In this crisis, good HR could save a company— bad one might bury it

Dana Minbaeva, Copenhagen Business School [1]

Any crisis requires an orchestrated, effective organizational response. Undoubtedly, the CEO has the conductor’s stick and is in the spotlight with all eyes on him or her. But who is the “concertmaster”? Who is the second-most important leader—the person who sets the tone and ensures the consistency of the central melody?

BCG calls the ongoing pandemic a “people-based crisis”.[2] On March 24, The Economist wrote: “When the financial crisis rocked the business world in 2007-09, boardrooms turned to corporate finance chiefs… The covid-19 pandemic presents a different challenge—and highlights the role of another corporate function, often unfairly dismissed as soft.” In this crisis, HR should set the tone.

This is not a financial crisis—it is a human crisis. To deal with the human crisis, you must have a detailed understanding of your human capital and that capital must be handled in an outstanding way. The key question for the people is: Where are we in managing our most valuable capital? Moreover, where do we want to be and how do we get there?

Three stages of HR under Covid-19 pandemic. Dana Minbaeva

All companies have moved beyond the first stage of organizational response, some more “humanly” than others. Stage 1 was about moving people in space and helping them to be productive. A lot of decisions had to be made in a very short period of time—decisions about who should stay at work and who should go home, how and where people should be moved into the digital space and what the priorities are, and how those priorities could best be communicated to stakeholders. Most companies found that they were shockingly unprepared—those who claim otherwise are lying or in denial. There is no shame in admitting our lack of foresight, as we didn’t know what we didn’t know. The problems have been most visible among leadership. For instance, everyone tried to hold meetings online, but very few knew how to lead virtual teams. No one was trained for this and there was no playbook.

Some managed the virtual transition better than others. Those who did well have used the proverbial army principle: in crisis, rely on what you know works well. Bryan Power, People Officer at Nextdoor, recommends looking at what you have and what works well instead of inventing something new. Nextdoor, like millions of other companies, had to onboard the whole company to the new situation of “working from home” from one day to the next. Bryan’s team used its recruitment-onboarding system, which was digitally based and worked well, to move all employees onto a virtual work platform. Although this required changing the content, the structure was already there. Another company used its learning platform to upload self-learning tools as well as educational videos on improving digital readiness. This is a key takeaway from Stage 1: look at your current toolbox, find what works well, and retrofit it to solve the problem at hand.

CHROs have an additional task—moving the executive team online. This task involves everything from ensuring that the executive team is technologically competent to coaching executives on how to keep “deliberately calm” and display “bounded optimism” (i.e. confidence combined with realism) in situations of high uncertainty and ambiguity.[3]

Stage 2’s priority is mental health, well-being, and dealing with anxiety, the fear of the unknown, and all of the other human emotions that the uncertainty of the pandemic brings. The organizational priority must be to closely monitor employees’ stress levels. The HR’s priority should be to think about ways of systematically dealing with the increasing stress over the next several months. It is not a question of “if” but “when” organizations will have a stress problem. The unpredictability, ambiguity, and insecurity of the crisis lead to irrational and inappropriate reactions ranging from in-fighting to panic to apathy. People become tired, passive, and disillusioned, all of which create even more pressure on mental resources. Furthermore, many companies are instituting hiring freezes, canceling all competence-development activities, and asking people to take leave. Each of these actions fuel anxiety and increase stress among employees.

A huge weight of responsibility lies on the shoulders of team leaders. The current situation will test your previous decisions regarding the leadership pipeline and talent management. Do you have the right people in the right places? Have you been promoting for the right competencies? Everyone agrees that leading virtually is much more challenging than traditional leadership. In addition to ensuring task performance, virtual leaders need to proactively guide the relationship-building process and invest more time and effort in facilitating team processes. Do your team leaders have the right competencies to lead virtually? Are they empowered to do so?

Communication is a crucial tool. Whatever you did before the crisis needs to be multiplied 100 times. In the webinar “The world changed overnight: HR and leadership in a time of crisis” organized by Josh Bersin[4], CHROs advised: communicate with your team every day and at the company level every week; expand your communication to employees’ families; communicate live to deal with questions and stay “as close as possible” while maintaining physical distance.[5]

In these difficult times, humans need a bigger picture and a greater purpose. The interests of all stakeholders are inextricably linked over the long term. For example, Novartis decided to extend its offer of Coursera courses to employees’ friends and families. According to Simon Brown, the company’s Chief Learning Officer, the use of courses per day doubled. The offer was extended to those individuals that Novartis had to let go, all of whom can now use the company’s learning portfolio to enhance and develop skills that will help them re-enter labor market. The UK-based luxury brand Burberry used its global supply chain network to fast-track the delivery of 100,000 surgical masks to the UK National Health Service. The company also repurposed its trench-coat factory in Castleford, Yorkshire, to make non-surgical gowns and masks for patients in UK hospitals.[6] Clearly, the importance of the company’s societal and ecological focus will strengthen the commitment of local employees and local employer branding, and may even result in productivity growth as employees are motivated by serving the greater purpose.

In Denmark, Stage 3 started on April 6 when the Danish prime minister announced that a gradual reopening of the country would begin on April 14. At that point, Denmark will officially become the first European country to move toward life after corona—the “next normal”. No one knows what that next normal will look like, but everyone agrees that it will not be the same.

Every crisis is an opportunity. It is now we will see major differences between the ways CHROs will grasp this opportunity to give the HR function a significant and long-needed make-over. Short term questions are: What do we want to keep doing, what do we want to stop doing and what do we want to do even more in the future? The long-term discussion is much different and much difficult. Rising to new heights will require doing different things differently. “How?”, an HR professional may wonder. One can start by considering three realities:

  1. Reality of digital

Any seasoned CHRO has been involved in strategic planning for digital transformation that his or her company intended to complete in the next two years. That transformation happened in two weeks and it occurred without any plans. All CHROs now need to deal with its consequences. How do we catch momentum and ride on the digital wave? HR needs to reinvent its value proposition and switch the focus from employees to customers because digital technologies make doing so possible. We need to understand how we can persuasively push HR away from its old-fashioned annual wheel of HR processes and shift its attention toward new methods of value creation via digital technologies.

  1. Reality of organizational energy drop

The absence of developmental prospects and exciting, competence-building projects coupled with a focus on cost reduction lowers organizational energy to zero. In this situation the key is to think strategically about the kind of signals top management sends to the organization. For example, going down on own wage is a very good signal of own commitments to making things better: top management of the companies like Danfoss, Demant, ISS, SAS already did that[7]. These companies will have an easier kick-start in times when organizational energy will need to be rebooted. What is your plan to kick-start it and when should you start acting?

  1. Reality of bouncing back

The economists and finance people are very familiar with the term “slack of resources”. For HR, this term has been traditionally misused indicating extra weight the company needs to carry in terms of excessive labor or higher salaries. It is like that extra weight in the human body that we are continuously trying to get rid of. But in some parts of our bodies the fat is a good thing (e.g. brain). Using this analogy, in some parts of organizations having a little bit of “fat” (in the form of human capital slack) may be needed. This buffer helps the organizations to bounce back when the crisis hits. Human capital slack must be understood as intangible assets created in interactions between individuals and firm attributes (positive complementarities). Do executives know the sources of human capital slack and what are they going to do about regaining that in the future? For example, the crisis destroyed organizational structure, but organizations created informal networks and positive interdependencies. Networks and interdependencies are great sources of human capital slack. How will organizations institutionalize them in the future? Another example is related to talent management. The key, pivotal positions are now even easier to spot, and variance in the performance of individuals occupying those positions has a tremendous impact on organizational performance. Organizations have a unique opportunity to reconsider how, where and by whom the value is created in the organizational hierarchy. Placing right people in the key pivotal position will provide the organization with human capital slack, that will be your buffer when the next crisis hits you.

***

When stage 3 kicks in, stages 1 and 2 continue. In fact, all three stages will continue at least for one year. The tasks will be different, but conceptually stage 1 will continue being around issues of space (sending employees home, dividing them in A and B for gradual opening, bringing all back); stage 2 will have to deal ongoingly with stress (how to keep it low, how to deal with consequences); and stage 3 will be around finding a new sources of competitive advantage by looking for human capital slack. So you might as well plug three stages against the famous red and green curves, and start planning ahead.

The CHRO’s interviewed by Josh Bersin recommend engaging in serious scenario planning aimed at defining where your company will end up and the kinds of human capital it will have at that time. The guiding principle of scenario planning should be to broaden the gap between value creation through the use of human capital and value capture achieved by reducing the costs of human capital. These processes are conceptually distinct but related. For example, if firms pursue human capital cost reductions by hiring poor-quality workers, the value that their workers can create may be reduced. Thus, any consideration of a firm’s value capture must take into account the firm’s approach to value creation for the resources in question. This is the only way for companies to respond to this human crisis in the most human way.

[1] Earlier version of this article was published by the author on the LinkedIn

[2] https://www.bcg.com/publications/2020/people-solutions-response-covid.aspx?utm_medium=Email&utm_source=esp&utm_campaign=covid&utm_description=featured_insights&utm_topic=covid&utm_geo=global&utm_content=202004_1&utm_usertoken=a0ec3164616d5f20f835e2356e5df1b62252323a&redir=true

[3] https://www.mckinsey.com/business-functions/organization/our-insights/leadership-in-a-crisis-responding-to-the-coronavirus-outbreak-and-future-challenges?cid=other-eml-ttn-mip-mck&hlkid=50860d96aef8438ca46365cad0fc357e&hctky=9992611&hdpid=9f767981-d19c-4c4f-b56e-6dd4dd292110

[4] https://hrexecutive.com/the-world-changed-overnight-hr-and-leadership-in-a-time-of-crisis/?utm_medium=email&utm_source=sharpspring&sslid=MzMytzAws7C0MDS3BAA&sseid=MzIwNjCyMDI3NQUA&jobid=9b872545-6690-4f9a-b547-24e4fef277cb

[5] The Danish prime minister used the expression Står sammen. Hver for sig (“Stand together. Each on their own”) to highlight the need to unite societal forces to fight the corona virus by maintaining social distance.

[6] https://dk.burberry.com/burberry-supports-the-fight-against-covid-19/?sap-outbound-id=E3FA2A383FF9579F9EA1A8D422368F7AC7954822&epiid=9880655322&utm_campaign=GL_H_COVID-19_Message_W1_EN_EMEIA&utm_content=GL_H_COVID-19_Message_EN_W522020&utm_medium=email&utm_source=emailmarketing Extracted March 31, 2020.

[6] https://finans.dk/erhverv/ECE12062826/investorer-laegger-pres-paa-topchefernes-loenninger-under-krisen/?ctxref=forside?utm_source=nyhedsbrev&utm_medium=email&utm_campaign=07.04.20-morningbrief&utm_placement=5&utm_batch=5e8c01c960a01#newsletter

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