Posts Tagged ‘recession’
Right now, many in the media, at watercoolers, and in the blogosphere are busy castigating a variety of CEOs and individuals at upper and mid management levels for a variety of failures. Although some individuals certainly deserve a virtual lashing, many were just being creative (inventing new hedge funds, derivatives, CMBS, etc.).
Excessive condemnation runs the risk of creating a broad-based workplace culture across a wide spectrum of industries in which leaders and brilliant thinkers only look to avoid risks rather than seek opportunities. Indeed, that is in part the nature of recession – collective attempts to minimize the possibility of failure.
While we all try to sort out how the world fell into this recessionary hole, it’s also important to remember the value that embracing failure can have in our 21st century economy.
Diane Jermyn in her Incubator column in the Globe and Mail did just that last week. She interviewed three specialists on business and entrepreneurial culture and asked about the role of failure in successful enterprises. Here are some noteworthy passages:
“If you’re going to have an innovative culture, you must understand that that comes with the acceptance of failure. Innovation comes with a lot of mistakes.” [says Tony Champman, CEO of communications firm, Capital C]
“You need a culture that allows failure for success because without it, people become anti-failure,” says Charles Plant [Managing Director of the Market Readiness Program for entrepreneurs at MaRS]. “Trying different things is the act of innovation. If you fail 14 times, hopefully you’re going to succeed on the 15th try. Without failure, we’re not going to be driving and growing the economy.”
“Everybody in theory embraces the concept of failure and risk but if the person at the helm is purely financially driven, there really isn’t a lot of tolerance for risk” says Chapman.
This last comment is an important one to monitor in uncertain times or in companies facing adversity – only looking to minimize expenses and cut costs may not be the right solution (how far has it gotten General Motors?). And in some knowledge-oriented industries, managing through risk minimalization isn’t necessarily an option.
“Anybody who’s in the business of inventing the future has to be more tolerant of risk and failure because the future hasn’t been created yet,” says Chapman. “If you’re in the business of creativity or innovation, software, technology or ideas, you have to be tolerant of experimentation and creativity.
But in these times, any organization needs to minimize the downside of failures:
Is there a permissible way to fail?
Everyone agrees that the key to successful failure is doing it in a sensible manner to protect against the downside. The trick to successful failures is to know when to quit.
“I think you have to quickly acknowledge when something is a failure and have a back up plan of what you’re going to do,” says Plant. “Don’t keep flogging a dead horse.”
Does your workplace appreciate and accept failure? Or do you work in fear of making a mistake?
Other thoughts?
My very favorite casualty of the reset – conspicuous consumption. The New York Times reports:
In just the seven months since the stock market began to plummet, the recession has aimed its death ray not just at the credit market, the Dow and Detroit, but at the very ethos of conspicuous consumption. Even those with a regular income are reassessing their spending habits, perhaps for the long term. They are shopping their closets, downscaling their vacations and holding off on trading in their cars. If the race to have the latest fashions and gadgets was like an endless, ever-faster video game, then someone has pushed the reset button…
Still, economists point out that the Great Depression created a generation of cautious savers. The longer the downturn this time, they say, the more likely it is to change financial habits permanently.
“Though the recession was always talked about in economic terms, we felt really strongly that, in fact, it was a crisis of culture,” said Tracy Johnson, research director for the Context-Based Research Group, a market research firm in Baltimore that views the recession as a rite-of-passage that will reorder consumer priorities. Ms. Johnson has advised clients to focus on quality rather than quantity. Malls redecorated in screaming red “sale” signs are not the way to go, she said, because “if you just give people the opportunity to buy more, you’re not matching up to where their minds are…”
Carol Morgan, who teaches law at the University of Georgia and whose husband has a private law practice, said she felt a responsibility to cut needless spending. “That is probably something that is a prudent thing to do in any event, but particularly now I see it as the right thing, as the moral thing to do,” she said, adding that she also hoped to increase her charitable giving. “Before, extravagance and opulence was the aspiration, and if we can replace that with a desire to live more simply…”
Any sharp decline in consumer spending will feed on itself, said Juliet B. Schor, an economist at Boston College and the author of “The Overspent American: Upscaling, Downshifting and the New Consumer” (Basic Books, 1998). Typically, people spend when those around them are spending, but in a downturn, the need to compete evaporates. “You can stay right where you are without falling behind,” Ms. Schor said. Consumers’ focus may have shifted, she said, from striving to catch up to those above them to contemplating the fates of those below them.
Listen in to hear Richard Florida interviewed on Lawrence O’Donnell’s To the Point on NPR last Friday. Some details about the appearance:
From Detroit to LA, the Recession Reshapes America
With Detroit home prices at record lows, is this the end of a great American city or its best chance for a revival? How will the crash reshape America? That is the title question of Richard Florida’s piece in the Atlantic this month.
Tell us, what are your thoughts on Detroit?
It sounds counter-intuitive. But during recessions average wages tend to rise. Unusually, in this recession, in the USA, productivity has also risen – by 3.1 percent during Q4 2008 (a year into the recession).
James Surowiecki in The New Yorker explains
Companies are slashing payrolls: 3.6 million people have lost their jobs since the recession started, with half of those getting laid off in just the past three months. Yet average hourly wages jumped almost four per cent in the past year. It’s harder and harder to find and keep a job, but if you’ve got one you may well be making more than you did twelve months ago…
It’s not because businesses are generous that wages are sticky; it’s because employers are worried. In part, bosses are afraid of what economists call “adverse selection”: if they cut wages, it’s the least productive workers who would be the most likely to stay, while the best workers would start looking elsewhere. (Even in a weak economy, businesses still compete for talent.)
And although Surowiecki doesn’t directly mention it, this recession has the added anxiety for many businesses of talent shortage. Now that it is tougher to bring in foreign talent to the U.S., the need to retain existing productive, creative people may be bigger than ever in some industries. And attracting and retaining the best people would be tough if widespread wage cuts were occurring as this tends to undermine the entire workplace productive process. Surowiecki again:
After the 1990-91 recession, the economist Truman Bewley interviewed managers and labor officials at more than two hundred companies and found that most believed that wage cuts wreck employee morale and eat away at productivity. Whatever money they’d save by cutting wages, bosses assume, would be cancelled out by the decline in effort and the breakdown of trust that wage cuts would create.
Apparently layoffs are less damaging to morale than paycuts. Those laid off leave and take their “misery” with them. Presumably good Human Resource management can help the remaining staff bond together to help the company survive.
That productivity has been on the rise this recession may suggest that Human Resources departments are indeed helping to keep morale high. It also may be that certain layoffs may have targeted those workers who dragged down morale and productivity (it’s easier to lay people off than fire them, legally speaking).
The above story contains U.S. data and examples. Tavia Grant in the Globe and Mail published an article Saturday with anecdotal stories of some Canadian organizations requesting pay cuts, arguing that in this recession things are different.
Based on the above, I’d wonder how “forward thinking” or long-term viable these firms are – is cutting pay a last, final step before bankruptcy? And, I’d stress that I believe there is a big difference between asking or requiring people to reduce their hours or work a four-day week, and asking them to reduce their pay without cutting hours – however, feel free to disagree.
Is your workplace feeling more productive or perhaps “efficient and focused” in recent months? How are wages holding up?
A BC reader comments on my Globe column:
I don’t think we’re in a recession so much as we’re in a revolution – and it seems closely linked to age and generation lines.
Anyone born after 1996, has experienced resistence settling into a career, paying off student debt, financing a house, a car, etc. The idea of working for one company during one’s working life is far fetched.
Having been denied the single family homes in the suburbs and it’s trappings, alternative values and lifestyles have emerged. There’s no loyalty to automakers, phone companies, or TV networks.
The new generation and economy has forced individuals to adapt to cheaper technologies, means of mobility, communication and a global marketplace. Raising families has been put on hold if not abandoned altogether. Even nationhood has become obsolete.
It’s a brave new world, but corporate boards and political parties have yet to figure it out – or are in a blissful state of denial.
As the new generation abandons traditional middle class mores and lifestyles, who will pay the taxes on increasing medicare costs? Who will purchase the homes built during this last boom and the baby boom generation? Who wants to finance a vehicle in which gas, insurance, maintenance costs continue to rise?
BazzFazz sums it up:
Americans are still in a fair amount of denial about how bad things are going to get. In the leafy bucolic Boston suburb where I still have a house and the offspring continue to bring me delightful grandchildren, there are still lots of houses on the market for what are clearly delusional valuations … And it’s bad in so many places, and it’s going to get so much worse, that you have to wonder what, if anything, will help. Sadly, until the great asset write-down runs its course, not much will. And this process will take several years – which is why I think the U.S. will not be the first out of the current recession – it will probably be the last. Because the U.S. over the past two decades has tied up so much wealth creation – which has fed through the entire global financial system, mind you – in real estate in bad places. And the amount of denial here remains painfully high.
Yep.
Richard Florida will be on NPR’s Talk of the Nation today, February 18, from 3-3:45pm EST:
On the next Talk of the Nation: To Richard Florida, this recession follows the first rule of real estate: location, location, location. When the economy turns around, where you live might be more important than what you do.
Listen to the full broadcast here and share your thoughts with us.
Image from Justin Fox. It’s bad already. My guess is it will overshoot ‘81 by a considerable margin, especially taking into account Carmen Reinhart and Ken Rogoff’s research which finds that unemployment rises, on average, by seven percentage points over four years in the wake of serious financial crises.
Your thoughts?