The numbers keep adding up and the impact on the global workforce could be staggering.  A litany of venerable and long-standing institutions have fallen victim to the current state of our nation’s increasingly fragile economic reality.  Let’s look at today’s potential body count:

• Lehman Brothers - 26,000 global employees; files for bankruptcy.
• AIG - 116,000 global employees; seeking lifeline from the Federal Reserve.
• Merrill Lynch - 60,000 global employees; acquired by Bank of America.
• HP - 320,000 global employees; announced 24,600 job cuts from EDS acquisition.

Those who lose their jobs may be provided job placement services, counseling and the like, but in the heat of the moment, does that all really matter?  And what of the employees who remain, the hundreds of thousands who are paralyzed into waiting for the other shoe to drop?  No one is the victor in these situations, for everyone loses due to fear, uncertainty, and doubt.

Regardless of what industry you occupy, we all get to a point where you simply take employment for granted.  You plan your life based on current earnings (and perhaps an annual bonus) combined with some measure of continued increase in your base salary.  You don’t necessarily envision yourself in your current firm forever, but you also don’t plan for the unexpected termination of your position.  You expect to make job and life decisions on your terms.  

The kick to the stomach of sudden unemployment can take your breath away.  Whimsy is replaced with the ugly reality that the end is here.  You wrack your brain to network, franticly reaching out to everyone and anyone who may be able to use your skills.  Then you pause, embarrassed perhaps to admit that you were unprepared and hadn’t really thought through what to do in this situation.

My advice is this - plan as if your last day were tomorrow.  This is not to suggest that you sit with your hand over the panic button, but instead that you’ve thought through a wide variety of scenarios and outcomes and ensured that you are prepared for the worst.  For those of us who run small businesses, this is a part of our everyday existence.  But I didn’t always think this way…. it took the shock of a horrific reality to shake me from the foundation of stability that I used to take for granted.  

My other piece of advice is to ask for help.  I find that this is more difficult the more senior you are, for ego gets in the way of your necessity to press on and seek assistance.  Do not go dark and insist on traveling this road alone.  It will take longer than you expect and you will miss opportunities through your insistence on isolation.  Talk with people you trust and learn from people you don’t.  A sense of vulnerability doesn’t really matter when you a faced with a stack of bills you suddenly can’t pay.

Finally, learn from the experience.  It’s always easy to get upset and blame others for your situation.  Of course others are to blame, and of course you should be upset, but you are responsible for your own career and no one else can carry that burden but you.  In these times of turmoil and uncertainty, your mettle will be exposed and tested.  You don’t have to win every battle, but you do have to press on.  Let’s keep the conversation going.

I’ve received a lot of questions as of late regarding current economic conditions and employee risk.  Both business leaders and employees are struggling with the realities of a down market crashing against a personal need for sustainability and financial security.  Employees are inclined to hide, stay out of sight, not rock the boat and somehow survive.  Employers are peppered with quick hit strategies, the need to act swiftly, massively shifting priorities and the temptation to cut, cut, cut.  

In April of 2005, a very unlikely source authored an interesting publication addressing some of these issues.  It was entitled, “Growing Old Together: Firm Survival and Employee Turnover“.  And the authors?  Two researchers from the Federal Reserve Board’s Divisions of Research & Statistics and Monetary Affairs. This is a very scientific paper, but the abstract does a good job summarizing their thesis:

“Labor market outcomes such as turnover and earnings are correlated with employer characteristics, even after controlling for observable differences in worker characteristics.  We argue that this systematic relationship constitutes strong evidence in favor of models where workers choose how much to invest in future productivity. Because employer characteristics are correlated with firm survival, returns to these investments vary across firm types.  We describe a dynamic general equilibrium model where workers employed in firms more likely to survive choose to devote more time to productivity-enhancing activities, and therefore have a steeper earnings-tenure profile.  Our model also predicts that quit rates should be lower in firms more likely to survive, and should tend to fall during slow times, while job destruction rates should rise.  These predictions, we argue, are borne out by the existing empirical evidence.”  

Ok, so some of this seems pretty obvious.  If your organization is going to make it, you’re going to work a bit harder to ensure that this is, in fact, the outcome.  Is that correct?

“Quite intuitively, workers employed in firms highly likely to survive choose to invest more in future productivity than their counterparts in low survival firms. These investment patterns have several implications for the features of turnover and earnings across firm types in steady state and the evolution of turnover rates following business cycle shocks that are consistent with the relevant empirical evidence.”

And what about quit rates and job destruction?

“We qualitatively evaluate the dynamic properties of our model by computing the transition path between steady states following shocks to total factor productivity (TFP) and gross firm failure rates. Two outcomes of these experiments are particularly notable. First, as in the data, we find that quit rates are procyclical, because workers use slow times to retool (see DeJong and Ingram, 2001). Second, we find that job destruction rates are countercyclical provided gross failure rates for firms rise during recessions, even if the increase is very small as suggested by the existing evidence on corporate failure rates.”

It’s an interesting study.  In effect, they offer evidence that allows you to logically (and dispassionately) understand cyclicality in employment.  To simplify one of their flows, they spoke to the fact that training usually precedes an expectation for higher wages.  During times of training, our productivity would obviously slow, and history has shown that training increases during recessions (DeJong and Ingram, 2001).  If you’re training more, producing less and quitting less often, this can lead to layoffs, something too many Americans are painfully familiar with.

So what should you do?  For employees, the obvious answer may be to do everything in your power to help ensure the survival of your organization.  This is often easier said than done and should not involve stepping over the bodies of your coworkers and peers.  The market will eventually recover and those flaming bridges will come back to haunt you.  Instead, raise your hand and encourage those around you to do the same.  A trench mentality may do nothing more than lead to the fate that you fear the most.  So stay aware of what’s happening around you and let’s keep the conversation going.

Believe me, I know…you’re sick and tired of yet another “seat at the table” discussion focused on HR’s need to be more strategic in their organization.  I predicted that 2008 would end with HR still not gaining that elusive chair, but for the sake of argument, let’s assume they did.  Yes readers, the Chief Human Resources Officer (CHRO) has finally arrived and is ready to roll up her sleeves and provide highly strategic value.  What happens next?  

Enjoying the coveted view, she looks around and likely sees the CEO, CFO, COO, CIO, CMO and perhaps other executives discussing the current and future state of the business.  Given the significant influence that each executive exerts, what happens when the individual personalities change?  Put another way, how does C-level tenure impact one’s ability to drive value?

• CEO: A 2007 Harvard Law School study shows that a “manager CEO” of a S&P 500 firm averages 5.5. years of tenure.  Crist Associates’ 2007 Volatility Report also shows the majority of CEOs with less than 5 years of service.
• CFO: Crist has CFOs at just over 5 years and on the rise.  However, SOX compliance is still having a negative impact on longevity.  
• COO: Chief Operating Officer tenure is shrinking to just under 3 years, with the total number of Fortune and S&P 500 COOs diminishing at a perilous rate.  
• CIO: According to the 2008 State of the CIO poll results, a Chief Information Officer’s average time in seat is about 4.4 years, down from 5.1 years in the prior period.
• CMO: Spencer Stuart’s annual study shows Chief Marketing Officers at a mere 26.8 months, which is actually up from 23.2 months in the prior year.

Right.  So your COO and CMO will survive less than three years.  Your CIO is about four and a half and your CFO and CEO less than five and a half.  Suddenly it hits you - one of your most important tasks now that you have a seat at the table is to focus on a succession plan for those in the C-suite.  

This is an uncomfortable realization, yet an item that is often overlooked, even by market-leading organizations.  What’s perhaps more uncomfortable is the assessment of your own C-level survival, with Workforce Magazine’s analysis (and Corsello’s math) putting an average CHRO in seat for approximately 3.1 years.    

If all this executive rotation has your head spinning, grab some ginger pills, put on the motion sickness patch, stay calm, and let’s try and keep the conversation going.  

We’ve all been there at one time or another - the logical conversation that suddenly turns emotional.  The irrational leader’s flame consumes everything in its path, the spoken word oxygen that feeds the fire into a frenzied tempest of damage and destruction.  Dramatic enough for you?  You get the point.  And whether it involves negotiating a raise, a project, what you’re having for dinner, a movie choice or a business relationship, it helps to have a few pointers to help you get through those unexpectedly difficult times.

The Latz Negotiation Institute wrote a piece in December of 2000 entitled, Dealing With the Irrational, Real or Posed, Is Tough.  The article argues that one of the most critical (and difficult) pieces to assess is whether the other party is truly irrational or simply trying to appear irrational.  So how does one diagnose truth versus fiction?

“First, take a deep breath. This is not your garden-variety negotiation and it will require you to dig deeper than usual into your negotiation toolbox…. Then closely observe and evaluate the sincerity of your counter-party’s allegedly irrational actions. Listen carefully to what that person is telling you - verbally and nonverbally.  Are their actions consistently irrational, or is their irrational behavior limited to certain instances or episodic in nature? The more limited and inconsistent the irrational behavior, the more likely it’s a ploy.”

 And if they are faking their irrationality?

“Our natural response? Give him whatever he wants. He’s crazy, and he’s got his finger on the nuclear trigger. We can’t take the chance that he’ll push it, so we better concede. [Instead] find an opportunity to openly point out our knowledge of their acting talents. Then treat them like any other rational but tricky negotiation opponent.”

But what if they are truly irrational?

“Explore the reasons underlying their irrational behavior. Find out why they’re so consumed with anger that they can’t listen to reason. Perhaps it’s a personality conflict. Or perhaps an unrelated event has put them into this temporary state of mind… If it’s an emotional outburst or related to a recent traumatic event, take a break. Given sufficient time, individuals often will become more reasoned and reasonable.

And if none of this works, re-evaluate your leverage and your alternative to this agreement. How much do you really need or want an agreement with an irrational individual? After all, terminating the negotiation may be your only rational course of action.”

All excellent guidance.  Beyond Latz’ advice, look to organizations such as Vantage Partners to help with your most complex, global negotiations.  Keep your cool, and let’s keep the conversation going.

Greetings readers!  As Mark has us dusting off alternative work schedule policies and considering what to do next, some recent findings on creativity and productivity from the Harvard Business School might be of interest.  (Actually, I was wondering why these AWS policies might need to be dusted off, as it was not THAT long ago when we all were wearing bell-bottoms—was it??)

Research by Professors Amabile, Tripsas and Khaire is described by Julia Hanna in the article, Getting Down to the Business of Creativity.  Whether considering a new venture, restructuring a current operation, engaging in M&A, or launching an entrepreneurial endeavor, creativity from your workforce is a core necessity.   This is especially true for any business effort that is beyond the capacity and resources presently available.

Dr. Amabile describes two myths about creativity and the workplace:

• Myth 1: Creativity is dependent on a genius, artist or charismatic leader.  
• Reality 1: Creativity depends more on the collective work of a group of people.  
• Myth 2: Creativity requires a trade-off in productivity.  
• Reality 2: Creativity and productivity are intertwined and interrelated.

What is most exciting about this research is the notion that creativity can be learned.  Hence, if managers understand how to create conditions for creativity, such as bringing importance to the everyday interactions and working conditions of employees, then creativity can be developed.  By supporting the progress of employees through role clarity and feedback while tending to interactions to encourage diversity of thought, the “inner work-life” of employees can be related to creativity and, in turn, brought to bear on performance. 

So, the merits of alternative work schedules are certainly nested in the merits of creativity.  It is a relief that some good ideas never do go away—because while I am not much of a dancer, I do love those bell-bottom jeans!

Let’s keep the conversation going.

Note that Shannon is a better dancer than she’s letting on.

It started with the oil crisis of 1973, this simple idea that work week compression could make a positive impact on both our planet and pocketbook.  It never really captured the nation’s attention in a systemic and sustainable way, but like oversized sunglasses, bell-bottom jeans and dance competitions, some things from the 70s are bound to make a comeback.   

Welcome to May of 2008.  The average price of gas is $3.75 per gallon.  Oil is $126 a barrel.  And consumer confidence?  According to Director Lynn Franco of the Conference Board’s Consumer Research Center, April’s Consumer Confidence Index was anything but groovy:

“This month’s decline in Consumer Confidence was the result of yet another sharp decline in the Present Situation Index. This continued weakening suggests that not only has the feeble level of growth in the first quarter spilled over into the second quarter, but that economic conditions may have slowed even further. And, not only are lackluster business and job conditions eroding confidence, but rising gasoline prices are undoubtedly heightening concerns… Looking ahead, consumers’ outlook for the economy, the job market and their income prospects remains quite pessimistic and little changed from last month. Or, in other words, the glass remains half empty.”

So now you’re saying to yourself, “Thanks Mark!  Great start to my Monday morning.  Real uplifting stuff.”  Sorry about that.  But here’s the good news - many employers have been heeding the cry for relief by deploying alternative work schedules (AWS).  

• Saving Energy: Marion County (Florida) just approved a 4-day work week measure, which by their estimates will save about $250,000 in electricity through the remainder of 2008.  
• Saving Oil: Calculations by energy site The Oil Drum estimate that taking one commute day off the books would save about 8.3 million barrels of oil.  
• Saving Employees: If you want to take this idea to the fullest, embrace the work of CultureRx and their Results-Only Work Environment (ROWE), which declined voluntary turnover rates by 90%.

All good stuff, but what do the academics have to say about AWS?  According to the Sloan Work and Family Research Network (Boston College):

• Fifty percent of employees who have high access to flexible work arrangements on the job report high levels of life satisfaction (Bond, Thompson, Galinsky, & Prottas, 2002, p. 39).
• According to the National Study of the Changing Workforce, “employees who have more access to flexible work arrangements report fewer mental health problems” (BTG&P, p. 39).
• 32% of wage and salaried workers with high availability of flexible work arrangements report no interference of job and family life (BTG&P, p. 38).
• 34% of wage and salaried employees who have high access to flexible work arrangement report “low levels of negative spillover from job to home” (BTG&P, p. 39).

So If you have AWS policies, it may be time to dust them off and begin to promote their utilization.  If you don’t, look to a variety of sources (including the Office of Personnel Management) for assistance.  At a time when employees need to look to their employers for solutions, taking this proactive and empathetic step can make all the difference.

Let’s keep the conversation going.

The questions keep pouring in.  What does this merger mean to the HR outsourcing (HRO) landscape?  Does this lock HP clientele out of contention for other BPO and HRO service providers?  What happens to ExcellerateHRO?  Where does Towers Perrin fit into the mix?  Does this freeze the market?  I’d like to think of this as provider math, so get out your abacus and let’s get down to it…

Input Variable A) HP

HP has been an uncharacteristic dabbler in and around HRO for many years.  They had been rumored to be entering the market via asset acquisitions ranging from ACS, Convergys, and Hewitt for some time now, but I must say that few (myself included) would have imagined EDS as the target.  Within HR service delivery, HP does have a few arrows in it’s quiver:

1. Announces Nestle as it’s only public HRO Engagement (2006) - Scope includes European payroll with options for benefits administration, including call center administration and some back office operations.  Serves as an extension to the existing finance and accounting outsourcing agreement with Nestle.
2. HP and SAP Alliance - 50% of SAP applications globally run on HP platforms, and HP is one of SAP’s largest clients.  HP also offers SAP consulting and integration services including operations, implementation, upgrades, support and end-to-end outsourcing.
3. HP and Oracle Alliance - More than 100,000 joint customers across every line of business globally, including JDEdwards, PeopleSoft and Oracle HR applications. 
4. HP’s HR Department - Supports 156,000 employees in 170 countries.  In a recent presentation for the Conference Board, HR EVP Marcela Perez de Alonso speaks her efforts to rationalize global HR into functional Centers of Expertise such as total rewards and learning.

Input Variable B) EDS

EDS’ creation of the ExcellerateHRO joint venture in 2005 allowed the firm to move directly into the race for tier one HRO transactions.  However, many have questioned the structure and strategy of the JV and whether it is sustainable in light of formidable competition and increased price pressures.  Here’s how EDS adds up:

1. Current ExcellerateHRO Portfolio - According to published data, 400 clients across nearly all geographies (except APAC) servicing more than 33 million active and retired employees.  Notable clients include CIBC, Total (UK), Bank of America and 7-Eleven Stores.  No new client wins announced since April of 2007.
2. Towers Perrin Joint Venture - Powers the full HR transformation and consulting side of the Excellerate relationship.  Provides global reach in 24 countries and outsourced IT to EDS as part of the initial venture structure.
3. EDS and SAP Alliance - 220 implementations with more than 850,000 users in nine languages and 54 countries.  Over 2,000 certified professionals on staff.  Their internal implementation of SAP is one of the largest in the world. 
4. EDS and Oracle Alliance - Emphasis on applications management, outsourcing, modernization and development services under the brand of the Agility Alliance.  Applications are primarily focused on CRM and HR BPO with 500 professionals on Oracle and 270 on PeopleSoft.

Does A + B = HRO Domination?

In my opinion, it does not.  There is no question that the combined entity will be formidable as a global provider of BPO and ITO solutions, and no one can argue with the depth and breadth of their technological acumen and ability to configure, manage and deploy SAP and Oracle solutions in any location in the world.  However, the one hole that remains is that neither entity brings forth deep and meaningful HR domain and consulting expertise.  Thus, I feel that continued codependency on Towers Perrin will be required to present a credible HR transformation story to the market.  This puts HP/EDS/Towers Perrin next to the likes of Convergys/Deloitte in the HRO landscape.  Competitors such as Accenture, IBM and even ACS (with it’s Buck and Mellon assets) will maintain some advantage with wholly owned and internalized HR consulting capabilities.

This could be resolved with one additional tactical acquisition.  With BearingPoint trading at $1.61/share and lowering its 2008 outlook, I’d see them as one possible candidate for such a takeover.  Suffice it to say that the next 12 months in the market should be quite interesting.

Let’s keep the conversation going.

Several weeks ago we addressed the issue of vendor sustainability, with acquisition activity one of the confounding variables in the constantly shifting sands of the HR vendor community.  Many thanks to my good friend Bridget Boix of Krill Northgate for pointing me to a an article in Mergers & Acquisitions Magazine entitled, “The Sideline Offensive”.

The premise is as follows - When Company A acquires Company B, competitive firm C should have a field day by overtly targeting the best customers, employees and suppliers of both A & B, thus effectively attacking from the sidelines.  Said the article:

“The most vital area up for grabs is the combined customer base of the merging companies. As anyone who has gone through an integration process can attest, attention very easily gets diverted in a merger. It might mean customers’ calls go unreturned or maybe… pricing gets ratcheted up. Even if these scenarios don’t develop, clients may habitually think about alternatives as a precaution.” (The Sideline Offensive, M&A Magazine, page 40)

So when should such an offensive begin?  Jeff Gell of Boston Consulting Group recommends:

“The best times to strike are when deals are announced. There’s a lot of uncertainty and an initial paralysis. People can’t make decisions,” Gell says. The other time to strike, he adds, is “shortly after the close,” when the attention is focused on executing the 100-day plan. After 12 to 18 months, however, it’s usually too late to capitalize.  (The Sideline Offensive, M&A Magazine, page 40)

The larger vendors in our marketplace tend to have a fairly well established mechanism for monitoring consolidation among the niche providers.  When instability arises, prepared players may trump rising uncertainty with stability, targeted messaging and superior service.  Needless to say that both HR providers and buyers need to pay close attention to these issues.  With thousands of vendors in our glorious HR marketplace, consolidation via M&A may accelerate out of necessity versus design.

Let’s keep the conversation going. 

More companies are starting to look at the back of their India-based outsourcing agreements to assess what impact March 31, 2009 will have on their business.  This is the date that the Software Technology Parks of India (STPI) tax break is scheduled to expire, a 10-20% development incentive program designed to foster net-new growth across the country.  

For those who are interested, I’d call your attention to two fantastic blogs that are examining the impact of this pending expiration in further detail:

1. Phil Fersht’s Horses for Sources questions how such a sudden increase in costs would impact and Indian outsourcing industry, or if, in fact, the Indian government will heed the cry of industry and extend the STPI.
2. Tony of 360 Vendor Management emphasizes the need for buyers to start planning for the real fiscal impact of such changes within their vendor agreements.  

Both touch upon an issue that Inflexion is increasingly concerned about, vendor sustainability, and how buyers assess current and future risks associated with their most deep and meaningful relationships.  Follow the advice of Phil and Tony and stay educated, start preparing for scenarios which represent likely outcomes, and communicate with your Indian partners on a regular basis.  One year is a very short period in today’s environment and the STPI expiration may arrive sooner than you think.

Let’s keep the conversation going. 

Earlier this week we addressed a growing concern surrounding sustainability of HR vendors.  Issues such as financial solvency, management turnover, ongoing investment into product portfolios, backwards compatibility and support, legal action, and acquisitions (among others) can cause significant disruptions to both near and long term value propositions.  So how should one address these concerns, and does a system exist that can quantify the risk portfolio of an HR vendor prior to purchase?

The short answer is no.  Inflexion has yet to find an appropriate single source mechanism or formulaic that combines risk mitigation and sustainability with deep functional domain expertise.  That being said, we believe there is tremendous opportunity in the development and deployment of an impartial decision support tool to aid HR buyers in assessing these and other risk factors.  Several existing assets, if properly leveraged and supplemented, could help to solve some portion of this significant industry problem:

• Dun & Bradstreet:  This is perhaps the most obvious, as most large procurement departments will require a DUNS review prior to contract execution.  D&B will provide visibility into the credit risk of the provider, locations, ownership structure and financial solvency.  One can also get a sense of fraud, supplier codependency (i.e., does the contemplated contract mean you would represent a disproportionate share of ongoing revenues) and other helpful metrics.  However, it really addresses risk with no domain expertise, thus a great tool for procurement but less so for HR executives.
• CERT’s V-RATE:  The Vendor Risk Assessment and Threat Evaluation taxonomy was developed by the good people at CERT, the federally funded R&D center of Carnegie Mellon University.  CERT is widely known for being five to ten years ahead of the market (as was the case with now-renowned CMM model), and V-RATE is no exception.  This early-stage tool provides an important framework for not only assessing the “survivability” of your vendors solutions, but also helps to assess your organizations preparedness in dealing with anticipated and unanticipated vendor risk.  The goal is not to attain a single overriding score, but instead to capture all internal and external factors which may contribute to ones sustainability and likelihood of mission critical application.  If configured for the unique circumstances of HR, one could see great promise in this instrument.
• LexisNexis:  The Accurint line of products offers an interesting supplement for bankruptcy filings, liens, civil judgments, individual background checks on specific executives, licensing and Better Business Bureau reports.  It also can incorporate much of the DUNS data from D&B.  Again, a great toolkit for looking at that information which is publicly documented on a potential vendor.
• Analyst Reports:  Many industry analysts do some limited due diligence on sustainability, but most of their value comes from the ability to assess one’s position in the marketplace relative to competition, feature functionality, market penetration, globalization and likelihood of successful implementation on time and within budget.  These are all critical factors in your choice of providers, but still leaves a gap to be filled.

So what’s the answer?  For the time being, leverage all the market intelligence you can capture.  Assess whether vendors in your domain of interest are being acquired, if venture firms are backing them, if IPOs are occurring, if lawsuits are flying or impropriety is dominating the space.  Leverage the tools we’ve listed and most importantly, talk to your peers and subject matter experts.  Until someone derives a more transparent mechanism of applying these instruments to the specific needs of our HR community, we must do the best we can with what we have.

Let’s keep the conversation going.