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5) Keeping Key Talent during Downturns
     There is an extreme penalty to be paid by losing the wrong people when you downsize. A Talent Portfolio Analysis™ will identify those who must absolutely be kept and those who you can afford to lose. But how can you keep your key talent during a downturn?

First, identify your key talent through your strategic analysis. Concentrate on keeping your core professionals who possess critical competencies. It does not make sense, particularly in lean times, to keep marginal secondary employees. This may sounds harsh, but remember that you are in a battle for survival and the strategic health of the firm is at stake. You not only need to survive the downturn, but be in a position to thrive in the coming upturn.

Some examples of strategic talent management to help retain core professionals are:

1)
All managers take a pay cut. Honda recently announced that all managers would take a 10% pay cut until the demand for cars strengthens. They also froze hiring and are delaying new production, but the symbolic effect of managers (not laborers) taking a pay cut is important.
 
2)
Develop deferred compensation plans for talent you really want to keep. You may not be able to pay them now, but if you can build in promises of future payment, they are likely to stay with you.
 
3)
Use long-term contracts with your most important core employees, including those that are not actually employed by you (your contractors and your outsource and strategic alliance partners). You want them at your side when the economy improves, so it’s worthwhile to invest in a long-term commitment to them.
 
4)
Offer training that is organizationally specific so that your employees are worth more to you than to other firms.
 


Finally, there are some important tips that remain key to success in good times as well as bad. You should always hire people who have passion for something. You should take the time to hire the right people. Hiring mistakes are costly in many ways. Use team interviews and job tryouts. Don’t hire if the fit is not right. It is always better to keep looking than to hire the wrong person..


Summary
      
There are times when layoffs are necessary in order to survive. In this article, we described an assessment process that begins with a rigorous strategic analysis, then moved to a Talent Portfolio Analysis™ and concluded with strategies for retaining key talent during troubled economic times. A rigorous Talent Portfolio Analysis™ is built on good, tough, strategic thinking that can be a tool to help you get through economic downturns. The Talent Portfolio Analysis™ will help you know where to cut positions and people, where to outsource, where to contract, and where to fully engage your talent. A strategic approach always trumps across the board cuts. You will simply lose too many good people. Finally, after completing the important strategic analysis, adopt strategies that either share the pain or that lock-in good people when they might be tempted to look elsewhere.



References
1. “Settlement Ends Chicago Sit-In,” AOL Money and Finance, Michael Tarm, Dec. 11, 2008.

2. “Chrysler Closing Car Plants for 30 Days,” Mark Huffman, ConsumerAffairs.com, Dec 18, 2008.

3. Farren, Caela (1997) Who's Running Your Career? Austin: Bard Press.

4. Huston, L. & Sakkab, N. (2006) Connect and Develop. Harvard Business Review, 48 (March): pp.58-67.

5. Wells, S. J. (2008) Layoff Aftermath. HR Magazine, November pp.38-41.





About the Authors

Karen L Newman, Ph.D., is currently a member of the faculty at Daniels College of Business at The University of Denver. She received an MBA and Ph.D. from the University of Chicago Graduate School of Business and has taught organizational behavior, managing change and teambuilding at Georgetown, Case Western Reserve and Bucknell Universities. She has spent her career in higher education as a member of the faculty at Georgetown University and as a dean at the University of Richmond and the University of Denver. Professor Newman has strong international ties, having also served as a visiting professor at the Czech Management Center and as a visiting lecturer at the Melbourne Business School. Her research includes organizational transformation in Central and East Europe, high performance work groups across cultures, ethical work climates and careers through the lifecycle.

Professor Newman has consulted with a wide variety of organizations including the Kennedy Institute of Ethics, the Marriott Corporation, General Motors and General Electric. She has authored or co-authored more than 40 scholarly books, articles, reviews, monographs, and book chapters. She currently serves on the Boards of Junior Achievement, Colorado Women’s Forum, South Metro Denver Chamber of Commerce and Metro Denver Economic Development Corporation. She recently joined with business leaders in Denver to create a new company, ExpertSourceTM whose mission is to help organizations grow, innovate, and thrive through flexible use of talent throughout the lifecycle. She enjoys, hiking, gardening, golf and travel.

Caela Farren, Ph.D., has been a consultant, entrepreneur, and educator for over thirty years. She is founder and CEO of MasteryWorks, Inc., a Washington, D. C. organizational behavior think-tank. She received her Ph.D. in Organization Behavior from Case Western Reserve University. Dr. Farren has taught at McGill University, American University, Marymount University, and NOVA. She is known internationally for her expertise in creating career development products, services and systems. Hundreds of organizations employ her state-of-the-art tools, workshops, and web-based systems worldwide and Dr. Farren has brought hundreds of thousands of people along the path to mastery.

As a systems-thinker, Dr. Farren builds strong links between changing trends in industries, changing organizational strategies and individual aspirations and talent. Her Web of Work Model is the only framework that integrates on-going changes in industries, organizations, professions, and jobs with twelve stable basic human needs. She opens doors allowing people to discover their passion, their path, and to bring rejuvenated contribution and high performance to organizations. Dr. Farren’s books include,  Who's Running Your Career?™, Creating Stable Work in Unstable Times( Bard Press), and “Designing Career Development Systems (Jossey-Bass), with Kaye & Leibowitz. She is featured in “Management 21C, New Visions for the New Millenium” and has been frequently quoted in The Wall Street Journal, Boston Globe, Chicago Tribune, Christian Science Monitor, etc. She is published widely in a variety of journals. Dr. Farren’s personal interests include jazz, Bluegrass, fitness, travel and time with her three daughters and grandchildren. She is working on a new book featuring young adults who have chosen a mastery path in a wide variety of trades and professions. Her current passion is to support Young Adults in mastering their work and lives.  
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Investing in Talent During Troubled Times
by Professor Karen L. Newman, Daniels College of Business, University of Denver and Caela Farren, Ph.D., MasteryWorks, Inc.



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Introduction
    Economic hardship rarely brings out the best in employers. When companies are being tossed about in a maelstrom of hard times, management will often take a defensive posture.  When organizations face staggering losses, strategy often reverts to expedience. Cutting headcount is the fastest way to cut costs and cutting costs is believed to be necessary for short-term survival. The pattern set by industry of wholesale reductions in workforce and shelving training and development programs is the exact opposite of the real business imperative.


Some Current Examples

Consider a few examples of some strategies in response to the recent economic downturn: (See how companies are trying to cut their costs without laying off employees in our Mastery Spotlight.)

The Traditional Strategy

Faced with both increased demand for financial aid and decreased returns from its endowment, a university makes no attempt to cut the “fat” out of the organization. Instead, it offers a voluntary severance package consisting of six months pay and benefits to all staff. Simultaneously, it announces that once the voluntary terminations are completed, it will make additional involuntary terminations and those involuntarily terminated will receive considerably less severance pay and benefits.

The Traditional Result
The wrong people leave.  The most talented employees generally have more options and leave for greener pastures under a voluntary plan. These departing employees were critical to ongoing strategic initiatives and, when they leave, knowledge, engagement and innovation walk out the door with them. Morale among survivors plummets. Some of the leavers have to be replaced while others, who are not as critical to the mission (and without good options) remain to face the possibility of involuntarily termination.

The Shut-Out Strategy
Newspapers and television news decried a manufacturing firm that abruptly locked its doors, depriving employees of pay that they had already earned, their accrued vacation time, and proper notice of termination as require by law. Management simply closed the doors to employees, rather than to cooperatively work out future plans. The company did not file for bankruptcy, nor announce liquidation. It simply shut its doors.

The Shut-Out Result
A six-day occupation of the Chicago factory became a symbol of the plight of labor nationwide. Two hundred employees staged a sit-in that drew threats of prosecution against the owners, drew dozens of Washington politicians in support of the workers, and brought national attention to the company. After six-days, union leaders and the company’s lender agreed to pay employees about $7,000 apiece.[1]

The Shut Down Strategy
Chrysler recently announced extending a scheduled two-week shut-down for assembly line employees in fourteen plants for at least two additional weeks. "If I were a Chrysler worker, I'd be worried that the plant won't reopen," said Brian Johnson, an industry analyst at Barclays Capital. As many as 46,000 Chrysler employees are affected.[2]

The Shut Down Result
The “Big Three” automakers are now the”Little Three,” giving ample proof to years of mismanagement and lack of vision that borders on negligence. A four week shutdown is not likely to change Chrysler’s strategies. Chrysler should take this time to develop a strategy to reduce pension, medical and other labor costs, and start manufacturing green and fuel efficient products that the public is clammering to purchase. A shut down, absent serious repositioning, is simply delaying the bankrupcy that many say is inevitable anyway.

The Across-the-Board Strategy
An engineering firm recently mandated a 10% across-the-board cut in labor costs.  Management laid off the most senior (and most highly paid) employees to meet the mandated cost reduction.

The Across-the-Board Result
Again, the wrong people are let go.  The company lost very skilled employees, many of whom have already found work in related companies.  The company loses memory, wisdom, and intellectual capital.  It gains a reputation as a bad place to work for people over 40 which has long term effects on their ability to recruit and retain younger people.


The challenges to strategic talent management are tested more in troubled times than in good times. If strategic talent management takes a back seat to the crisis of the moment, your firm will not be positioned for profitability for the long run. You must analyze your business carefully, focus on your strategic priorities for three years or more and develop your talent appropriately.



Reaffirm the Mission and Strategic Intent
    
Strategic analysis begins with a reaffirmation of mission and strategic intent at the highest level. If you don’t have a mission, it might be wise to develop one. Mission expresses the purpose for the firm’s existence, its raison d’etre. Whether the company’s underlying motivation it is to provide the most information to the most people in the most useful format, as is the case at Google or to provide the most nurturing, comfortable end-of-life care as in the case at a hospice, knowing, stating, and reaffirming the mission gives the organization focus. During troubled economic times, there are few things as valuable as strategic focus.

While mission describes what we do, strategy describes how we do it. Strategy is the basis on which we compete in the marketplace. You should once again review and reaffirm your strategy – how do you accomplish the corporate mission? For example, is your company a low cost leader? Does it thrive on superior customer service? Are its products at the leading edge of technology in the industry? Is it a long-time supplier of reliable, well-known products? There may be a variety of ways to succeed in a given market if your strategy is aligned with your mission and with your talent.

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Develop Strategic Priorities for the Next 1-3 Years
    Given a rigorous affirmation of mission and strategy, the next step is to identify a small number of strategic initiatives for the near term, usually one to three years, but sometimes longer, depending upon your business. Strategic initiative planning involves (a) environmental scanning, (b) an analysis of your company’s core capabilities – your expertise or how your company will differentiate itself from the competition, and then (c) identifying and defining three to five key strategic initiatives that build on your mission, strategy, environmental scan, and internal capabilities. These initiatives reflect the significant strides you want to undertake during the next few years.

  • (a) Environmental Scanning is the process is the process of looking for trends, opportunities, and threats in the marketplace. You need to see the big picture in order to compete in an ever-changing global market and meet the current and future needs of your customers. Scan the horizon for new ideas, trends, and technologies in your business or industry to get ahead of the curve. For example, what opportunities are presented by “going green” or adopting a new technology? What realistic opportunities exist to develop a new product or service? Similarly, can you identify any threats to your existing products or services coming from a change in the competitive landscape?

  • (b) Analyzing your company's Core Capabilities is every bit as important as understanding the trends in the marketplace. You know the answers. Here are the questions. “What do we do best? Why do we win business away from our competitors? What sustainable advantage do we currently have in the marketplace? And how do our capabilities match emerging needs in the marketplace.”

    Identifyingand defining precisely what your company does best, its competitive advantages, and its manufacturing, product or marketing edge are critical to thriving during an economic downturn. Too many companies flail about, trying to find something “new” that will help them survive, often without the appropriate cost analysis, accurate knowledge of the market place and assessment of its own capabilities. Knowing who you are and what you do well is the key to expanding existing market niches and identifying successful new products or services. You also need to accurately assess how your company’s capabilities will match emerging needs in the marketplace. Don’t judge this by imitating the actions of competitors. This is the time to understand fully (1) what you do well, (2) what the marketplace is going to need, (3) what you can reasonably achieve in the future, and (4) what talent you will need to execute your plans.

    As illustrated in the first example above, the university responded to an impending threat – fewer students able to pay the high cost of tuition – by cutting staff costs. By making the same deal available to everyone, the leadership at the university thought it was being fair to employees. But it was not being fair to the institution’s strategic needs. It did not identify staff and processes that were critical for its future. As a result, it lost critical people.

  • (c) A careful analysis of mission, environmental scanning and core capabilities should lead to a list of no more than five key Strategic Iinitiatives. A list of more than five initiatives usually indicates your initiatives are more tactical than strategic or it may indicate that you are trying to bite off more than you can chew. Remember, it’s better to have done one thing well rather than attempt to do ten things poorly.


Defining Talent to Meet Strategic Initiatives
     Strategic planning is a universal tool in business, particularly when considering products, services, marketing, and operations. However, the strategic talent management activity that must accompany successful strategic initiatives is far less commonly used. This is especially true during downturns in the economy.

During difficult times, when across-the-board cuts, voluntary severance programs, and hiring freezes seem to be the prevalent solution, companies need to be far more strategic in their talent management. We suggest a technique, Talent Portfolio Analysis™ (TPA) to help companies assess their current talent and define the future workforce that will meet the goals of mission and strategic initiatives.


Talent Portfolio Analysis
     Talent Portfolio Analysis is a method that will assist you in knowing where to cut positions and people, where to outsource, where to contract, and where to fully engage your talent to meet mission and strategic initiatives. TPA has four steps.

Talent Portfolio Analysis:
4 STEPS
1)
Identify the professions and sub specialties that will be critical for pursuing your strategic initiatives;
 
2)
Examine your current pool of talent to find the requisite skills and abilities and how they should be deployed in the future. The talent with the knowledge necessary to deliver on strategic initiatives may be found in the obvious places and, in some cases, in obscure places;
 
3)
Determine the nature of the employment relationship necessary and advisable for key talent. Not everyone needs to be employed by the firm full time. Determine the right people and capabilities to have fully employed versus contract employees versus tasks that can be outsourced. This is where the TPA especially adds value in difficult economic times; and
 
4)
Identify the strategies for retaining key talent during troubled economic conditions.

 

Let's examine each one of these four steps:
1) Professions that are Critical to Strategic Initiatives

The first question is what are the knowledge requirements that will help you achieve your strategic initiatives? What is the professional background and knowledge that is needed to realize your plans?

Professions broadly include trades and crafts, which require mastery of a body of knowledge (marketing or accounting) and/or mastery of a physical capability (welding or big league baseball pitching). All professions have a body of knowledge, specific practices and competency requirements, as well as acknowledged experts and leaders.[3] The important point is to identify the knowledge, experience, and skills necessary to successfully achieve your strategic initiatives. Many authors have delineated lists of professions. Your list of professions will depend upon your business and its needs. For example, if you are in the landscaping business, you will include landscapers, horticulturalists, and logistics experts. If you are in financial services, you will have a different emphasis in your list of professions. The key here is to acknowledge the professions that have been important to you in the past, and identify those that will play an important role in the future. The paramount consideration is to recognize which professions are going to be critical to your future success in order to determine where to make talent investments. Whether going green, going global, or going into new technology, comparing your current portfolio of talent to future needs is critical.

The result of this examination should be a clear analysis of the professions that are defined as either (1) core professions that are critical to the success of your mission and strategic initiatives or (2) secondary professions that support the mission and strategies, but that are not essential.

Core professions for strategic success come in three types, the first of which includes those that represent critical competencies for your company, competencies you cannot do without. These are professions that should be nurtured and developed in the company for the long run. Those in core professions with critical competencies and strong performance should never be offered severance packages during a downturn.

The second type of core professionals is employees who also offer critical competencies, but whose talents you need on a fluctuating, or perhaps, cyclical basis. These employees might be connected to your company through contracts. Your company may reduce assigned work through a contractual relationship in an economic slowdown. These independent contractors provide a buffer – a pool of critical talent that is not engaged full time. Many consulting firms use contract employees to great benefit.

The last group of core professionals consists support professions, who are critical for the on-going maintenance of your firm, such as (1) those who might help you move into a new area, (2) those who you may not need for full time employment, and (3) those who own a support base of expertise as professionals (such as subject matter experts in any field). Thus you might use these people as outsourced talent or strategic alliance partners, which may include website development and maintenance, marketing planning, and new product development. All three might be critical to your company’s success, but it may not make sense to employ them internally either because of their size or their structure. As an example, Proctor and Gamble has pioneered the idea of open outsource innovation, partnering with a variety of universities, inventors and individual entrepreneurs to develop new products.[4]

Secondary professions
are those professions that support the mission and strategy, but are professions that are not essential. People in these professions tend to be easily replaced and readily available in the marketplace. These professions often include human resources, real estate management, security, transportation, and legal services. While important, these professions do not contribute to your specific strategic initiatives. Instead, they are a part of the on-going routine operations of your business. These professions are the easiest to outsource and the most vulnerable during tough economic times.


2) Deploying Talent to Achieve Strategic Initiatives
Once you have developed your strategic initiatives, recognized which professions are going to be critical to your future success by identifying the types of talent you will need going forward and where they are found in the organization (assuming you have the talent), you are ready for the next step. This is where difficult but important choices must be made about the nature of the employment relationship surrounding positions and people. To deploy talent to achieve your strategic initiatives consists of first reviewing existing positions, processes, and structures for alignment with the contemplated strategic initiatives.

Identify current positions and people who are critical to your future, including an explicit recognition of emerging positions (or growing professional needs) and disappearing or declining positions. Then the positions should be arranged in order of importance such that they are in alignment with your strategic initiatives, and then staffed. As mentioned above, we suggest listing two categories of professions, those that are core for your strategic success and those that are secondary. Core professions are critical to the success of your mission and strategic initiatives while secondary professions simply support the mission and strategies, but are not essential.


3) Aligning People and Positions
After you have determined which professions are core and secondary, you have arranged your positions so that they align with your strategic initiatives, and you have decided which professions to staff internally and which to staff on a contract or outsource basis, you are ready for the next step. This task is to identify the right talent for those positions at the top of the list, - the core professions that you cannot do without. Some of the factors you should consider are:

Key Talent
1.
Expertise in the Profession
 
2.
History/knowledge of the organization
 
3.
Prior history in emerging professions
 
4.
Reputation in organization/industry or profession
 
5. Individual traits/capabilities
6. Passion
   

Expertise in the profession
  • You clearly want the best and brightest you can get
  • For professions with multiple sub-disciplines, a careful analysis of the sub-disciplines you need is important.
  • For example, if you need to go global and your marketing staff is critical but has never developed a global marketing plan, you may want to add this type of talent to your company.
History/Knowledge of the organization
  • You should consider retaining people who have a deep knowledge of the company and its culture.
  • You also may want to add new talent from outside the firm to get a new perspective, to freshen old ways of thinking, and to shake up the culture.
Prior history in emeging professions
  • If your strategic initiatives bring you into emerging professions, you need to assess the ease your talent can transfer knowledge to those emerging professions.
Reputation in organization/industry or profession
  • Your core professional talent earns the company credibility. An important consideration is the person’s reputation in the industry and profession.
Individual traits/capabilities
  • Characteristics such as mental agility, systemic thinking, emotional intelligence, resilience, and comfort with change are always critical especially in economic downturns.
Passion
  • You should seek people that are passionate about their profession whether core or secondary.
  • Look for people with the capacity for passion because passion should be part of the company’s core culture. Remember that passion is contagious.


4) The Cost of Layoffs during Tough Times
Companies consistently underestimate the cost of losing key people during an economic downturn. When times are bad, the company’s very existence may rest on increasing revenue and cutting costs. However, there are hidden costs to losing core professional talent that most organizations underestimate.

Since 1988, hundreds of studies have causally connected employee emotions with quantitative results including explicit financial outcomes. When employees feel secure in their jobs and treated well, they tend to be more engaged. When workers are treated as an asset rather than a liability, they will respond. Respecting and valuing employees produces significantly higher levels of engagement, customer service, and competitive advantage.

When organizations engage in strategies of massive layoffs in hard times, many employees cease being involved in the organization’s work and they are no longer committed to the organization’s success, even if they are survivors. They simply stop caring. It is certain that lay-offs foster fear and employee alienation.[5] Studies reveal that a third of those alienated employees, who remain after layoffs, actively seek other jobs within two years. Half the workers alienated by cutbacks will find new employers within five years. The cost of replacement to the organization can range from twice the annual salaries for executives to 50 percent more for hourly wage earners.


5) Keeping Key Talent during Downturns...



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