Episode Transcript
Speaker 1 00:00:10 Hello, everyone. We are preparing for our big, exciting irresistible conference in about a week. And I'm gonna be introducing all sorts of new ideas there, but in advance, I'd like to give you some thoughts about what's been going on in the job market, in the economy and the workforce and what I'm calling it is getting ready for the slowdown. In case you're not aware of this during the last five months of the year, we've had a disaster in the financial markets, not for those of us that are conservative investors, but for anybody, who's put a lot of money into stocks or crypto or high growth companies. It has been devastating. Amazon is down 34%. Microsoft is down 22%. Tesla is down 36%. Netflix is down 69%. Bitcoin is down almost 40%. The stable coin based on Luna, went down from a dollar to less than 5 cents.
Speaker 1 00:01:06 The way I understand it. So people have lost a lot of money. And the explanation for this is really simple, not very complicated. The first is we've had a almost 13 year growth cycle in the economy and the stock market driven by very low interest rates. In fact, interest rates were near zero for many of the years, following 2009. So people have been looking for places to put their money and they put them into stocks. They put them into crypto, they put them into Robinhood. They put them into venture capital and the venture capital companies have been throwing money at startups, literally, and startups have been taking it and they've been hiring people and they've been growing. So there's been this cycle of consumption and investment driven by the near zero interest rate economy. And everything has gone up in price, houses, cars, and now food, raw materials, building supplies, clothing, maybe not so much clothing, but almost everything else.
Speaker 1 00:02:06 Now, as you know, this is not sustainable. We're all tired of the inflation. None of us life living in situations where everything becomes more expensive every day. In fact, I went to the farmer's market in my neighborhood today, wife and I bought vegetables. The sum total of the vegetables, we bought cost around $12 and it wasn't very much. And I said to the guy, you know, I'll bet next week is 15. And he said, yeah, I wouldn't be surprised. And that is not a good life to live. Inflation has all sorts of devastating effects on our psychology to say nothing of our spending patterns and our standard of living. So it's really in some sense, overdue that this was going to happen. And the economics behind it are pretty simple. The GDP in the United States at least is still growing very slowly, but productivity is down 7.5% in Q1.
Speaker 1 00:02:59 What that means is that with all of the increase in wages and salaries and bonuses and perks that we've been putting together to try to attract people to our companies, they have not been delivering as much output as we've been paying for. And that means we're at the end of the economic cycle. And the federal reserve has been late to this, but they're very clearly positioning and messaging that they are going to continue to increase interest rates. The 10 year T bill is over 3% mortgage rates are close to 6%. They were only 2% a few months ago. So just think about the cost of housing, the cost of investment, the cost of everything and money is coming out of the stock market out of highly valued overpriced companies and moving into more stable sources of investment. By the way, crypto is an asset class that really has zero value.
Speaker 1 00:03:55 The only reason crypto prices go up is because somebody else thinks crypto is worth more than you do. But as you know, that means that the price can go to zero. In fact, one of the things I remember learning in business school, which many people don't think about is that any company that loses money has an effective value of zero. So when you invest in a fast growing company, that's losing money. You're basically gambling that eventually that company will make a profit. And that's why people like Warren buffet and other very experienced investors don't really invest in low profit or no profit startups because it really isn't good economics. So all of that economics is bearing out and we're entering a bear market. Now, I don't know what the definition of a bear market is. And I'm certainly not gonna tell you what to do about it, but there's no question that there is a slowdown coming.
Speaker 1 00:04:50 It may still be months ahead. And we may still have a lot of economic growth and tough job market hiring for a while. But I think it's happening now. What do we do about it? There's quite a few things that happen during an economic slowdown. And those of you that are my age have definitely experienced this before. The first is more people are available to hire. And so you can be much more selective about who you hire and whether you hire. So all of these job openings that you have in your company probably deserve a good look and you should make sure that you're hiring the most valued, most essential people that you need. The second thing that happens is you suddenly look around the company and you find areas of low productivity or loss business units that aren't performing well products that aren't selling services that are maybe not very profitable.
Speaker 1 00:05:44 Other areas of the company that just are underperforming. And the CFO starts to get very involved in budgets. Now, as an HR professional, if you're a strategic thinker, you realize that when the budgets are cut, your job is not to reduce the benefits in HR. That's a part of your job, but the real important part of your job is to re-engineer the work working with the business counterparts on how to make the company more productive. And one of the most important things we're gonna talk about at our conference is some research we published a few months ago on the new principles of organization design. We in HR have a massive opportunity to help companies continuously reorganize, implement new tools, take advantage of automation, upskill people move people into new roles, move people into high value roles out of low value roles. So the company can thrive in the middle of a downturn.
Speaker 1 00:06:41 So this is all great stuff for HR. It's not just letting people go or cutting expenses or reducing the number of headcount in the company. And lots of companies have proven during downturns that by not letting people go and reorganizing the work and possibly giving people a slight reduction in pay or reduction in raises, they come out much, much stronger in the long run. There have been studies done on this. And I remember distinctly companies like Southwest airlines and others who refuse to let people go during downturns. And they always come out stronger in the end. By the way, if you don't really understand why that is, think about this for a minute, letting somebody go takes about an hour. You fill out the paperwork, you make sure you have a good justification and you have a conversation hiring somebody back might take weeks or months.
Speaker 1 00:07:35 So when you let somebody go, not only have you quickly lost all of the skills and experience that person has in your company, you've lost their relationships with employees, their relationships with customers, the domain expertise they've built in all of the operations of your company. You can lose that in an hour, but it'll take you 3, 6, 9 months to get that back later. So if there is a downturn and you have this sudden rush to let people go, you probably want to think twice about it. The third thing that happens when the economy slows is budgets in general become more constrained. And I know that during the camp pandemic, most companies had unlimited funds for transformation, growth, digital tools, and digital systems. Most of our businesses survived during the pandemic by spending money on new tools, zoom, Microsoft teams, new E R P systems, scheduling systems, employee experience systems, online learning tools, online learning, content transformation, every provider and consulting firm who meets the needs of organizations.
Speaker 1 00:08:45 People has actually been thriving the last couple of years because we've needed all sorts of tools and technologies and solutions to survive the pandemic. And a lot of good things happened. I would venture to say that as destructive as the pandemic was for our personal lives, it was really good for our companies. Most companies are more resilient, more digitized, more agile, and frankly, just delivering products and services in a more effective way, meeting customers, where they are in ways that they really never conceived of three years ago. So this investment has been good, but when the economy slows down and the budgets get tight, you're not gonna get that kind of money again. So you're going to have to take advantage of the tools you have, which means that a lot of the work that I think we're gonna see in HR for the next couple of years, it's certainly for the next year or two is about design, designing the experiences, the programs, the systems, the limited amount of benefits and other programs to key people productive and keep people engaged when we can't just throw money at the problem.
Speaker 1 00:09:54 And by the way, that's a good thing. Every company I've worked for that had a lot of money to throw at the problem wasted. It it's very common to overspend on things when there's no limits, that's just the way humans work. So in a time of more constrained growth, we're gonna get a lot better at figuring out where to spend our efforts and our resources. The fourth thing I want to talk about in a time of slowing growth is business culture. Now there was a kind of controversial wall street journal article that came out this week and I made a comment about it on LinkedIn and a bunch of people commented back. And it was talking about Elon Musk, standing in a coffee room somewhere in Tesla and seeing a bunch of people queued up waiting for coffee and saying something like this is a complete waste of time.
Speaker 1 00:10:41 We're gonna get rid of that coffee pot, because I can't have people waiting in line when they should be working. And you know, I think most of you probably would've read that and said what a ridiculous comment. Well, this is a time to be extremely vigilant about your purpose, culture and mission. I've worked for some very successful companies who went through some very hard times. I worked for Cybase when it was heavily disrupted by Oracle in the 1980s, I worked for IBM when Lou Gerner came in and shook the company apart and put it back together in a whole new form. I've been through some of this in my own company. And when bad things happen, which is very common, every company goes through this. Netflix is going through it right now. Microsoft had their time when they had to reinvent themselves, there is a need to reinvent what you do.
Speaker 1 00:11:32 In fact, my argument in the book that I'm about to publish and launch and in the conference is that every company will go through cycles. You will go through product cycles, you will go through market cycles. And sometimes you won't come out on top, you're gonna fall behind and you're gonna have to reinvent what you do, how you do it and who you are. And when you go through those cycles, like many companies are going to be experiencing. Now you go back to your core. And the core is what brought you to market in the first place. If you are Starbucks, for example, and you're having a rough period, which they are, and they adapted as fast as they could to the pandemic, but they have somewhat lost their relationship with employees. And to some degree with some of their customers, you have to go back to who you are.
Speaker 1 00:12:21 And Howard Schultz from all that I know, and the people I've talked to at Starbucks is going back to being the third place. What Starbucks always was, was not just a place to get coffee as fast and cheaply as you can, because it doesn't really do it very fast or very cheap anymore. But to be the special place for you with the special coffee, the special drink with your name on it, tailor made to be exactly what you needed in your life. And there was a huge need for that before the pandemic. And there's a huge need for that now. So they're going back to their core. Boeing is going back to its core as a safe, reliable provider of airplanes. I could go through company after company, after company that is going back to their core. So if you are in a business that feels like it's being disrupted by the slowdown in the economy, the most transformational thing you'll be able to do is go back to your core and figure out where the flywheel is in the core part of your business and what you can be doing more at an interesting conversation with a chemical company is a new client of ours that makes catalysts for the oil industry.
Speaker 1 00:13:31 So, you know, your catalytic converter has a particular chemical in it that takes CO2 out of the exhaust or carbon monoxide out of the exhaust oil refineries have catalysts in their hydrocracker in other areas. So they've been figuring out how to branch their, and they're very profitable company, how to branch their chemicals into new markets. One of the markets they had planned on going after was the battery market, because theoretically there's a massive need for lithium and other forms of chemistry in the batteries. And they felt that they could create a very big differentiated business in this giant growing market for different sizes and types of batteries. They found out for some reason, I'm not sure why that it wasn't a great business for them. It was very competitive. The prices were not going where they wanted them to go. And so they're moving into the market for hydrogen fuel cells and hydrogen based energy.
Speaker 1 00:14:22 Now they didn't say we're gonna get into digital services or something completely different. They decided that their core business is science. The company is run by and led by chemists and scientists and engineers and manufacturing specialists. And so they went back to their core and they found a new energy source that needs chemistry, a unique form of chemistry that they can provide. And I think they're gonna do great. I just know from having talked to them, another company that I was looking at recently is a company that you all know called w D 40 w D 40 is one of the most successful financial companies for the last 30 years. They haven't gone into all sorts of new businesses. Instead, what they do is they keep finding new and better and extended uses of the core products in chemistry that they've developed many, many years ago.
Speaker 1 00:15:14 In fact, I was reading the other day that WD 40 is actually useful as a fish bait, which, you know, I don't know where they figured that out, but that's an example of going back to their core. So that's the fourth thing I would leave you with is if you do wake up one day and your stock went down by 30% and something about the market, isn't going in your direction, you don't need to panic, go back to what made you great in the first place. And you'll probably find the roots of growth. Now, the fifth thing I want to talk about is workforce planning and talent intelligence. Last week, I gave a keynote at an industry conference, one of the first ones I've done in quite a while, and I spent an hour describing what's going on in talent intelligence, and I'll do another podcast on that.
Speaker 1 00:15:57 But basically one of the most important new initiatives going on in HR is to pull together economic data, workforce data skills, data, hiring, sourcing, competitive data, to figure out who you should hire, where you should grow, what cities and geographies, you should be locating facilities and how your organization should be structured. That is what I call talent intelligence. And it turns out, even though that may sound like strategic planning, it's not workforce planning. Workforce planning is usually a fairly tactical process that companies go through built mostly around budgets. It's really a process of intelligently decide and understanding what parts of your company need to grow and where we need more skills and where we should hire and where we should deploy more people to grow successfully and profitably. And this is becoming a really fascinating domain. There are more than 4,000 jobs open in LinkedIn.
Speaker 1 00:16:55 Now with the term talent intelligence. And I'll be showing you much more about this in the next couple of weeks. As I publish some of the research, we've just done that fifth area is also part of dealing with a slowdown understanding where your people and your skills and your capabilities should go next. Now I'm not a pessimist. I'm always optimist. And I actually think this economic cycle is long overdue. I live in a community where there's been a tremendous amount of inflation for far too many years, and I'm a little bit happy to see interest rates go up. I happen to be a conservative investor. So I tend to buy stocks and bonds that generate income. I'm not sure my portfolio looks terrific right now, but I don't personally feel too exposed by the downturn. That's happened. If some of you are in the high growth, high PDE industry, and you've seen your stock plummet, you have to go back to your core.
Speaker 1 00:17:52 What business are you in? How are you gonna make a profit? What can you offer to employees? If the stock price isn't there, many companies are raising base pay and reducing equity contributions pay is a big issue right now at this point in the economy, people are expecting higher base salaries. And so as the slowdown continues, and if it does continue, we're gonna be caught in this vice, between people's expectations for salaries going up and company performance, perhaps not going up at the rate that it was. So you're gonna have to get creative about that too. And that's why, what I said in the beginning is this is all about design. So let me leave you with that. This is kind of a new topic. We're gonna talk a lot about this at the conference next week. And I promise for those of you that are coming to irresistible, you're going to have the time of your life.
Speaker 1 00:18:43 We have the most amazing group of people coming we're full. The conference is completely packed. And then as we come out of it, the next couple weeks in June and July, we'll publish some of the information we learned there and we'll share with you what happened. So it's may it's spring. The pandemic is sort of slowing down. We still have the war in Ukraine. We still have the interest rates and the inflation, but hang in there and get ready for this next economic cycle. Because we in HR are going to be critical players in the response and the performance of our companies in the ones they have. Thank you.
