Be more communicative with people to allay layoff fears5 min read . Updated: 16 Dec 2008, 01:01 AM IST
Be more communicative with people to allay layoff fears
Be more communicative with people to allay layoff fears
New Delhi: The Washington, DC-based Corporate Executive Board Co. provides consulting and educational services to some 4,700 companies in at least 50 countries. Its chairman and chief executive officer, Thomas L. Monahan III, who visited New Delhi recently, in an interview dealt on ways to cope with the current financial crisis and changing financial conditions all over the world. Edited excerpts:
What do you think about the global financial crisis? Since auditors, accountants and management consultants have a role to play, what advice would you give to clients?
I would separate the short-term financial crisis and a challenging economic environment that companies are likely to face. So, we are focusing not only helping members navigate short-term issues surrounding lack of availability of capital, but also on what’s going to come.
Most of the companies we serve have very constricted planning scenarios for 2009, expecting consumer demand to be very moderate, if not negative.
Our job is also to help people enter a challenging economic scenario on a three-five-year horizon where huge competitive repositionings take place. Against that backdrop, what we try to advise our member companies is that senior corporate management, at the end of the day, doesn’t get paid according to global GDP (gross domestic product), but on the company’s performance under any economic circumstances.
As you look back across time, most challenging periods like this end up in very significant restructuring in the industry. So, if you will look 36 months after a crisis like this is over, you will see many a competitor has moved up or down in terms of valuation and market share based on how they acted during the crisis.
How do you go about advising companies to take hard decisions such as extreme cost-cutting measures?
No doubt we are asking companies to focus on costs and there are five things we are asking member companies to do right now for medium-term survival as also long-term success. However, there are two mistakes people make when going in for cost-cutting campaigns.
One is a one-year effort of taking cost out of the system. That cost, however, comes right back. We suggest companies that they should make sure that cost is a multi-year consistent effort, not just for short-term survival, but for longer-term cost leadership in their industry. Of course, in a downturn like this, we need to set in motion one-off cost-cutting, which signifies more of a corporate commitment to efficiency and productivity. We find the best companies cut costs as aggressively in good times as in bad times.
The second mistake that companies tend to make is that they tend to focus on overheads while we see high return coming from focusing on cutting manufacturing costs and not just the overheads. The second aspect is that we ask companies to avoid across-the-board pay cuts. Most companies tend to apply pay cuts too democratically, ignoring future growth.
Third, we encourage customers to look aggressively at how they price for elements of their products and services. In good times, there are lots of features and elements which get embedded in the product which customers don’t pay for. This is a wonderful time to look back into their contracting structures, terms, what they can price and what they can’t.
Fourth, risks have to be managed and this includes the willingness to take certain kinds of risks. Fifth, the phrase we use a lot is trade up on talent or upgrade your talent picks. We tell our companies that this will be a higher-end market where the calibre of talent that’s available will not be matched for another 10 years. We then ask them to separate the winners from the losers, people you really need to keep, lock them up and also take risk on who you can afford to lose and actively look for who you can get into your company. Averages or across-the-board action, on the contrary, can put you into trouble.
As a consulting firm, how prudent is the idea of announcing layoffs overnight? For instance, Jet Airways (India) Ltd did that recently but had to retrace its steps due to political or other pressures.
Our perspective is that certainly there will be some companies in some industries that would need to handle layoffs. Our advice, however, is to be very careful in any across-the-board decisions because we think not all talent is created equal, or for that matter, not all positions or markets are created equal.
Our concern on behalf of our member companies is that in times of crisis, a lot of clarity is required around performance management. There is somewhere between 3-4% reduction in productivity because of the general fear of layoff as people stop working. Our advice here is to be more communicative with people.
A lot of growth plans of companies depend on government policies, which may change overnight. What does one do in such cases?
We did a long-term stall-point study on why companies grow and why do they not grow, which was published last year and became a cover story in Harvard Business Review in March 2008. We studied hundreds of companies over several decades and tried to understand where do they suffer in the long-term required performance; and not just in one bad year.
One of the most surprising findings was that in 13% of the cases the stall was due to factors beyond the management’s control. Of this, 7% was on account of government policies and 4% on long-term economic downturn. In 87% of the cases, the stall was due to factors within management control. So, we tell our members that things can be very much within their control.
But this may differ for India?
I agree, it may. But things have changed now.
Who are your clients in India?
We have clients across sectors. The Tata group and Infosys Technologies Ltd are one of our oldest members. Others include Oil and Natural Gas Corp. Ltd, Mahindra and Mahindra Ltd, Reliance-Anil Dhirubhai Ambani Group, Bharat Petrochemical Corp. Ltd and Hindustan Petrochemical Corp. Ltd. More recently, we have added Axis Bank Ltd.
Although we have been in India since 2004 as a research hub for global research, we are now expanding in finance and HR (human resources) programmes.
How has working in India been different from other emerging nations?
I don’t know whether this is necessarily a comment about India but our customers here have been focused on building globally competitive enterprises. We never get questions on what is the best in India but what is best in the world; what is the highest level of productivity, efficiency, best on R&D (research and development) spends.