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Raising People Value in Downturns

William A. Schiemann, Ph.D., CEO of Metrus Group (www.metrus.com), a Somerville, NJ, research and advisory firm, is author of Reinventing Talent Management, to be published by John Wiley in spring 2009. A specialist in strategic performance improvement and measurement, as well as talent management, Schliemann offered insights on managing people during downturns.

PP: What’s the biggest mistake executive make in managing their human resources during downturns?

WS: Human capital is one of the biggest expenses. Not surprisingly, reductions in force and outsourcing are fast becoming the management weapons of choice. While cost cutting is important, it doesn’t answer the key question: How do you make sure that the survivors add greatest value now and as the economy turns around?

PP: What mistakes do leaders make with the survivors?

WS: If this downturn is like others, you’ll find leaders slashing training budgets, which will retard the greening process for future leaders and put the chill in “hot” new hires. They will cut back critical capabilities and the flow of information organizationally, which leads to second guessing and debilitating fear. Attention to capabilities and employee engagement is likely to wane in troubled times, thereby compromising customer relationships and productivity.

PP: What should leaders focus on in managing diminishing numbers of human resources?

WS: In our research and consulting work, we have found that organizational success in good and bad times is a function of how well leaders manage three key factors: Employee Alignment, Capabilities, and Engagement. These “ACE factors” are directly related to employee retention, product and service quality, customer satisfaction, and financial performance. The higher the ACE scores, the greater the return on human capital invested, or what we term People Equity.

PP: Can you define the ACE terms?

WS: For us, Alignment is the extent to which employees are connected to or have a line of sight to the business strategy. Capabilities include the extent to which an organization effectively creates talent, information, and resources to meet customer requirements. Engagement goes beyond employee satisfaction or commitment to one’s job or organization. It includes the level of advocacy on the part of employees for their organizations as great places to work, purchase from, and even invest in.

PP: So a company’s performance is related to the ACE factors?

WS: Yes. Our work over many years clearly shows this connection. For example, in a recent project with a large retail organization, we found that in locations with high ACE scores, the company’s employees demonstrated greater discretionary effort and lower intentions to leave, customers were more satisfied, and restaurants were more profitable.

PP: What about other companies in other industries?

WS: We teamed up with the American Society of Quality (ASQ) to study the effects of ACE on performance by surveying over 2,000 organizations. We found that organizations with higher ACE or People Equity scores were almost twice as likely to be at the top of their industry in financial performance. They are nearly four times more likely to have higher quality and will lose fewer people. In a related study we conducted with ASQ, researchers found that ACE was an important driver of internal customer service among over 12 different functions serving other internal stakeholders.

PP: What actions will likely raise People Equity?

First, know your people equity profile. To do so, you need to create an objective, empirically reliable mechanism that can be tracked over time. We recommend surveys because they are quick, cost effective, and can pinpoint strengths and weaknesses.

Second, identify the drivers of People Equity. Assess the gaps by asking: What are the causes of the gaps in ACE?

PP: What’s the best way for leaders to manage people in turbulent time?

WS: First, focus on the “A” players—keep them productive and motivated, so they don’t head for the exit in better times. Second, examine what human capital investments enhance customer value. Finally, communicate honestly to employees. It’s the basis for trust.

PP: Any other advice for raising People Equity?

Focus on initiatives that add measurable value. We suggest leaders take an HR initiative holiday, pending an analysis against the ACE factors. Using these factors as a template, initiatives should be prioritized, eliminated, or adjusted to bring up their impact on the three factors. This way you give the best to your human resources while getting the best from them.