31 Jul 09 Recession: Understanding the business and psychological impact

Overview: Recession – Understanding the business and psychological impact

This briefing provides the results of a web-based survey conducted on this site between February and May 2009 to determine the real costs and impact of the recession – especially from the perspective of the psychological impact upon organizations’ human resources.

The key findings are:

• Respondents largely discount the possibility of a rapid economic recovery.

• Rather than just being an economic recession, severe misgivings were expressed regarding the values and culture that have developed in both the business world and society in general. These cultural attributes are seen as the real driving cause behind the economic downturn. We therefore face not just an economic recession, but a cultural recession.

• The psychological impact at the human level is worryingly high. Over 80% of respondents reported seeing multiple symptoms of stress amongst colleagues and over 70% self-reported experiencing multiple symptoms of stress.

In the light of these findings a range of coping and response actions for managers is introduced at the end of this briefing.

Introduction: Survey structure and objectives
When this survey was constructed, we were particularly interested to discover views of:

(a) How long the recession would last.
(b) What was its real cause.
(c) The perceived long-term business impact.

But, most importantly, we wanted to ascertain the human cost, not in financial terms, but in terms of the stress and anxiety that respondents saw around them and experienced on a day to day basis.

The survey was therefore structured to focus on these four key issues.

This briefing firstly analyses findings in respect of the economic dimensions – views on how long the recession could last and how deeply businesses’ products and services could be affected.

We then proceed to look at the perceived real cause of the recession – who or what really is to blame?

The penultimate section is arguably the most important and examines the human psychological costs.

Finally, pointers for the role of corporate leaders and managers in a recession are provided in the last section.

Recession: The economic impact
Two broad questions concerned us:

1. How long did respondents think that the recession would last?

2. What impact would the recession have on their business – in terms of what they offered to their customers?

1. How long did respondents think that the recession would last?
We firstly asked respondents to estimate the duration of the recession or “downturn”* in respect of the country in which they were based. In this study, 91.8% of respondents were located in the UK. Therefore, we report here views in respect of the outlook for the UK only as shown below in Exhibit 1:

* Note that “the downturn” was defined as “the period embracing either negative or sub 1% GDP growth”.

Only just over 8% of respondents thought that we faced a quick “V” shaped recovery.  Most saw a longer period of effectively, economic stagnation.

Respondents thought that the UK would fare comparatively well when contrasted with the global economy.  Respondents’ views on the global outlook are shown in Exhibit 2:

Here, respondents expect a lingering recovery globally.

In terms of returning to normal levels of profitability after the downturn ends, respondents were divided broadly 50/50 with just under 50% thinking that recovery of profitability would just take a year – of the remainder just over 20% were looking at three or more years to recover profitability:

2. What impact would the recession have on their business – in terms of what they offered to their customers?

Just under 10% thought that there would be no impact on offerings – the majority acknowledging that some adjustments would have to be made.  13.9% however felt that deeper changes would have to be considered in terms of the products and services that their businesses offered:

Recession: The real causes

Next, we wanted to understand what, in respondents’ minds, were the real causes of the downturn.  We gave respondents a range of suggested causes to choose from plus a free format option.  Respondents could choose more than one cause and the result is shown in Exhibit 5:

The results surprised us and point to more deep-rooted and widespread problems than we first envisaged. The survey results indicate that far from facing a conventional economic recession, society and business in general are both facing a cultural recession.

The findings point to the values that are perceived now to be a deeply ingrained part of government, the business world and even social behaviour as being the real instigators of the economic meltdown. In terms of the underlying cause of the downturn, over 75% of respondents pointed towards a “short-term profit focused culture”, but an analysis of supporting comments from respondents showed us that cultural shortcomings were seen to exist within most, if not all, elements of our society.

Recession:  The human cost

The last section of the survey introduced the need to look beyond the financial cost that the downturn is imposing on business and society. In this section we try to look at the human cost – particularly in terms of anxiety and stress.

There were two perspectives that we wanted to examine. The first was the degree to which respondents were seeing symptoms of stress amongst their colleagues. The second asked if respondents themselves felt under pressure.

Exhibit 6 looks at the question of stress amongst respondents’ colleagues:

If any of these symptoms were experienced in isolation they may cause mild to moderate concern, but when experienced in combination they can make for worrying reading. For example, over 80% of respondents noted multiple symptoms of workplace stress amongst their colleagues. Only 2.5% of respondents did not see any of these symptoms amongst their colleagues.

We asked respondents how well equipped they felt do deal with these issues. Encouragingly, just over 31% felt that they could handle this challenge on their own. A further 48% thought they could help with access to some specialist support. Finally, just over 7% thought that they either could not help or would need access to significant levels of specialist support.

In Exhibit 7 below we can see that a similar picture emerges when looking at respondents’ personal reaction to the downturn:

These results show respondents’ own, personal reactions, to the downturn.

Again the results give cause for concern – 70% noted multiple symptoms ranging from “lack of focus” through to “depression”. A small number, only just over 8%, had not experienced any symptoms.

Taking Action:  More than waiting for green shoots

Obviously, more needs to be done than waiting for “green shoots”.

Leaders must now consider how they are going to face the strategic, cultural and the psychological implications of this downturn.

Whilst many of the issues being observed and experienced by people in the workplace stem from pressures both personal and professional, business leaders must play a critical role in supporting their employees through this difficult time.

This research points to at least three inter-linked key tasks for business leaders.

The first is the management of businesses through a potentially protracted period of either negative or negligible economic growth that we refer to as “the downturn” in this report.

Businesses now need to strongly consider the competitive strategy that they need to operate in such an environment.

The second task is to respond to the major cultural concerns that this exploratory study has surfaced. As we have already mentioned, there are opportunities for leaders to ensure that their businesses’ culture and values are clearly separated from “the root causes” described in this report.

The final task is of course helping employees to deal with the psychological implications of the recession and the uncertainty it brings. Without attention to this dimension, there could be considerable costs both in terms of individual anxiety and loss of business efficiency.

There are at least two broad courses of action for business leaders to consider at this stage. The first concerns the issue of business strategy itself. The second focuses upon the human impact of the recession.

Looking firstly at business strategy, there is great uncertainty regarding the recovery path that the advanced economies will follow. The newspapers are full of reports of “U”, “L” and “W” shaped outlooks. Additionally, it is held that recessions are times of change and “creative destruction” – new opportunities will eventually rise from the ashes.

From a strategy perspective there are two actions that businesses can undertake to help manage this period of transition and ambiguity.

Firstly, businesses should consider the impact of two alternative scenarios – the first a relatively rapid “U” shaped recovery, the second an extended “L” shaped outlook. Both will require different responses. Having a thought out plan for each now will help businesses respond rapidly.

Secondly, new opportunities will appear as we move out of recession. Some of the respondents have echoed this view in their responses to this survey. It is important now to set up projects to sense how customers’ needs are changing so that this new knowledge can be brought back inside the organisation. This early capture of knowledge and experiences will form a vital foundation for the crafting of new strategies going forward.

Both these exercises provide an opportunity for staff engagement and act to demonstrate that the organisation is constructively tackling the challenges of recession.

The second broad course of action focuses more directly on the human costs revealed in this survey.

There is now obviously the need for managers to actively look for the symptoms of anxiety and stress. Once symptoms are identified, if they are tackled appropriately it can have a direct and positive impact on issues such as employee mental health, productivity, staff recruitment, retention and customer relations.

Managers who have been coached in how to identify the signs can often tackle it at source. Research consistently demonstrates that managers with an ‘open door’ policy and those who ‘walk the floor’ and get to know their team will have lower instances of stress and related issues in their teams. Managers need to be aware of their role in managing and influencing their teams. Coaching managers to understand the significance of stress and its impact and how to create a ‘culture of communication’ is critical.

In conclusion, in the current economic climate, stress and related symptoms are on the increase. It is vital for the health of both the individual and the organization that managers are trained to be aware of the signs and are supported to act swiftly and appropriately to reduce the triggers to the stress that they have control over.

If you would like to talk about the actions that businesses can take to mitigate the impact of the downturn please do contact me.

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Tags: economic downturn, economic recession, human resources, psychological impact, symptoms of stress

25 Feb 09 Recession: Looking for stress points

In my last posting Davos 2009, Recession and Business Strategy: Quo Vadis? I included some straightforward questions to start the process of “stress testing” your business strategy.  In this posting I would like to explore the issue of “Stress” from a different perspective, which has a distinctly human element.

Unfortunately all the dials (or most of them) are pointing to a period of prolonged economic recession.  And we cannot be sure, with any degree certainty, what the post recession world will look like. As I explain in my recession scenarios,we could face four completely different worlds.

This means, probably for the first time in our lives, that we will have to live through a period of extended business and strategic ambiguity.  Some observers tell us that we are entering a depression that could last for up to 10 years.

We know too little, from both strategy and human perspectives, of what the challenges are for living and managing in a such a period of extended ambiguity.  Together with my colleagues, I am interested in exploring further the strategic and psychological implications both of this economic downturn and the prospect of a long period of “strategic ambiguity”.

I would therefore be grateful if you could spare a few minutes to complete the following survey.  It can be completed anonymously and only the aggregated findings will be published.  The results will help us to gain a deeper understanding of the challenges that we face. To participate, please click on the button below.

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Tags: business strategy, economic downturn, economic recession, human perspectives, survey

27 Mar 08 Countering Over-Optimism: A role for the Balanced Scorecard?

Gavin Cassar’s (Assistant Professor of Accounting at Wharton) latest research is interesting and may confirm a trend that many of us suspected was lurking behind the scenes. The problem is that when preparing business plans, managers tend to be overly optimistic. There may be an inbuilt tendency for us all to be just that little bit too optimistic when looking into the future. How many business plans have you seen painting a picture of pain today, jam tomorrow?

Interestingly, Cassar points to some evidence that the tools used in the budgetting process may actually exacerbate this problem. I have noticed that when ideas are expressed in numbers – financially – there seems to be a hypnotic trance that takes over. Because the plan is expressed in a financial format, the creators seem to believe in it.

To overcome this problem and improve forecasting accuracy, Cassar suggests:

1. Don’t just rely on a budgetting system. A good internal progress reporting system is also needed. Used together, these tools can improve forecasting and planning accuracy.
2. Go back and look at past experience. Reflecting on the actual past experience of generating revenue may be sobering. I find it helpful to contrast managers’ revenue projections with a robust forecasting model – such as time series decomposition – using actual historic data without any management intervention. The results can help us get back to reality.
3. Do ensure that external trends are properly factored into any agreed projections. Do the right research. Get external opinions. Don’t just sit in a darkened room to prepare the plan.

So there is a role for the Balanced Scorecard here.

Firstly, as tool that can illustrate the potential enormity of tasks that are needed to generate revenue growth if a proper correlation exists between the financial objectives and the remaining people, process and customer dimensions. Which really brings me back to a key point missing in many Scorecards – and that is validation of the linkage between Balanced Scorecard measures and actual desired performance. Scorecards only work if you are sure of the linkage between actions and end outcomes – financial performance. Secondly, the Balanced Scorecard makes an excellent performance tracking tool that Carras observes must be used hand in hand with budgetting and forecasting tools.

Tags: Balanced Scorecard, Business Planning, forecasting, forecasting accuracy

28 Feb 08 The Dangers of Stretch Targets

Reading Stefan Stern’s article “The art of stretching employees” (Financial Times February 25th 2008) reminded me of some of the problems associated with the popular management by “stretch” philosophy. You know what I mean – asking employees to do the seemingly impossible for example achieve 60% growth after a year of 30% growth.

There’s more to leadership than asking employees to do the near impossible – there’s an order to things and a couple of pitfalls to avoid.

A Certain Order to Things
I spent a fair amount of time reviewing more recent research when compiling my last Executive Briefing on the Balanced Scorecard – and I came across an interesting piece of academic research on stretch targets. The basic conclusion of the the research is that there should be a certain order to things when considering using stretch targets. The central message is “think about the skills, experience and knowledge that your employees need to take on that near impossible stretch target and set a target to achieve those competences before you hit them with the stretch objective.”

Quite commonsense really. So make sure that your scorecard can measure new competency acquisition as well as stretch.

A Couple of Pitfalls
Whilst writing this entry on a rather grey Thursday afternoon, two other potential pitfalls spring to mind. These are:

(a) Capacity. What if your people are successful and pull in that 60% growth. How are going to handle it? Is your business planning (and financial modelling) process good enough to link growth with that most precious of all resource – people – I mean here the capacity to handle all those new customers?

(b) Exhaustion. In my Executive Briefing Success: Your Biggest Problem? I warn against corporate exhaustion “here growth and acquisitions stimulate internal reorganization and restructuring. Such structural changes bring with them risks of loss of control and even loss of identity. The enlarged business starts to wonder what its core activities really are.” So just be careful – years of stretch may lead to tiredness, confusion and failure – if you don’t keep an eye out for the symptoms.

It’s great to be ambitious and leaders must build ambition – but they need to build capacity as well – there is after all a certain order to things.

Tags: Balanced Scorecard, business failure, stretch targets