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 1990s.
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 time.
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 ones.
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 relief.
Why business process re-engineering caught on during the last recession
