Lessons from History

Recessions can have a deep impact on the ideas that shape people management.
Stephen Overell looks back at how economic hard times have spawned new
management theories and asks what will be the casualties of a recession today

The air hangs heavy with talk of recession. In just two days in mid-
October, United Technologies cut 5,000 jobs, Opel axed 2,500, Commerzbank
slashed 3,400, Siemens 7,000 and Rolls-Royce 4,000.

Many less familiar names did likewise and, for the first time in months,
there was a rise in unemployment on some measures.

But as well as the personal sadness of people losing their jobs, recessions
often tend to have another less publicised, but no less profound impact on
people management.

They are the times when the ideas which shape how organisations are run and
how people are motivated tend to undergo something of a shake-up. Dominant
management theories in place when a recession bites are going to be perceived
as inadequate to a stultifying business environment – new, and often extreme
answers can seem compelling.

Bob Norton, head of information services at the Institute of Management,
says, "Recessions can be times when thinking gets a clean-out. It will be
interesting to see if things like emotional intelligence survive unaltered.

"Ideas that are more focused on the bottom line, like re-engineering
will inevitably tend to do better."

There is evidence to support this view. The two biggest fads of the past 25
years were born out of major recessions – Tom Peters and Robert Waterman’s
"excellence" cult, conceived in 1982, and business process
re-engineering (BPR) pioneered by James Champy and Michael Hammer, which first
saw light in 1990.

Recessions can be times for reappraisal – and this one is unlikely to be
much different. Indeed, the publication of Michael Hammer’s new book last month
could be seen as prescient. In The Agenda, Hammer defends BPR from its critics
and says that with a few tweaks and a new emphasis on human capital management,
there could be life in the old religion.

It begs the question, could the hard-won emphasis on people as the
fundamental source of value and competitive advantage be diminished as
companies trim costs? Sol Davidson, a coach with Penna Executive Coaching,
believes that is unlikely. "The future – whether there is a recession or
not – is about building intelligent organisations that can cope with change.
Hierarchical power is no longer effective – the future is about interconnected
networks, building partnerships and joint ventures.

"What I fear is that while organisations may pay lip service, they will
make decisions around cost and as a consequence lose the intelligence and the
collective memory of their organisation."

The hard-won evidence that the way people are managed and developed has a
direct relationship with the bottom line is strong. More than 30 different
studies in both the US and the UK have confirmed it during the course of the

The imperative of good people management remains, come recession or boom time.
John Philpott, chief economist at the CIPD, says this potential recession is
unlikely to distort priorities as much as previous ones.

"Some of the management ideas that have evolved out of recessions have
had a rather tough and unsympathetic character," he says. "I think
that this time there will be a calculated attempt to try and avoid that. The
macho thing that workers can be dispensed with, has, I think, been defeated by
a combination of management theory saying just how fundamental people are to business
success and basic common sense."

Philpott says the war for talent will also probably survive the downturn.
"Most businesses understand that initiative and flair are important and need
to be nurtured. Provided businesses do not lose their heads, the essential
elements of the psychological contract should be preserved."

However, the haemorrhage of knowledge is inevitably the anxiety during times
of recession. During the last recession, in 1993, one Institute of Management
survey found that cutting staff was the single most popular response of senior
managers. Some 50 per cent said they were reducing headcount, while 34 per cent
wish they had cut back more severely earlier on.

The fear of loss of knowledge is just. Already, it appears to be
knowledge-based businesses which are suffering the most. Consultancy firms
report very lean times. Commerzbank of Germany is saving £94m on consultants’
costs. Accenture has cut 1,000 jobs while allowing another 1,000 to take a
sabbatical. PricewaterhouseCoopers plans to cut more than 2,000.

However, others are attempting to turn a stagnant market into an
opportunity. HR consultancy Barnes Kavelle has launched a new programme called
Corporate Skills Leaseback to prepare employees facing redundancy for a life as
independent consultants.

Elsewhere, an active debate has been circling about how to structure
incentives to encourage employees fearful of redundancy to share information.
Naturally, many are seeking to hoard it to increase their value.

While recessions have undoubtedly acted as a spur to some important
management ideas in the past, it is unclear whether companies in difficult
circumstances are unduly conversion-prone.

The Institute of Management’s Norton explains, "For the most part,
companies are not preoccupied with theory in difficult times. They brace
themselves and get ready to move off when things pick up."

But some commentators believe the "softer", perhaps more marginal
movements in management are likely to be the first casualties of recession.

Professor David Norburn, director of Imperial College Management School,
says, "Anything that is less readily perceived to have an impact on
business performance is likely to go."

If that is true, there could be a drop in the hunt for meaning at work.

Recent years have witnessed a noticeable trend towards management theory
blending into metaphysics, as questions of spiritual purpose and calling become
relevant or people trying to shift the culture of their organisations.

Emotional intelligence has also spawned spiritual intelligence, while
questions of value are seen as critical to world-class performance. All this
may come to seem a little like the luxuries of boom time – at least for a short

In October, the first of a series of talks laid on by the Industrial Society
entitled The Soul @ Work had to be cancelled due to a lack of bookings.

However, Norburn says the craving for big, new solutions to problems in the
business environment – solutions that are only ever likely to be part of the
answer – will endure.

"The Tom Peters excellence stuff was stunningly good when it came out.
People matter, put yourself in the customer’s shoes, Management By Walking
Around, and all that – really good stuff," he says.

"But the problem is they [managers] adopt things with religious fervour
and it gets taken out of proportion – the classic magic bullet fallacy.

"Most of these theories either come at it from the supply side, like
Peters, or from the demand side – how to build new markets like Gary Hamel and
CK Prahalad, but they only look through one lens, as it were. There has to be a
balance between the two."

In truth, genuine revolutions in business thinking rarely happen. It has
taken the bursting of the dotcom bubble – and with it all the far-fetched
hyperbole – to realise the new economy was really not much different from the
old. Still subject to the same logistical pressures, the same customer
imperatives and the same laws of finance.

According to management expert and author Carol Kennedy’s new book The Next
Big Idea, the ideas that take off in the future are likely to be fairly small

In the speeded-up world of modern business, she suggests companies may not
be able to afford the time to work management fads through the system as in the
past. Smaller ones can be tried out, adopted or dumped without too much
investment – as Idealab and other internet incubators currently do with their
start-up projects.

If the recession aids this movement, many employees might breathe a sigh of

Why business process re-engineering caught on during the last recession

When re-engineering first appeared in
an article in the Harvard Business Review in July/August 1990, the dominant fad
of the day was quality or TQM – roughly translated as getting products or
services right first time rather than waiting to check them once they were
finished. The quality movement began to wane precisely because it became
universal – it was no longer a source of competitive advantage, merely a
commercial necessity.

TQM was about doing the same things better. Re-engineering
promised radical change. When asked what he did for a living, Michael Hammer
used to respond, "Reversing the industrial revolution." The new
movement’s catchphrase was, "Don’t automate, obliterate".

BPR was aimed at breaking an organisation down into its
component parts and then putting them back together again to create a new
machine, hence the emphasis on process.

Re-engineers favoured tearing up all the old procedures,
"functional chimneys" and layers and getting everyone working
together in one multi-functional team with computers doing the rest.

By the time Champy and Hammer came to set out their ideas more
thoughtfully in Re-engineering the Corporation of 1993, the fad was in full
swing. The book sold 2 million copies in 17 languages.

By 1994 a survey by Price Waterhouse found 78 per cent of
Fortune 500 companies and 68 per cent of British ones were engaged in some form
of re-engineering projects.

Yet despite its extraordinary success, BPR soon became
associated with just sacking people.

While re-engineering undoubtedly contributed directly to
millions of people working in entirely new ways, millions also lost their jobs.

A survey of large US companies carried out in May 1995 found
that the main reason for wanting to re-engineer was cost cutting (29 per cent)
followed closely by "someone important said we should do it" (26 per

At Lloyds Bank, 2,100 branches became 1,800. There was soon
talk of "the anorexic corporation".

According to management expert and author Carol Kennedy,
"Re-engineering probably enjoyed the vogue it did because many companies
used it as a cloak for savage downsizing simply to cut headcount in the

"They then found they were not equipped to take advantage
of growth when it came."

Fads we could do without

Sport as a motivational metaphor

For a brief phase in the mid to late 1990s, everyone became
obsessed with the workplace lessons of touchline and locker room. Footballers,
rugby players and round-the-world yacht people leapt on board to the extent
that the business lecture circuit became a retirement paddock for sports
heroes. The problem was that while they had no difficulty enthusing a crowd,
the impact on the workforce did not last. It was soon realised that scoring a
goal and closing a sale are very different.

Paradox Management

This attempted to help managers navigate perilous, changeable
times by making a reference point of the contradictions of modern business
life. Firms had to be global and local, profit-focused, but socially
responsible. Managers needed to be autonomous, but team-players; decisive, but
consultative. Paradox management was an attempt to transcend polar opposites.
The problem was, it was far too esoteric. Management has always been about
negotiating between conflicting pressures, so it was really just another silly

Work as Community

Some of the crassest cod-psychology developed around the theme
of work replacing geographical communities in people’s lives, while providing
some of the functions of the shrinking nation state such as childcare. The
truth is that so-called concierge services never expanded beyond a clutch of
professional service firms in London. Work is back to being work.

Ones to

Spirituality/Meaning/Values/Emotional Intelligence

Guilty of some Class A hocus-pocus around the turn of the
millennium, this movement has yet to burn itself out. Work is assuming a larger
role in people’s lives, while there remains a lingering suspicion that those
who do well at work and are happiest with their lot tend to have
"something". Boiling down that something is likely to preoccupy
executive development specialists post-recession. Academic research has found
that the only way to explain the superior performance of some companies over
the long term is through the values by which the firm operates.

Change Management

Nothing new about this, of course, but the subtlety, skill and
determination involved in solid strategic thinking and, more importantly,
thorough implementation, will ensure change remains a key issue for executives.
The focus is likely to move away from fantastic strategic modelling towards how
to secure a new vision, years down the line. Making it work, in short. Is
change going to reduce in life, work and business? Unlikely.

Knowledge Management

Some of the most venal, idiotic thinking has gone into KM,
while its tangible contribution to the workplace has been negligible. KM has
been guilty of the classical hubris of attempting to replace humans with
machines as organisations gather and distribute corporate knowledge. For a
while everything was being called KM – intranets, libraries, databases. But it
has to be acknowledged that knowledge really is one of the key elements of
competitive advantage, which is why KM – hopefully in a more muted form – will

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