Is your talent strategy recession proof?
We are not economists; we are not banking analysts and we are certainly not doctors. However, with the news of COVID-19 monopolizing our media sources and terrifying the consumer into hiding with as much tissue paper as possible, it made us think of the economic consequences that may follow.
Airports are empty and travel moratoriums have been put in place at the world’s largest consulting firms. There will be a ripple effect in the global economy from this heightened fear, but to what extent? No one quite knows yet. What we do know is that your talent strategy should be prepared for a recession, no matter your firm size. What tools are you using to help support your strategy? Are they positioning your firm for growth when the dust settles after a recession?
First, let’s discuss what you shouldn’t be doing in the unfortunate event that we experience a global recession. In professional services, the pendulum is constantly swinging back and forth on the demand scale. Consulting firms, no matter the size, continue to face challenges. Responding to market demands with the right team of experts is something we hear talent leaders struggle with constantly. When demand is high, firms struggle staff projects, often scrambling to put quality teams together that understand industry nuances and bring the right functional skill set to a project. When demand is lower, firms struggle to keep consultants off “the bench” and utilization rates suffer. This created a market for firms like Catalant to help consulting firms with swing capacity. This is a great solution for mid-level resources, and should be included in most firms talent strategy. But what about the seniors in leadership within the firm? This is where it gets tricky – these are your culture carriers, your market makers, the people in your firm that are the most client facing. It is far too difficult to trust an outsider with responsibilities like practice leadership, client account leadership and market making roles. If or when there is a downturn, the knee-jerk reaction is to start making cuts, whether it is payroll cuts to get rid of senior high earners or LIFO cuts to reduce new senior hires who were hired because the firm saw an opportunity for growth within their skillset/platform. Whatever you do, DO NOT look at Human Capital costs from a pure cost perspective, Looking at Human Capital costs from a purse cost perspective is guaranteed to hinder growth when the market returns and the firm is experiencing signs of prosperity. There is no doubt that the compounding loss of opportunity costs will choke your business strategy. Although this is our professional opinion, it is in research published in the Harvard Business Review examining different companies’ responses to three different recessions (1980, 1990, 2000), researchers noted that “firms that cut costs faster and deeper than rivals don’t necessarily flourish. They have the lowest probability—21 percent—of pulling ahead of the competition when times get better.” In contrast, “progressive” companies combine defense (e.g., cost reduction through operational efficiencies) with offense (e.g., selective investments to drive new business) to have “the highest probability—37 percent —of breaking away from the pack.”
One way to think about how to position your team for success on the other side of a recession, is succession planning. How many of your senior leaders are nearing retirement? Often, a recession will encourage retirement a couple of years early. How are you thinking about replacing these leaders? It is important to take a holistic view of the people in the firm. Given the inopportune time to invest in people outside of the firm, let’s look at the internal resources and who is best equipped to step up. All too often, when a practice leader is replaced, the elective candidate is chosen by commercial success or astute program leadership success. Further, these moves are often made using a self-referential lens, which poses a challenge to the firm in several ways:
- You have just taken a rainmaker out of market to lead a practice.
- You are flying blind as to whether a commercially successful leader will also find success leading practitioners.
- The “This is how we have always done it” mentality will continue through a self-referential succession.
- Just because someone has been a successful project/program leader, doesn’t mean they will excel or succeed in a firm leadership role.
Instead, we recommend a more effective way of succession planning that involves gaining deeper insights into your culture, the current leadership team and the potential candidates. This exercise can be accomplished through our Leadership Results Practice (LRP). Our data driven approach to leadership succession planning via LRP is grounded by our proprietary assessment tool, Verity, the first occupational specific assessment tool created for the consulting talent market.
Secondly, how are you enhancing your current team? The only way we can understand how to motivate, develop and accelerate people is to build a data driven approach to understanding who they are as individuals, outside of KPI’s. If you can gain a better understanding of a consultant’s values, you will, as a result be able build more balanced effective teams and practices. These practices will be positioned to work and serve clients together in a more harmonious way resulting in reduced waste while creating more revenue and greater margins. After all, culture is a collection of common values, common to the individuals that make up your firm.
The reactive strategy of cutting “into bone” when we are faced with a potential downturn is short sighted and won’t produce the same long-term growth that most firms aspire to achieve. Instead, we recommend taking a long-term, data driven view to better understand the current state of the firm/practice. It is our belief, and others, that this type of strategic shift will set the firm up for a successful rebound, create happier and more loyal consultants while accelerating performance at all levels.