When a company restructures, a business-savvy HR department can play a vital role
“In crisis, what you try to do is make your life as simple and as black and white as fast as you can.“ -- U.S. Army Col. Thomas Matthews, who headed the mission that later was immortalized in the book and movie, “Black Hawk Down”
For every story in business magazines that recounts how one company successfully -- even miraculously -- returned from the brink of bankruptcy to restore impressive profitability, other, sadder stories tell the tale of struggling companies that had to be sold, or simply closed their doors.
When a company finds itself in jeopardy, the quest for black-and-white simplicity takes hold. Typically, officials decide to retain the services of restructuring or “turnaround” professionals. These consultants work urgently to uncover the causes of operating and financial problems. They then devise and help implement plans for “fixing” the company – usually via operating strategies, finance and cash-flow projections.
But what about the people strategy? In times of crisis, how can the human resources function impact the company’s survival and shape its long-term health?
Peter Drucker has said that the productive capacity of all businesses depends on three factors: the capital resource, the physical resource and the human resource. Of the three, only the human resource possesses a productivity capacity whose upper limits are undefined.
Consider also that labor costs are often the most expensive part of the equation. Including payroll, benefits and training, the human resource represents nearly 60 percent of the typical company’s operating expenses.
It’s no surprise when, despite being recognized as a critical component in a successful turnaround, employees can be the first target in a cost-reduction program. These reductions may be based on arbitrary, authoritarian dictates - "Cut six employees!" "Reduce head count by 10%!"
In the process, HR’s systems of retaining, developing, recognizing and rewarding employees also are decimated. The employees who “survive” become depressed, scared and dissatisfied – rendering them highly unlikely to muster the enthusiasm and productivity necessary for the Herculean task of saving the firm.
Why do company officials resort to this approach, when surely none would disagree that attaining any strategy - be it survival, growth or superior performance - requires a committed and empowered workforce? Unfortunately, too many senior managers - and HR professionals themselves - see the HR function as a mere implementation team for regulatory inconveniences, workforce reductions, benefits, and other "take-aways," and non-strategic niceties such as social events.
A broader perspective
Progressive business leaders know that there are better ways to manage the difficult realities of falling profitability and dismal projections. Organizations whose HR strategies are aligned with their overall business plans are most likely to emerge from a crisis stronger than their competitors. As business strategies change, well-designed HR strategies can flex as well.
Consider the way human resources has been managed at two airlines – United and Southwest. From 1997 to 2002, Workforce magazine reports that the HR division at United was headed not by a professional HR executive but by an attorney and former Labor Department official specializing in labor negotiation. At United, employees reportedly are viewed as a cost rather than as a source of innovation.
In contrast, Southwest is known for building strong, trusting partnerships between managers and workers. People have become Southwest’s competitive advantage in part because employees understand their role in Southwest's low-cost/great-service strategy. The result relies on a consistent, well-articulated business strategy that serves and is supported by employees.
A vital part of the team
How can HR professionals who don’t work at companies as enlightened as Southwest position themselves as key contributors to a company’s strategic management, especially during a restructuring or other crisis? And what should senior managers expect from their HR team?
- HR must be business savvy. In order to “join the team,” HR professionals must educate themselves and speak the language of business. They must understand the financial scope of the operation and translate that knowledge into action that considers cross-departmental business needs and functions.
- HR professionals must become resources for boosting performance. In troubled times, managers can become so concerned with survival that they forget that wage cuts and layoffs will not save the business. But improved relationships with customers can save the enterprise. Those employees who work most closely with key customers can be a font of ideas for improving service – if they’re motivated properly. And employees who are involved by HR in the nuts and bolts of the turnaround strategy can provide invaluable support.
- HR must ensure effective communication. If cash flow is the No. 1 factor in a successful turnaround, delivering an effective communication strategy may be No. 2. In the absence of thorough communication, fear and speculation will quickly grip the workforce and further dim the company’s prospects for pulling through. HR must seize opportunities to celebrate small successes, which helps build a winning attitude. As changes to benefits and other policies become necessary, HR also must deliver that news as effectively as possible.
- HR must promote investment in the best talent. When trouble brews, the best employees may be the first to leave, because they enjoy the best job opportunities elsewhere. HR must act early to identify those people who are essential to a successful turnaround and provide them with retention bonuses tied to objectives.
- HR must be selective in recruiting. In the midst of turmoil, a key spot nonetheless often needs to be filled. Developing a recruiting approach that identifies the best talent and the best fit for the organization's evolving culture is critical. Southwest Airlines receives some 98,000 job applications per year; the company has refined its system to determine which 16,000 applicants will be interviewed and which 2,700 will be hired. The process requires a thorough understanding of the relationship between Southwest's employees and the company's success.
- HR must bring in the legal pros. Mishandled, a downsizing can set off a wave of employment-related lawsuits and bad publicity. Attorneys who specialize in employment laws as they impact layoffs, reduction of benefits, changes in work hours, employment contracts and collective bargaining agreements are essential assets during this time.
- HR must assess the value of outsourcing certain HR functions. Outsourcing offers scalability as a company grows and retrenches over time. It is also an effective way to reduce fixed administrative costs while focusing on ensuring the best return on HR efforts invested.
In times of crisis, when it’s tempting to resort to external fixes and black-and-white “solutions,” it pays to recall the oft-quoted axiom by Rosabeth Moss Kanter: The best ideas and technological innovations are created not by machines but by people.
