By Laura Raines, for the AJC
With small but distinct signs of life in the economy, companies are plotting their recovery strategies for 2010.
“Recovery will not be restoration of the pre-recession market. Trying to get back to where we were will be like chasing a red herring,” said Jean Martin, executive director of the Corporate Leadership Council of the Corporate Executive Board, a global business research network.
It’s a whole new ballgame.
In its “Executive Guidance 2010” report, the Corporate Executive Board identifies six hidden enemies that could impede post-recession corporate performance.
● Changed customer needs. A shift in consumer buying behavior will require sales teams to revisit old assumptions about customers and their needs.
● Top talent disengagement and flight. The average organization faces an imminent 7 percent productivity loss from the combination of departing top talent and undermanaged recruiting pipelines.
“Employees have stayed put in the recession, but there has been a high degree of spiritual attrition. They’re in the chairs, but they’re not producing as they were. Sixty percent fewer employees said they were willing to take on extra responsibilities if their boss asked, and 13 percent more of high potentials said they would consider leaving their companies given the opportunity,” Martin said. “With companies standing to lose their best and brightest, there is a great need for active, transparent management.”
● Increased risk velocity. There is a need for companies to have more agile risk management strategies.
● Higher levels of employee misconduct. Organizations already lose an estimated 7 percent of annual revenues to employee fraud. CEB research shows that employee misconduct has increased at a rate of about 20 percent in the downturn.
● IT budgets targeting a shrinking share of enterprise information. Today, 40 percent of the most valuable information created by employees (largely through social media) is out of reach of corporate IT systems.
● Misplaced leaders. “Eighty-six more employees than last year said that their talents or interests didn’t match their jobs,” Martin said.
Finding that organizational support has much to do with executive success. CEB research claims that correct reassignment and proper support of existing leaders can improve profits by more than 10 percent.
“The CEB has identified key challenges for organizations which point to the need for strong organizational cultures based on ethics. Values are key in addressing issues like fraud and the flight of top talent,” said Dana R. Hermanson, Dinos Eminent Scholar Chair of Private Enterprise and professor of accounting at Kennesaw State University’s Coles College of Business. “A company’s values must come from the top down, be clearly expressed and exhibited through behaviors, not just words. If the organizational culture is defective, or if weasels are running the company, there will be problems.”
Hermanson called the CEB reports of increased fraud and increased risks “right on target” in a tough climate.
“Risk management involves figuring what you want to achieve, identifying the risks and deciding what you will do about them,” he said. “Companies have spent too much time trying to document risks and not enough time figuring out how to handle them.”
He cited the recent insider trading allegations against the Galleon Group hedge fund as a case in point. The situation went from an isolated action by the top leader to the firm’s collapse in about a week.
“Risk moves quickly these days, especially when it involves loss of confidence,” Hermanson said. “Companies need to be agile in responding to risks.”
Martin encourages leaders to adopt the best practices of “role management, risk management and rules management” going forward. This is the time to clearly define job roles and activities and link them to the overall mission of the company; to match leader strengths to the competencies needed for jobs; to support innovation while managing the risks; and to solidly communicate the ethics of the organization.
“This is not the time for companies to ‘tend to the knitting,’ but to question whether they should still be knitting at all,” Martin said. “Companies that view the downturn as an opportunity to reinvent themselves will succeed.”
Although the recession has been nasty, Hermanson believes companies will bounce back.
“When we unleash the hard work and creativity of the American people,” he said, “we’ll see expansion in the future.”