Given the uncertainty surrounding the current economic crisis and their own deteriorating balance sheets, many companies have not hesitated to make cuts in their workforce without realizing that in most cases, such measures will not solve fundamental problems and will more likely worsen the labor climate and worker motivation. To help companies avoid this kind of mistake, Simon L. Dolan, professor of human resource management at ESADE, and Ramón Valle Cabrera of the Pablo de Olavide University have written Managing Human Resources: How to Attract, Retain and Develop Successfully Human Capital During a Time of Transformation (Madrid, McGraw Hill, 2007). The authors recently spoke with Universia Knolwedge@Wharton.


Universia-Knowledge at Wharton: In terms of managing human resources, how do companies usually react during times of crisis? What are the principal mistakes they often make?


Ramón Valle Cabrera: The most normal reaction is to look for ways to cut costs, almost always in the area of labor. In some cases, companies also cut their productive capacity in reaction to contracting demand. The main mistake that many companies make is to decide about adjustments without first analyzing where these adjustments can and must be made. They look for the greatest quantitative adjustment rather than identify those areas where they can intervene and make improvements. Crisis requires global analysis.


UKnowledge at Wharton: What are the key challenges that senior human resource managers have to deal with in times of transformation?


R.V.: Without doubt, the first one is to design flexible systems. Flexibility is a necessary condition for adapting oneself to change, and organizational flexibility implies flexibility in people — in every one of them. Second, it means encouraging and stimulating entrepreneurial activities within the organization. Third, it means learning a great deal about your organization’s skills, about the distinctive elements of your company.


UKnowledge at Wharton: Are human resource departments prepared for the kind of situation we are dealing with today? How could they prepare themselves?


R.V.: You can’t generalize, but our experience in Spain tells us that [human resource managers] have a ways to go. The short term and the immediate future are what dominate the behavior of people who manage human resources. They must play a much more strategic role, and they must integrate themselves more into the decision-making bodies. The strategic orientation of human resource policies determines the success of the organization. These policies must incorporate a vision of the organization as a whole, and [managers] must interact with their colleagues. They must realize that the old methods and principles of managing personnel don’t help us solve new problems.


UKnowledge at Wharton: What are the short-, medium- and long-term consequences of dismissing workers based on corporate performance?


R.V.: Clearly, [such cuts] provide temporary help when it comes to operational costs. But over the medium term, those things that are going badly will return. Those employees who stay are affected by the [personnel] decisions that are made. The working climate deteriorates and motivation drops off. If you don’t make a thorough analysis of the situation — including your marketplace, the competitiveness of your product and your skill at making innovations — these kinds of measures cannot solve the problem all by themselves. Many studies have shown that those companies that take into account the long term when they make these decisions get better results. These companies look for creative solutions, and they get results. For example, in the insurance sector there are companies that have not fired anyone, and have increased the value of their shares three times more than if they had chosen to let go of workers as a strategy for reducing costs. The explanation: When you decide not to lay-off or fire anyone, you have to look for more innovative solutions, and when you’re successful doing that, that leads to an improvement in the economic performance of your company.


UKnowledge at Wharton: What recommendations does your book make regarding attracting and retaining talent?


Simon L. Dolan: The first thing is to realize that they are the employees who will play a strategic role because they are the ones you will strive to retain. Attracting and retaining those people can be achieved by offering them competitive working conditions when it comes to personal development and salaries. In Spain, we’re getting close to having a scarcity of talent, according to the Professional Perspectives Index 2007 of the Institute of Labor Studies (IEL) at ESADE (the business school). Companies will have to take steps to deal with this scarcity. To take advantage of all of the sources of highly qualified professionals, human resource departments will have to get used to looking for new talent anywhere in the world.


That means they need to be sure that the jobs they offer meet the needs and aspirations of different ethnic groups and nationalities, of women and of older workers. In addition, they have to develop a distinctive culture. The task of each manager is to guarantee that the people who are on his or her team are motivated and encouraged.


In addition to best practices in human resources, you have to guarantee that intangibles (for example, the values that people have) are well aligned with the mission and the vision of the company.


UKnowledge at Wharton: You talk about attracting and retaining talent, but how can a company create talent within its workforce?


S.D.: You create talent in the company by expanding learning — promoting interactivity among your employees so that they share knowledge. You create incentives for entrepreneurial activities, by generating commitment to the organization, and through a good training plan. In addition, you create a culture of competitiveness and innovation so that this talent stays alive and active.


You have to get people in the company to believe that things can always be better. According to a recent study by the Hay Group, the consulting company, the main reasons why talented people are attracted to Spanish companies are professional development (20%), leadership in the sector (14%) and innovation (13%). These factors outweigh other concepts that had traditionally been considered the determinants, such as [wages and other] compensation. In the study, only 7% [said that compensation was the most important factor].


UKnowledge at Wharton: These days, what does the word “talent” mean within the company?


S.D.: Inevitably, “talent” is connected with training, and it also means something beyond that. Talent is more than just technical knowledge. It is also about behavior, skill at adapting and leadership skills.


UKnowledge at Wharton: In uncertain times such as these, do you believe that it is a good for people to change where they are working or is it better to “bear with” their uncomfortable situation and dissatisfaction until [economic] conditions normalize?


R.V.: In uncertain times, when expectations about finding alternative jobs decline, the only people who tend to change jobs are those who have advanced qualifications and professional training. In any case, companies pay a high price for having dissatisfied workers, and they should be concerned with changing that situation.


UKnowledge at Wharton: How would you characterize the sort of employees a company needs? Does having the right employees enable a company get through a crisis?


S.D.: Human capital in a company must be measured by its capacity to add value, and by the degree to which it possesses the sort of knowledge that determines your competitiveness. When you have identified those sorts of employees and you manage them the right way, there is a greater likelihood that you will overcome the crisis than your competitors will.


When we manage talent correctly, we are in better shape to deal with a crisis. Talent has to do with a feeling of fluidity and when we put talent to work, there are five characteristics of that flow: challenge, goal, feedback, control and concentration. A company that develops confidence and generates these conditions motivates its talented personnel to produce more than it has ever produced.


UKnowledge at Wharton: How would you describe the condition of talent in Spain? Is Spain behind other countries?


S.D.: Spanish companies have made a major effort to incorporate human resources into their new initiatives but a great deal remains to be done. They started from behind when it came to understanding that having a talented workforce is a key to competitiveness, and that managing it means making changes in the way you manage.


From the viewpoint of general management, the data tell us that six out of every 10 senior managers believe that they must improve the recruitment, motivation and development of their employees, especially if we compare ourselves with North America and countries in Europe. Chief executives hope that their human resource departments can lead the way, but this is rarely the case because HR departments rarely enjoy the confidence of senior management.


Some areas where companies can change and become more agile, intelligent and responsive to changes in the market include teamwork, knowledge management, and improved synergies and interactivity between various departments [within the corporation]. The great engines of organizational change have been mergers and acquisitions, as well as new commercial strategies that originate in a need to adapt to a new focus of the marketplace. Eighty-seven percent of all senior managers in Spain agreed that the sound management of their human capital and talent is a strategic priority.