How to Manage in a Recession

Layoffs have truncated staff;
cost-cutting measures are threatening projects, and morale is
in the toilet. From the manager's perspective, getting the most out
of employees in this kind of environment can seem like a Sisyphean task. In fact, it's a
perfect opportunity to rejigger processes and fix what's
broken — and managers are uniquely positioned to do just that. Here's
how being candid with your employees, rewarding them in creative ways, and
enlisting them to help make hard decisions can not only keep your team
motivated but pull your company out of its slump.

Set the Tone

Goal: Lower the anxiety level in the office by being
candid about the challenges — and opportunities — ahead.

It’s easy to blame the economy for all the reasons a
company is suffering: Customers are cutting back on their expenses, advertisers
are trimming their budgets, and stock prices are sliding. These problems may,
in fact, be attributable in part to the downturn, but going with the “It’s
the economy, stupid” defense sends a subtle but potentially dangerous
message to employees: It implies that the situation is totally out of the company's hands
and left in large part to fate. This is exactly the kind of
attitude that raises anxiety levels in the office and disrupts employees’
focus on the problem at hand: turning business around.

“Have the confidence to not completely blame the
economy,” says Stanford business professor Bob Sutton. “If employees
believe that leadership can break things, they’ll believe that
leadership can fix things, too.”

Don’t just rely on the CEO’s message. An
e-mail from the top explaining why the company is in the red can’t
tell employees much, which means mid-level managers need to be the
interpreters. Speak to employees in small groups and be as candid as possible
about where the company stands. This is also a good time to suss out any
rumors. “Organize quick events to ask what people have heard and to
answer any questions they have,” says Dave Logan, a senior partner at
Los Angeles-based consulting firm Culture Sync.

Open the books. Giving employees the numbers behind company
performance clarifies where the business needs to change and how their jobs
connect to the bigger picture. But be warned: “If you’re
going to be transparent, take the necessary time to teach employees about how
the business works,” says Rich Armstrong, general manager of the
Great Game of Business, a coaching firm that teaches open-book management. He
advises managers to start with what employees probably already understand, like
operational numbers, and then connect the dots with how those numbers increase
gross margin and generate cash flow. Above all, keep finance jargon to a

Focus on the future. There’s no need to sugarcoat it:
Pulling the company through the downturn isn’t going to be easy, but
emphasizing the challenge can have its benefits. “It’s a
great time for [your employees] to realize that they can play a role in
discovering opportunities for the company,” says Vince Thompson, a
former manager at AOL and author of the book href="">Ignited.

Hot Tip

The You in Team

If a company is going to stay resilient, the staff’s
collective commitment and collaboration are essential. In this environment,
simply making an effort to be more visible and available to employees can spark
productivity and bring the team together.

For example, if you normally work within the confines of a
walled office while your team toils away in the cube farm, grab your laptop and
set up shop in a cubicle near them — even if it’s only a
couple of times a week. Start showing up to the smaller meetings that you
usually skip, or rearrange your travel schedule to cut down how much time you
spend out of the office. In short, don’t wait for employees to take
advantage of an open-door policy. Go to them first, and ask how their work is
going. This isn’t about micromanaging — it’s
about knowing firsthand what they need.

Enlist the Team to Fix What’s Broken

Goal: Motivate employees and find out how and where the
business needs to change.

Traditionally, the top execs decide the strategy and let it
trickle down. The problem with this tactic is that it rarely makes the
emotional case needed to mobilize employees around a common goal, says Paul
Bromfield, a principal at Katzenbach Partners, which has advised companies like
Aetna, Credit Suisse, and Pfizer. “This is about problem-solving and
discipline, and that’s where employees come in,” he says. “Companies
should be harnessing employees in the effort to identify where to cut costs and

Not only will utilizing workers’ expertise make them
more invested in the company’s success, it also gives management a
more honest look at what’s not working. Senior leadership tends to
focus on just one area of cost-cutting, Bromfield says, like products,
headcount, or moving operations off-shore. Employees, on the other hand, can
use their collective wisdom to eliminate clumsy (and costly) procedures across

Here are four guidelines for involving staff in the process:

1. Identify key influencers. “If you’re
really going to mobilize people, you can’t do it from the top,”
Bromfield says. Find the key employees who hold sway in their departments and
get them to embrace and spread the change effort. These are the people who know
how things really work (not just the way they’re supposed to work)
and have a way of bringing together the right people to get things done.

2. Let teams do the problem solving. Form groups around
the influencers and motivate (rather than mandate) employees to identify what’s
slowing down business. Often the best place to start is to look for processes
and bureaucracies that annoy the team. Set a basic timeframe to achieve cost
savings, but let each group work at its own pace.

3. Make it a conversation. Schedule brown-bag lunches or
other informal venues to talk to employees about their findings and where they
might be hitting roadblocks. In the early 1990s, Bromfield’s former
client Texas Commerce Bank held focus groups with thousands of its employees to
find out what procedures most frustrated bankers and customers. Using the
feedback, the company nearly doubled its $50 million cost-savings goal.

4. Follow through. Many cost-savings programs fail
because management implements the initiative only halfway or lets
inefficiencies creep back after meeting short-term goals, which won’t
sit well with employees. Adopt the changes wholesale or not at all.

Big Idea

Keep Top Performers Moving

In an ideal world, the upside of a downturn is that
recruiting qualified employees becomes easier. With more candidates in the job
market, now could be the time to find new talent if your company has the
resources to continue hiring. But managers shouldn’t forget about the
top performers already on staff, say Monster
executives Steve Pogorzelski, Dr. Jesse Harriott, and Doug Hardy, authors of a recent paper on href="">how companies should invest in employees
when business slows down.

When the economy’s bad,
it’s easy to think that employees are grateful to have jobs at
all. But layoffs and budget cuts may cause good
workers to look for better opportunities. Give them a reason to stay by making
room for them to keep advancing their careers. “Keep critical talent
moving — not necessarily up, but growing in experience,
responsibility, money, or other tangible and intangible ways,” say the
authors of the study. If promotions or raises aren’t possible, give
good workers the chance to make a lateral move or to take on a struggling

Get Back to the Work That Matters

Goal: Make sure your team is tuned in to growth opportunities.

The problem with a downturn is that while cost cutting is
absolutely necessary, it can make everyone gun-shy about pursuing new
initiatives and opportunities for investment. However, if your department, and
in turn the company, is going to emerge from the slump in a competitive
position, there are a few key investments you can’t afford not to
fight for now:


about the customers of your weakest competitors, writes Michael Roberto, a
blogger for Harvard Business Publishing and management professor at Bryant
University. While competitors are busy shoring up their relationships with
large, established clients, it could be the perfect time to swoop in and court
their smaller customers.

Research and Development

Take a cue from Apple’s Steve Jobs. When asked by
Fortune magazine recently about href="">Apple’s
strategy for the downturn, Jobs pointed to how the company survived the
2001 tech bust by upping its R&D budget. “It worked, and that’s
exactly what we’ll do this time,” he told the magazine.

Separate the value-added activities from the wheel-spinning
exercises, Thompson suggests in Ignited. Instead of
giving up on new projects in a downturn, shift focus so that the team is
investing time in identifying and prioritizing the projects that will generate
the most benefit for the company. Even if the final product will have to wait
until more resources are available, doing the legwork now means the product
will go to market faster when the time is right — and employees will
stay engaged in the meantime.


“There are two ways to run a business,” says
Fred Mossler, senior vice president of merchandising for online shoe retailer
Zappos, “adversarily or as a partnership.” Considering that
the company relies on about 1,500 partners to provide its customers with a
diverse selection of shoes, Zappos has chosen the latter option. To that end,
the company built an extranet, so that every
partner can see how its brand is performing. “They get to see
everything our buyers see,” Mossler says. “This way we have
about 1,500 other sets of eyes looking at our business and helping to improve

Case Study

How Zappos Survived the Tech Bust

The idea for Zappos was born in 1999, when the economy was
booming. But the shoe retailer still was unprofitable and struggling to grow
revenue two years later, when the recession hit. “It
was impossible for us to get any additional funding,” Mossler says.
To make matters worse, the company was learning that its original business
plan, which made Zappos a middleman, wasn’t working as planned:
Vendors didn’t always have every shoe in stock, and customers —
who sometimes had to wait weeks for their orders to arrive — often
ended up with the wrong orders.

Though the times might have called
for belt-tightening, the company had to make a couple of very expensive
decisions, both of which put long-term strategy before short-term cost cutting.
First, management realized that it needed total control over the merchandise in
order to give the best customer service — a
decision that meant sacrificing 25 percent of company revenue. Second, to make
sure customers knew exactly what they were getting, the company hired photographers
to take pictures of every pair of shoes it stocked. The site now has photos of its more than 3 million items, mostly shoes, from up to eight different angles. “Most
companies look at customer service as an expense, but we look at it as a
long-term investment,” says Mossler. The moves paid off: Less than 10
years after its founding, Zappos is on track to bring in more than $1 billion
in sales this year.

Acknowledge and Reward Deserving Employees

Goal: Recognize achievement, even if resources are

Employee bonuses and raises are among some of the first expenses
that upper management cuts during a downturn. But even if extra compensation
isn’t in the budget, that doesn’t excuse managers from rewarding
employees. “Lack of recognition — both financially and
verbally — is one of the things that does the most damage,”
says David Sirota, founder of the management-consulting firm Sirota Survey
Intelligence. “I worked with an investment bank some years back where
bankers were earning bonuses from $100,000 to $1 million a year,” he
says. “You know what they complained about? They didn’t
know if the chairman thought they were actually doing a good job, because he
never spoke to them about it.”

href="">BNET Video: Giving Effective Praise.

One easy, no-cost way of recognizing valuable employees is to
improve their quality of life. “The best reward you can give people
is autonomy over how they spend their time,” says Jody Thompson, a
former Best Buy human resources manager who, along with Cali Ressler, helped
create the company’s Results-Only Work Environment program. That
means giving employees your trust and the flexibility to work at home (or
wherever suits them) whenever they want to — without any judgments.
This gives workers more control over their time, and sometimes even a little
extra cash. Sun Microsystems has
found that employees who worked an average of 2.5 days at home each week saved
$1,700 a year in gas and vehicle wear-and-tear.

Danger! Danger! Danger!

Save Rewards for the Worthy

Keeping your employees engaged doesn’t mean
rewarding them just for doing their jobs. The most effective rewards are
significant but well deserved. Libby Sartain became head of Yahoo’s
human resources department in 2001, just as the company received a hard knock
from the dot-com bust. She decided that instead of quietly giving large bonuses
to overachievers, which wasn’t providing much bang for the buck,
Yahoo needed to regularly single out the top 15 to 20 stellar individuals and
teams — not only to reward them, but to help the rest of the company
understand what made these employees outstanding.

The following year, the company gave its first Superstar
Awards. Candidates were nominated by their peers for significant achievements
and awarded cash prizes ranging from $5,000 to $50,000. The Yahoo Superstar
Awards program is now in its seventh year and has honored employees for
contributions like creating the Panama advertising system, inventing a way to
advertise on instant messages, and fixing a troublesome accounting problem. “This
isn’t egalitarian, this is a meritocracy,” Sartain says,
acknowledging that some managers resisted the idea at first. “When
people saw the winners, they understood why they won, and it took hold and
became part of the culture.”