Your Best People - How to find, measure and manage your top talent

A major dilemma facing organisations in an economic downturn is which people they should let go and which ones they should retain. Release or retain is not as straightforward a choice as it may appear. It’s a general fact that organisations have a poor fundamental understanding of the high-value skills and abilities of large numbers of their people. When a major commercial bank decided to get rid of 500 of their branch managers because they were assumed not to have the ability to take initiative and grow business, they found, to their amazement, that over half of them had started their own businesses within three months of leaving the bank.

A downturn is a good time for CEOs and their managers to rethink their approach to human capital. They need to source or develop processes that enable them to know who they can make redundant, how to handle that process, and who they should make every effort to keep. Companies that do this will be able to retain and recruit middle-level talent – a group that is generally overlooked in favour of the few high profile stars, but who are the people who form the backbone of the firm’s performance, are the “farm system” that creates bench strength, and who, in a tightening job market, provide stability and continuity and deliver value. In a tough business environment companies that develop these competencies and processes will move ahead of the pack.

A recent survey from The Institute for Productivity showed that in response to the economic downturn 88% of firms plan to cut costs, while a separate survey, this time by Towers Perrin, found that 40% of companies expect to do this by cutting people. This is, of course, a relatively standard approach in times of slowing business, but before companies go down this route they ought to read the health warning on the packet.

The May 2008 issue of the Harvard Business Review cites research showing a positive relationship between laying people off and increased voluntary turnover – i.e. firing people has a knock-on effect on the rest of the organisation, and increasing numbers of people choose to leave of their own volition. Perhaps the most startling finding of the research is that only a small number of forced redundancies cause a large number of volunteer departures. The research found that as little as a 1% layoff of employees triggered, on average, a 31% increase in voluntary turnover.

So how do you cut cost – and people – and still retain the talent you need?

The first decision companies need to make is what they plan to cut. Is it people or jobs? Too often it’s the former. The word comes down to each division or department “Reduce headcount by 15%”. Which, in any practical sense is nonsense! Do the lowest paid 15% get fired, or the highest paid 15%, or just a random 15% picked from a hat? What are the criteria and do they ensure that productivity and performance are maintained while costs are reduced?

The place to start is with jobs. What outputs, results or deliverables are least important? It’s a matter of forcing the priorities - the jobs that produce the least essential outputs are the ones that need to be cut. But what about the people that are doing these jobs? Are they just collateral casualties in the process, or are they valuable individuals whose skills, knowledge, experience, and potential can be applied elsewhere?

In a number of situations where jobs are being cut (downsizings, mergers, takeovers, etc.) we have found that most individuals do not have a good understanding of their strengths, their potential and their value and because the company doesn’t have a good handle on these things either, our approach has been to get the company to segment people into three groups: (1) those they are sure they will be retaining, (2) those they are sure they will be letting go, and (3) those they are unsure about. We have then given the company a process for the individuals in groups 2 and 3 that focuses them on gaining an understanding of what their strengths are, what their abilities are, what their capabilities are, and what their value is (which we call their “personal equity”). They are then trained in how to present and market themselves either for possible jobs within the company or in the external marketplace.

The cost of this process is far less than the normal cost of redundancy and outplacement. Its first major benefit is that some of the people who would have been let go are recognised as having valuable skills and retained. And the second benefit is that those who are made redundant spend significantly less time getting other jobs and therefore incur significantly lower outplacement costs. But the biggest bottom line benefit is that talented people are retained.