The Federal Reserve’s plan to shock the economy and break the cycle of inflation will work. However, this correction will produce significant pain for businesses and consumers alike. Many leaders (in every quarter) will be keen to avoid making a serious mistake.
There will be steep budget cuts, expansive job losses, and a surge of bankruptcies across industries. Stocks will continue their rapid descent, destroying savings in the process, while the cost of goods will remain artificially high in the short term.
There will be frustrated finger-pointing, difficult conversations with loved ones, and many sleepless nights.
It is in this moment of alarm and uncertainty that leaders will make the mistake — they will stop investing in their people.
Here is how it will play out.
As the economy continues to slide into recession, leaders will be pressured to halt spending and strike costs from their 2023 budget. With dark clouds of uncertainty hanging over their head, they will delay their team off-sites, restrain wage increases, cut their leader development programs, reinstate travel restrictions, pause investment in technology and infrastructure, and eliminate employee perks that seem unnecessary.
These cuts will improve the bottom line, but a quiet murmuring will begin to spread. There will be rumors that the organization is in financial trouble. High performers will begin updating their resumes and reaching out to their network to explore new opportunities. The exodus of talent that follows will lower engagement, decrease quality, and slow productivity. The deteriorating conditions will lead the next tranche of workers to search for new employment. Rumors of financial ruin will start to become a reality.
So how do leaders avoid this death spiral when there are very real pressures to reduce costs? In a word, “focus.”
Focus on who matters.
The harsh reality is that some people in your organization matter much more than others. Leaders make a mistake when they fail to acknowledge this difficult fact.
There are informal leaders, subject matter experts, network influencers, cross-functional connectors, high-performers, and future leaders in the succession pipeline who hold a disproportionate influence on the organization’s success.
You need to identify who they are. I imagine that you could name a number of those people off the top of your head, but inevitably, you will overlook a few key individuals whose impacts are essential. Investing in a network analysis is one of the most valuable actions you could take, but if that is not possible, then doing an informal survey will do.
If you ask enough people the simple question of “who do you go to for help?” you will have a decent picture of those team members that deserve your investment. Once you understand who matters, find out what they need to be more successful — development, resources, tech, etc.) and then choose to make that investment.
Sure, others may feel that this investment is unfair, but you will engender incredible loyalty from the people who matter most and you will set them up to have an even bigger impact.
Focus on what matters.
If there is a silver lining to an economic downturn is that it places a spotlight on what is worthwhile and what is a waste of time and money. When organizations make generalized, widespread cuts they forfeit the opportunity to eliminate fat in the system.
Rather than spending time trying to justify previous investments, use the time to place these programs, initiatives, and tech under a microscope. It is tempting to start by looking at these investments and reverse-engineering how they support the strategy. If you look hard enough, you can always find some justification.
Instead, start with the strategy — what are the capabilities, experience, expertise, and technology needed to execute the plan? Now, which of these critical factors are met by our current investments and which are not addressed by anything we are doing? Get rid of the things that are not helping you achieve your strategy and double down on your investment on those that are making a difference.
Ultimately, you need to deliver business outcomes and if your professional development programs, tech platforms, or other investments are not driving those outcomes, it is time to redirect your resources to what matters. Use this opportunity to make the precision cuts your organization needs.
Focus on making connections that matter.
Connections matter. They give us the resilience we need to get through painful times. Connections provide the social capital we need to work productively. They provide us with the critical information we need to take decisive action in an ocean of ambiguity.
Many organizations have brilliant experts, devoted leaders, and hardworking employees. What separates the truly great organizations is the connective tissue that enables these team members to collectively drive exponential results. When resources are limited, great leaders invest in those tools and experiences that strengthen connections.
There is a temptation to cut development budgets and then sprinkle the few remaining dollars to the populace. Many do this with subscriptions to large, digital libraries of content. Leaders are then shocked — and usually angered. Their people are not using these subscriptions but continue to complain about the lack of investment in them as professionals. That’s because people aren’t asking for more instructional videos — they are clamoring for community that organically arises from shared experience.
Leaders make a mistake when they pull back on their people. Invest in cohort-based development programs, team off-sites, conferences, and other initiatives. It’s worthwhile because it builds functional connections and relational connections. These will pay off in higher organizational performance and higher engagement back in the workplace.
We are all in for a rough winter. The mythical “soft landing” in which inflation comes under control with minimal pain will not happen. But with every economic crisis comes tremendous opportunity for those organizations that navigate it effectively. Invest in your people today and reap the rewards of your investment tomorrow.