How Short-Term Financial Decisions Can Destroy Workforce Productivity

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First of two parts

People often complain that HR is the source of many bad management practices. The finger typically points at HR leadership when a company has lousy hiring methods or does a poor job engaging and developing employees.

While HR leadership often bears responsibility for inferior workforce management, in many companies the real culprits are the policies and actions of the Finance department. This tends to be especially true in larger organizations.

It is hard to make significant, positive changes to the overall financial results of a large company in a short amount of time.

Finance and impatient clipper ship captains

An analogy can be made between running a large company and captaining one of those old clipper ships with five masts and dozens of different types of sails. If you want to change the direction of a clipper ship without losing speed you need to adjust a number of different sails in a careful manner. This requires communicating with multiple teams and giving those teams time to adjust the parts of the ship they control.

The only way to significantly change the ship’s direction in a very short amount of time is to take extreme actions that kill its momentum such as dropping all the sails at once or throwing an anchor into the water. Yes, the ship changes direction, but it is now sitting in the water robbed of its overall speed.

Finance departments in large companies often behave like impatient clipper ship captains. They issue broad sweeping orders that undermine long-term performance to achieve temporary short-term results. Two of the most common examples are company-wide hiring freezes and travel bans.

1. Hiring freezes

This is how financial policies encourage managers to hire fast and fire slow. One of the oldest bits of management wisdom is to “hire slow and fire fast.” This emphasizes the importance of taking time to hire high quality talent and of swiftly dealing with existing employees who are undermining company performance.

Yet, many finance departments enact staffing policies that encourage the exact opposite behavior.

I know a hiring manager who spent over eight weeks sourcing and interviewing candidates for a critical position. He was about to contact the selected candidate when his company’s finance department issued a company-wide hiring freeze to control costs. When he contacted HR they told him: “In this company you need to fill you requisitions the same week you open them – rush to hire people as fast as you can before finance decides to take away your headcount budget.”

The finance department’s history of using hiring freezes to meet short-term financial goals created a culture that punished managers who emphasized quality of hire over speed of hire. Conversely, because empty headcount budgets were regularly slashed by finance to save money, managers were reluctant to fire under-performing employees lest they be unable to back fill the position.

In sum, the actions of the finance department encouraged managers to hire fast and fire slow, which is the exact opposite of good management.

2. Travel bans

This is how financial policies undermine team performance.

The widespread shift to geographically distributed virtual teams is one of the most significant changes in work to occur over the past 20 years. Technology allows companies to employ people based on what they are able to do without placing constraints based on where they happen to live.

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As teams become more virtual, in-person team meetings are becoming both more infrequent and more critical. Creating occasional direct human contact between virtual team members is important for maximizing team performance, cohesion, and engagement.

Anyone who has managed a virtual team, particularly a global one, can attest to both the value and logistical challenge of bringing team members together for in-person dialogue. Yet it is common for finance departments to issue company-wide bans on “non-essential travel” as a short-term cost saving measure to meet quarterly or year-end targets.

These bans often view team building and training activities as “non-essential.” Such bans can significantly disrupt a manager’s efforts to build high performing virtual teams. Meetings that have taken months to schedule are suddenly cancelled and are often never re-scheduled.

The result: Lowered employee engagement, damaged team performance, and decreased managerial motivation to put effort into building high performing teams.

The message these policies send to employees

Finance decisions such as hiring freezes and travel bans are powerful tools for hitting critical short-term financial targets. But I suspect many finance leaders don’t fully understand the fundamental damage done to a company’s culture when these sorts of draconian cost saving methods are over-used.

These methods may allow the company to tell a good quarterly story to Wall Street, but the story they tell to managers and employees is quite different:

• The company’s leaders don’t trust you. We don’t believe you are competent enough to know whether the long-term revenue generated by a hire or trip is worth the short-term cost.

  • The company is performing so poorly we need to sacrifice long-term gain for short-term survival. We have to take these extreme measures because we’ve lost control of the organization (not the best message for attracting and retaining talent)
  • The needs of managers and employees are less important than the needs of shareholders. To keep our stock from dropping this quarter we need to hit our short-term financial targets, which is more important than supporting the long-term career goals of our employees and managers.

Minimizing company-wide mandates

The most direct way to avoid these problems is to minimize the use of corporate mandated company-wide financial policies around things like hiring and travel. Instead, communicate cost saving requirements to specific departments and let people closer to the front lines determine whether these savings should come from travel, head count, or some other source.

Companies can also lessen the negative impact of broad financial decisions by helping HR to explain their rationale to employees. Just remember that over time the actions taken by Finance will speak far louder than any words communicated by HR.

Dr. Steven Hunt is Senior Vice President of Customer Value at SuccessFactors/SAP Cloud HCM. A recognized expert on strategic human resources, he has helped implement HR systems positively affecting the workplace quality and performance of millions of employees working for hundreds of companies around the world. An active author and presenter, Dr. Hunt has written two books on strategic HR process design and deployment: “Commonsense talent management: using strategic human resources to increase company performance” (Wiley Press, 2014), and, “Hiring success: the art and science of staffing assessment and employee selection” (Wiley Press, 2007).

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