On Tuesday, October 21st, I addressed 30 members of the Northern California Chapter of the NACCB. I called my talk From "Irrational Exuberance" to Unprecedented Upheaval and What You Can Do To Survive.
When I came up with the title, I had no idea that five days later, Alan Greenspan, the famous ex-Chairman of the Federal Reserve who so famously coined the term "Irrational Exuberance" to describe investor behavior during the run-up to the dot.com bust, would himself be swept up in the hysteria to identify scapegoats for the recent financial crisis.
The audience at my talk was comprised largely of owners, executives and senior managers from IT Staffing Companies. This little known and little understood industry places thousands of temporary and permanent computer and information technology professionals in companies requiring their services throughout the Bay Area and around the country. This industry often serves as the "canary in the cage" when it comes to local economic conditions as they are 100% dependent on other companies, and the general availability of talent, for their success. In a sense, they get it coming and going -- When the economy is good, clients are looking to hire but talent is scarce -- when times are bad, projects dry up and a flood of talent pours into the market. Since IT staffing companies play the middle-men who identify these projects and broker this talent, executives in this industry are especially attuned to economic developments. This explains their acute interest in better understanding how to respond during the current crisis.
My talk began with a description of the current crisis, and how IT staffing firms would be affected. In particular I noted:
- Shrinking margins
- More sophisticated clients
- Intense competition
- Clients cutting back
- IT projects on-hold
- High operating costs
- Shortage of capital
- Closed acquisition window
- Limited exit strategies
In response to these challenges, I suggested that successful companies would respond by:
- Unleashing the full talent and potential of every employee
- Eliminating poor performers
- Controlling fixed costs
- Emphasizing their strengths (no wasted effort)
- Focusing all employees on key drivers of business success
- Improving teamwork and cooperation
- Giving employees a stake in the success of the business
The remainder of the time was spent describing how poorly designed commission plans were affecting the behavior, performance, and motivation of industry sales professionals. IT Staffing Firms, like many other industries, feature commission plans that focus exclusively on one measure -- in this case gross margin. Such plans fail to take advantage of the full power and potential of a talented sales force. Therefore, I recommended that these plans be replaced with incentive plans that:
- Directly support the overall success of the business
- Clarify how each person can contribute to this success
- Are tied to each employee's personal stage of development
- Describe precisely what each sales professional must do to earn a payout
- Reflects the unique aspects of their job
- Are linked to every other incentive plan to encourage teamwork and cooperation
It is my strong belief that this shift is the single, most important strategy business-owners and managers can engage in during this unprecedented economic upheaval. I say this in the belief that success will require the complete and unwavering commitment and dedication of every employee. And motivating this level of achievement will depend on focusing all employees on the appropriate actions, clarifying exactly what contribution is expected from them, and defining in advance exactly what they stand to earn when they accomplish it.
During the Q&A period that followed, the group commented on other ways they were responding to the crisis. It was interesting to note the wide range of responses. Some organizations saw this as a time to cut costs, focus on core competencies, increase operating efficiency, and eliminate poor performers. Others clearly saw this as a time to scoop up the exceptional talent that was coming onto the market at bargain basement prices, and were in a strong growth mode. The latter had clearly prepared themselves better during the good times, and were now benefiting from their foresight. The former were now struggling to survive. But everyone recognized that the way they respond in the next few months will determine who survives to deal with the upcoming challenges that are sure to follow.
To view the complete presentation, click here => Download kent_romanoff_naccb_speech.pdf