a sustained investment in talent.
Steve Jobs of Apple told Fortune magazine recently: ‘We’ve had one of these before, when the dot-com bubble burst. What I told our company was that we were just going to invest our way through the downturn, that we weren’t going to lay off people, that we’d taken a tremendous amount of effort to get them into Apple in the first place - the last thing we were going to do is lay them off. And we were going to keep funding. In fact we were going to up our R&D budget so that we would be ahead of our competitors when the downturn was over. And that’s exactly what we did. And it worked. And that’s exactly what we’ll do this time.’
And if the world is changing constantly, leaders need to change with it. Economies based on knowledge and creativity require a level of management sophistication far above anything previously seen. Managers are absolutely key to employee performance and retention. Their ability to exercise the kind of leadership which motivates their teams and provides challenging work opportunities is essential to sustaining organisational performance. The leadership paradox is that strong leaders are needed, but they can’t command change in employees – unless employees want to follow them.
We may also be seeing a fundamental shift in the nature of work, and therefore in the nature of leadership required. With the shift to team-based knowledge work comes the need to question traditional models of leadership. Outdated concepts like ‘supervision’ and ‘training’ may be morphing into concepts like ‘design muse’ and ‘learning guide.’ Traditional, hierarchical modes of leadership are giving way to a different way of working – one based on teamwork and community, one that seeks to involve others in decision-making, one strongly based in ethical and caring behaviour.
Marks & Spencer hasn’t reversed its declining fortunes simply on some great advertising and high-profile models of a certain generation. It’s done so by engaging staff in a new way – the right way – of thinking about the company and the whole way they approach their work.
And what is even clearer now, post-Enron, is that it is no longer just what organisations do that keeps them in business; it is also what they stand for. Corporate reputation counts. People want to buy products that are ethically sourced, environmentally friendly and honestly produced. In the wake of Sarbanes-Oxley, many firms are trying to build a culture of personal responsibility. But as the pace of change quickens, managing corporate and cultural change becomes a critical capability. And leadership plays a major role in achieving both.
Brands are ever-more important, especially in the global markets in which many organisations compete. They have to be true to what is on the label of the tin.
The same is true of employer brands. While we no longer talk in terms of ‘loyalty’ but ‘employee engagement’, in practice it can amount to the same thing. People are usually prepared to go the extra mile if they believe in what they’re doing, if they feel it’s worthwhile, if they feel fairly treated and have the opportunity for personal growth.
And when key talent is in short supply they are your customer too. If you want talented employees to give of their best and help your organisation thrive throughout any downturn, you have to deliver on your employer brand promise. And that means treating talented employees as adults, keeping them informed about what’s happening, keeping your finger on the pulse of employee morale and maintaining your commitment to developing them. Keeping true to that commitment despite strong pressures to cut costs and lose heads is what leadership in uncertain times is about.
It is precisely when times get tough that leadership is most required, especially leaders who can lead people through uncertainty, keep people engaged and focused on performance. Leadership is central to maintaining great performance at every level – individual, organisational, national and international. This will be all the more the case when organisations are experiencing stronger competitive pressures. The temptation to get into massive restructuring mode tends to take the eye off ‘business as usual’, and leads to loss of business. And leadership is needed throughout organisations – not just at the top.
Continuing to develop leaders may be a vital positive signal of confidence in the future. If there is a direct link to strategic success, then cutting back on what may be the essence of competitive advantage would appear to be insane. There’s no universal recipe for success in leadership, and different circumstances call for different leaders, but at its core I believe that leadership is essentially moral, and that the potential for leadership can be activated. It’s about building on the unique strengths and potential of individuals and enhancing their ability to inspire others, making the organisation more changeable, innovative and resilient.
Maintaining and growing commitment to talent and leadership development will pay off, especially in these 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’.