Strategic Human Resources (Do not Read This if Your Business is Going Great)

Bad times have a way of bringing out our most conservative instincts. Like a turtle facing a raccoon, the natural instinct of business leaders is to pull into a shell and wait out the danger.

But some of the business leaders I have talked to recently take a contrary perspective. They see a downturn as an opportunity to think ahead and gain a long term competitive advantage. As one CFO of a mid-size manufacturing company said to me, "the time to buy stocks is when they are beaten down and a recovery seems most improbable".

So why not think about the people-related opportunities afforded by the downturn. If not now when? After all, when times are good, you are busy with day-to-day stuff like meeting customer demands, stopping your best employees from walking across the street for more money and otherwise figuring out what to do with all the revenue rolling in.

Here are the people practices up for rethinking that some of the more aggressive business leaders are talking about.

They start with a big number. These leaders do not start their planning with a sober, conservative assessment of where their business will be in two or three years. Instead, they begin with positive, some would say aspirational business goals usually stated in terms of key financial metrics such as revenue, profit margin or market share. One said to me, "if you goal is to hang on, that's probably the best you will do".

They then move on to a sense of how many and what kinds of employees (along with capital) they will need to reach those goals.

They are not a sentimental group. Starting at the top jobs, these leaders are identifying the "A" level skills, experience and qualifications needed to achieve the stated business goals. If there is not a match with the incumbent, change is quick to come. That means firing the incumbent, moving the incumbent to a better fit or working to bring the incumbent up to speed (but only if it can be done in a time-frame of months not years).

They are aggressively poaching talent. These business leaders are taking advantage of the economic fear and indecision of their competitors to hire the best talent away from them - usually at a bargain price.

They use brutal honesty and openness to engage the workforce
These leaders are sharing the burden by educating the workforce about the business and engaging them in the shared goals. They are honest about the tough times and challenges as a way of making their bright vision that much more compelling. They provide forums for collaboration, feedback and idea sharing. This is typically done using 'lunch and learns', e-mail, and employee forums. I expect that the future will see more use of some of the newer web-based approaches to collaboration such as blogs and wiki-type software.

They use compensation to support the plan
They see this as a great time to lock in talent with long-term equity and cash compensation that is generous but that pays off only if aggressive goals are met.

Leaders are taking this opportunity to differentiate sharply in compensation among those who are truly strategic contributors to the business and those who are purely doing their jobs.

While it is too soon to tell if there will be a wide-spread rethinking of the amounts and approaches to granting equity compensation, there should be some changes in common practices. For example, the heads-I-win-tails-you-lose approaches have come up so obviously and awfully short in the finance/banking industries.

I will address this issue in more detail in a future post, but for starters owners and boards need to find alternative approaches to compensating their top talent besides granting huge amounts of options, SARS and restricted stock to executives as a way of purportedly aligning executive interests with those of owners. This approach is often ineffective and counterproductive. Investors are risking their capital when they take a stake in a business. Executives rewarded with large equity grants are playing with house money. Their incentive is to take big risks for a big payoff as they cannot lose their "investment".

They are positive These strategic business leaders are all realists,yet they are optimistic. They just choose to focus more on the opportunity as opposed to risk.

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The market is down, your customers are afraid to buy and your employees watch you for any sign that they are next on the list. Now may just be the time to be a strategic optimist.