Many commentators are saying that the recent economic downturn is not just another recession but a “resetting” (or “rebooting”) of the economy. There are a number of different reasons for such statements, and they tend to vary according to any commentator’s personal interests or field of expertise. This in no way invalidates them, but you do need to be careful how you interpret them.
You see, any recession is, virtually by definition, a resetting of the economy. Furthermore resetting an appliance or rebooting a computer implies that the device will effectively sort itself out and restart quite normally. There is no clear expectation of change from this analogy. Thus there is a danger in glibly accepting it, for without any shadow of doubt, this economic crisis presages change. We simply cannot afford to continue the way we were going.
In previous recessions the remedy has been to spend our way out of trouble. This has been facilitated by stimulating borrowing. Cheap credit has encouraged optimism and fueled growth. In this instance, however, excessive lending caused the recession and makes that a more risky strategy. You can argue that excessive borrowing is the cause of all recessions, but this one is different because the amounts borrowed to rescue the failed banking system have created unprecedented levels of debt. This limits the potential for future borrowing. Consequently, there is no longer the same scope to grow through additional borrowing. You could say that there will be a new normal for the amount of trade that will be possible and it is likely to be considerably lower than the pre-recession trade levels.
As a result “business as usual” is no longer an option. There is a new normal and the businesses that survive and thrive will be those that adapt to this more readily. Businesses are going to have to be more efficient and productive than ever before. This requires you to rethink the way you operate your business.
The area that offers you the most potential for this is the way you manage people. Efficiency can be created through new systems and processes but productivity is first and foremost a people issue. In order to optimize the new systems and processes you have to have people who:
- Understand the systems processes and the thinking that underpins them; and
- Are engaged and committed and looking out for the organization’s best interests.
In short this means that you need people who work smarter and who learn more quickly and are more responsive and adaptable. This makes people management your most pressing priority.
There is, however, another even more important reason for this. You can no longer afford the waste associated with the traditional management approach of “hiring people in good times and laying them off in bad times.” In a more constrained marketplace you cannot afford the cost of non-productive severance packages. You have to recognize that people are an investment and thus:
- If you invest wisely they are the resource that can do most to pull you through tough times;
- Every time you retrench people or make them redundant, you are actually writing off past investment. This is something that has long been under-recognized and not properly accounted for.
The information age may not be over, but people power is definitely making a comeback. If you want to ensure your business remains competitive in the new economy you are going to have to manage your people differently.