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Brain Trusts, RIFs and Performance-based Hiring

By Bryan Johanson, October 29, 2008

Today in board rooms around the world, business leaders are meeting to make plans on how to best weather the current economic crisis.  None of these seasoned leaders, however, truly know the extent of the financial crisis or how long it will last.  Their strategies will include such things as cutting costs, increasing marketing expenditures, selling off assets, buying struggling businesses, and reducing – or in some cases expanding – their work forces.  These decisions will quickly trickle down through their organization creating a whole host of emotional reactions.  In some cases there will be paralysis as leaders struggle to define a clear direction.  If you happen to be in one of the few recession-proof industries like health care, you are probably counting your blessings.  If not, you are wondering what changes you need to make to thrive in the current and coming storm.  

Is a Depression Coming?

This is the big trillion dollar question.  Never have the economists been so bewildered or confused about their recommendations as they are now.  The big joke when I was studying economics was, "If you put all the economists in the world end to end they would still never reach a conclusion!"  How true it is.  To put the current crisis in context, I did a little research on the timeline involved in the Great Depression.  Today we see the highest unemployment rates in the country in Michigan at 8.7% and California at 7.7%.  The best rates are in the 4.2% range.  Both of these high rates are up by 2% from last year at this same time.  (These stats come from the Bureau of Labor and Statistics website for September 2008.)  We recently asked one of our classes if they were experiencing a significant slow-down in hiring as a result of our current economic and financial crisis.  48% of the attendees (out of approximately 80 people) responded that they were already in a hiring freeze or a hiring slow-down.  Many reported being in a "wait-and-see" mode – they were still hiring, but cautiously.  We all hope that this current crisis will be short lived and we will quickly start on the road to recovery. 

I'm of the opinion that a 1929-style depression is unlikely, but a prolonged recession is all but inevitable.  During the height of the depression 600 banks failed each year.  Today the landscape is different.  The FDIC insurance program and the recent bailouts have assuaged fears of that becoming a reality.  Extensive bank runs are highly unlikely.  Although a friend of mine who runs an armored car company confided that just before  the Wachovia and Washington Mutual buyouts the volume of cash moving to banks jumped from 5 million per night to over 350 million.  However, some of the similarities between our economic situation and the great depression are troubling.  In 1929 during the stock market crash the U.S. unemployment rate was ONLY 8.7% – the same unemployment rate in Michigan right now!  It would take the United States another five years before unemployment hit 25% – the high for the depression.  Four years later it would finally return to pre-crash levels, but only because of government deficit spending as a build-up to World War II. 

Retaining the Brain Trust

So today I offer some advice to those leaders in the board rooms regarding their Brain Trusts.  It's a tremendously difficult challenge to retain the talent that will make your business thrive in times of economic uncertainty.  Indeed, the quality of the talent on your teams will be the single most decisive factor in determining how you will weather the current economic storm, be it long and prolonged or short.  The focus must be on performance.  While top talent becomes hesitant to move in tough economic times, they also can see the writing on the wall and will take deliberate steps to find something more stable and rewarding.  The smart employees won't jump ship without a life raft, but they will leave if the opportunities are greater elsewhere, and they will be happy to take the severance packages you offer them. 

Anatomy of a Reduction in Force (RIF).  Before you consider drastic reductions in force or layoffs, you have to ask yourself if you have a strategy for retaining your top talent.  It's important to understand how your best employees react to slower economic times.  While I worked at Novell in the late 1990s, we underwent a series of five reductions in force.  It was very interesting to watch the behavior of really outstanding people during these RIFs.  The rumor mill works very quickly, and within weeks of the initial announcement the very best started leaving.  They already had good jobs lined up and were eager to start something new.  Some went off to start their own companies with their innovative ideas using the stock they accumulated at Novell as capital.  There were efforts made to keep this group, but most chose to go rather than take the salary increases and "bribes" to stay. Ultimately, they all left.  Some good talent decided to wait out the storm, but much of this talent wasn't fully recognized or utilized by upper management.  Senior leaders didn't really know what they had or what their capabilities were.  As the top management of the company abandoned ship, this opened up opportunities for mid-level top talent to move up and take on responsibilities that would have taken another five or ten years to achieve in a normal environment.  Good people were harder to attract to Novell as the market decided that the business was in a slump. In this environment, everybody was constantly looking.  Which, by the way, is a whole lot easier to do now that we have the Internet. 

Top leaders were making difficult decisions about the future direction of the company.  Companies in crisis often return to those core products and services that made them money in the beginning.  Most other projects were scraped or postponed.  Interestingly, some of the top talent was assigned to the very projects that were being scrapped which put them in a very difficult position. Once a top person identified another opportunity, they would often wait for the next round of layoffs and quietly ask their boss to put them on the next RIF list, which their managers were happy to do.  They would do this partly because they wanted to do right by their employees and partly because they didn't know if they would be next and might need to rely on their employees to network for future opportunities.  This allowed them to take the severance packages and utilize the extra money to start new ventures or save a little money for a rainy day.  Timing was critical.  I saw a lot of great people get discarded because they were part of a project that was cancelled or a product line that determined non-essential.  This haphazard process ensured that much of the brain trust was lost.  This is where Performance-based Hiring would have been a great help.  In an economic downturn identifying your brain trust at all levels should become job #1.  The same principles that drive hiring decisions also should drive retention strategies.  Many organization have untapped talent at multiple levels, including undiscovered gems with hidden or previously underutilized talents.  Managers must become even better at assessing employees' talents against this changing environment.

Performance-based Hiring – The Driver of Organizational Change – A Case Study

Two years ago we applied the principles of Performance-based Hiring to a massive internal reorganization.  Our client, a very successful technology company on the east coast had grown dramatically.  The products they were selling had become more complex and challenging.  They were no longer selling simple solutions to departments within large fortune 500 companies, but because of acquisitions and mergers they were now selling a strategic product that required complete integration into the IT and business infrastructure of some of the largest organizations around the globe.  Sales people were no longer dealing with mid-level IT directors and managers, but with CIOs and CEOs.  The nature of the jobs had changed significantly, but the profile of who they hired and promoted had not. 

This organization decided to completely restructure their sales and support organization from top to bottom to meet this new environment.  Using Performance Profiles as their starting point, we reevaluated every position in the sales and services department and set new standards of performance that reflected the current realities.  We created an internal promotion guide to help managers easily differentiate between who was promotable and who was not.  The results were nothing short of fantastic.  We trained the management team to conduct full interviews with each member of their staff prior to assigning them their new role.  They asked me to personally lead panel interviews for each person considered for a leadership role in the new organization.   We created custom score cards (based on our 10-Factor Candidate Assessment form) to evaluate our assessments and debrief after each interview.   Everybody in the organization was interviewed over the course of a two-week period and the entire organization was reassigned within three weeks.  This company did not have a reputation for making smooth organization transitions.  Their previous approach was more "Fire, Aim, Ready."  When all was said and done, the overwhelming response from the employees was that this was the most transparent, thoughtful, and meaningful reorganization they had ever experienced.  Not one of the nearly 300 employees complained that the process was unfair or unbalanced. It's true that some were disappointed in their assignments, but few left the organization.  Others expressed that for the first time they really understood why certain decisions had been made and they appreciated the direct constructive feedback on their performance.  This is the power of Performance-based Hiring when it is applied to internal reorganizations.

As leaders around the country and globe reevaluate their strategies I urge them to take a hard look at their talent strategies.  Priorities will change, strategies will shift, but the underlying strength of each venture will continue to be the driving factor for success.  Before you make that blanket decision to downsize your recruiting team, you might consider redeploying them on a Performance-based mission to rescue your brain trust. 

Happy Recruiting,
Bryan Johanson