A lot of ink has been consumed writing about the perilous state in which our economy currently stands. Much has been attributed to government action or inaction; others have admitted it to be a consequence of the industries’ own doings. It is quite surprising; however, that very few business leaders were prepared for the unravelling scenario! Here is why:
- Short-sightedness: Modern businesses have a structural challenge that they are focused purely on the short and mid-term. The quarter to quarter target pursuit comes in the way of building flood barriers and emergency funds. Incentives and behavior are aligned to look at the near-term horizon.
- The pink slip: Western, specifically American, business practices of cutting headcount as a measure to ward off difficult situations, dress up the bottom-line and please the shareholders, are now commonly accepted. We must also take into account that some companies have not adapted to these practices and have still prospered, albeit these seem to be fewer in number.
- Passing the buck: A consequence of the above is that many businesses almost leave rough weather out of the planning and do not necessarily focus on more graceful ways of dealing with it. However, a few bad years for any economy every decade are inevitable. When in choppy seas, the businesses tend to blame extraneous factors and recede into a shell to talk about “becoming leaner” by trimming headcount, leaving their workforce to fend in an adverse market.
Some business leaders find themselves at the wrong end of the company’s emergency measures. Many CEOs fail to convince the board that the direction and action they have charted for their company is indeed the optimal one, and therefore they are still the right one for the job. Boards or International HQs then exercise the option of replacing one CEO with another in the hope that the new leader will come with a magic potion to revive the flagging company's financial health.
This further sends alarm bells ringing within the rank and file about the impending doom. The way I see it; such organizations resort to suboptimal practices regarding planning and crisis-management, with little regard to employee morale and welfare. CEOs that lose their jobs have partly themselves to blame for not foreseeing the adverse scenario, failing to plan for it, and therefore becoming a victim of the circumstances. This is not to say that an organization must not let go of people; on the contrary, people who are unproductive or incompetent must be asked to leave, but not just in bad times but rather as a regular practice to keep the workforce efficient and lean.
Tech start-ups: A different story
Technology start-ups work a little differently. They do not usually have any compulsions of making a profit or turning cash flow positive. For a few of them, hiring and firing is a seasonal exercise. However, the employees cannot play the victim because most know the risks of working with a tech start-up. Most of them also enjoy higher compensation than their contemporaries in traditional industries. Many start-ups are focused on mass customer acquisitions. They need to clock in adoption at a frantic pace and reach usage numbers, to look attractive for the next round of investment. Therefore, they need to ramp up their internal team to disproportionate levels in the short run, which cannot be sustained in the longer term. Some of them replace people by automation, like in the case of bots replacing customer service personnel. The expansion and contraction of tech start-ups in the current market scenario is independent of the economy. Their funding is usually via the Private Equity or Venture Capital route more or less uncorrelated to the liquidity crunch in the banking system.
The government is doing its bit to create an unencumbered business environment, and can probably do a lot more towards the ease of business. The latest government decision to cut the corporate tax with special rates for new manufacturing units is most welcome as this has ushered in positive sentiment in the industry. Part of the profits generated as a consequence of the lower taxes must be reinvested in the business and in retaining or attracting talent. For example, the automotive sector thrives on efficiencies and it boasts of the best talent across the larger manufacturing industry. The systemic slowdown in the auto sector presents an opportunity for the rest of the manufacturing companies to bring on board the best from the auto industry.
The companies that were prepared for the rainy day would be able to capitalize on the availability of abundant talent, in addition to other resources like industrial land or raw material at a reasonable price. Thus, the current economic conditions impact all employees, right up to the CEO, and have the capacity to disrupt the talent market significantly. There is, after all, a fortune to be made when there is blood on the streets!