Never Waste a Good Crisis: A few Lessons from the Recession* – Part 2

Aug 18, 2010 by Jerry Seibert

With the economy giving very mixed signals again, this seems like a good time look back and see what some of hard-earned lessons from the last few years were.  In Part 1 we shared our finding that if you have to cut expenses fast, and you want to minimize the effect on employee alignment, capabilities and engagement (ACE), chopping pay is better than chopping people.  And the least damaging way to chop pay is the mandatory furlough. 

There are more options than slash and burn, however.  ?? Some responses to the downturn were less extreme than such direct tactics.  What we found in studying over 2,000 companies, however, was that less direct can actually mean more insidious when it comes to keeping an aligned, capable and engaged workforce.

The Link Between Customer Risk and Employee Risk

dominosWe discovered that greatest negative impact on ACE did not come from eliminating people or reducing compensation.  Surprisingly, the most powerful negative effects occurred when companies chose to reduce service levels to customers and when they made changes that reduced services internally, between departments.  Reducing services to customers had a strong negative impact on alignment and engagement.  It would seem that employees see a serious disconnect between oft-repeated strategies and mission statements that emphasize customer service, and actions that may damage customer relationships, if not harm the customers themselves.  It is no shock that aspects of engagement such as advocacy (willingness to recommend the company) and discretionary effort might also decline in such a context.  A lesser effect was observed for capabilities, which may mean that employees realize that the capabilities for good service remain in place; they are just being underutilized.

I have to say that I was perversely encouraged by these findings.  It says something positive — maybe even a little defiant – about employees’ commitment to the customer.

When companies reduced services between departments (internal customer service), there was a strong impact on all three ACE factors.  Changes which imperil a department’s ability to service other internal groups would logically lead to lower perceptions of capabilities.  And internal service breakdowns often lead to failures with customers.  Employees may feel less certain that they are on the same strategic page as senior leadership, thus lessening alignment.  The strong impact on engagement is a little more puzzling.  Perhaps, it is in part a reaction to being placed in a situation where, as an employee, one is prevented from doing the best work possible, resulting in a certain degree of cognitive dissonance.  Or perhaps it flows from frustration with a lack of support from other parts of the organization.

Lesson #2.  The biggest risk to employee alignment, capabilities and engagement is not be the most obvious.  If you use service cuts in a downturn to save money, you may inadvertently be driving down ACE far more than you would expect.  No one comes to work wanting to do a poor job.  But if you put people in a position where they can’t deliver the same level of performance as before, then ACE will suffer greatly. 

Next time: the strategy of first resort.

*adapted from my article in the April issue of Quality Progress.

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by Jerry Seibert | Categories: Engagement, People Equity |

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  1. Never Waste a Good Crisis: A few Lessons from the Recession* – Part 3 - Metrus Blog
    August 30th, 2010 at 10:39 pm #

    [...] — all the more timely since the future is still looking uncertain.  From Part One and Part Two, we now know that some cost cutting actions used to survive the recession were much riskier than [...]