Never Waste a Good Crisis: A few Lessons from the Recession* – Part 3
In this series, we’ve been looking for a few bits of wisdom gained from the challenges of the great recession — 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 others, in terms of their effects on employee alignment, capabilities and engagement (ACE). And in a case of “no good deed goes unpunished” if you try to avoid cutting people or pay by cutting back on service to customers, you may actually cause more damage to ACE than if you had a round of lay-offs or reduced compensation!
Each of the tactics for managing through an economic downturn described in Parts 1 and 2 can be considered reductive, if not outright destructive in their fundamental nature. Leaders may choose to think of them as “pruning now for future growth,??? but that does not change the fact that such pruning has serious repercussions for employees and the customers they serve.
Cost-cutting that Reinforces Engagement
In our study of 2,000 companies, we found one strategy that did not fit the mold. One strategy that cut costs and actually improved alignment, capabilities and engagement.
The one tactic that had a positive impact on ACE? Identifying process changes to reduce costs. Companies using this tactic found a strong positive impact on alignment and engagement, and a moderate positive impact on capabilities. This tactic likely maintains consistency with pre-existing goals. Thus looking within the organization to collaboratively make improvements and reduce costs actually increases alignment. For employees, it represents the company choosing surgery over amputation. Not surprisingly, this path can actually lead to higher levels of engagement. Employees are highly attuned to organizational behavior that values people and that recognizes their ability to help a company prevail in challenging times. And chances are, the stated values of the organization are much more in line with this approach than any of the other cost-cutting techniques. There is a lesson here for every organization facing a difficult future.
However, this is not a tactic that should be limited to the production side of the business. If you are in HR, IT, Finance, or other shared services there are techniques now available to support intelligent cost reduction by focusing on both demand-side and supply-side waste, such as Functional Lean. Applying tools like Functional Lean underscores that everyone is in the same boat, and we all have to work together to survive — you can’t just count on shop floor lean six-sigma to save the day.
Lesson #3: Live those corporate values. Treat those “most valuable assets” as if they really are just that. Tap into the wealth of knowledge they have to drive cost out of your systems. It may not be as fast as pink slips, but in the long run it will absolutely serve your organization better.