This post is Part 2 of the series: Avoiding the mistakes of past economic cycles
In Part 1 of my series on lessons from past economic downturns, we learned that if you have to cut expenses fast, and you want to minimize the effect on your people, and specifically on their alignment, capabilities and engagement (ACE), cutting pay through temporary furloughs are less damaging than the uncertainty of potentially permanent layoffs.
There are more subtle options than slash and burn, however, such as reducing service levels internally or to customers. Our research shows that – perhaps unexpectedly – these tactics actually have a greater negative effect on ACE. Reducing services to customers has a strong negative impact on alignment and engagement; employees see a serious disconnect between oft-repeated strategies and mission statements that emphasize customer service, and actions that may damage customer relationships, if not harm the customers themselves. It is no shock that aspects of engagement such as advocacy (willingness to recommend the company) and discretionary effort might also decline in such a context. There is less of an impact on capabilities, which may mean that employees realize that the capabilities for good service remain in place; they are just being underutilized.
When companies reduce services between departments, there is a strong impact on all three ACE factors. Changes which imperil a department’s ability to service other internal groups would logically lead to lower perceptions of capabilities. And internal service breakdowns often lead to failures with customers. Employees may then feel less certain that they are on the same strategic page as senior leadership, thus lessening alignment. The strong impact on engagement is a little more puzzling. Perhaps, it is in part a reaction to being placed in a situation where, as an employee, one is prevented from doing the best work possible, resulting in a certain degree of cognitive dissonance. Or perhaps it flows from frustration with a lack of support from other parts of the organization.
Lesson #2. The biggest risk to employee alignment, capabilities and engagement may not be the most obvious. No one comes to work wanting to do a poor job. But if you put people in a position where they can only do poor work, ACE will suffer greatly. If you use service cuts in a downturn to save money, you may inadvertently be driving down ACE far more than you would expect.
This article is part 2 of a 3-part series. Next time: The Strategy of First Resort.
Jerry Seibert is an Executive Consultant at OrgVitality and an author of Hidden Drivers of Success: Leveraging Employee Insights for Strategic Advantage. With over 30 years of experience in the industry, he consults with organizations to assess how well talent investments are being optimized in organizations and help drive change that enhances employee alignment, capabilities and engagement. For more information, contact Jerry Seibert directly.