What to do now to emerge from a recession stronger

Featured in today's briefing:

• What to do now to emerge from a recession stronger.
• The problem of burnout and why female leaders are resigning more than their male peers.
• The link between remote work and sleep.

The Virus

The latest virus forecast: The US had a 5% decrease from two weeks earlier, with about 38,000 new Covid cases on Friday. The CDC this week shifted from daily to weekly case reporting, running counter to the World Health Organization’s call for a ramp-up in surveillance as winter approaches. Uptake of the bivalent booster vaccine remains sluggish, with fewer than 5% of people in the US having received the latest shot.

The business impact: Air travel had its busiest weekend since February 2020, with 2.49 million people passing through TSA screenings last Sunday. The latest forecast from Bloomberg Economics put the likelihood of a recession in the next year at 100%.

Focus on How to Navigate an Economic Downturn

Organizations are once again rethinking their talent agenda in the light of tougher economic conditions. What does history tell us for how they should approach this

For thoughts on this, we reached out to Ranjay Gulati, a professor at Harvard Business School who co-wrote a 2010 Harvard Business Review article titled “Roaring Out of Recession” examining the practices of the 9% of companies that flourished during previous downturns. Here’s an excerpt from our conversation, edited for space and clarity:

With the economic downturn, what are the best practices for people who are thinking about the talent agenda?

Let's think about what the knee-jerk response of most companies is in an economic downturn, which is to cut costs. The survival instinct kicks in, what you might call the defensive posture. So the entire focus shifts to 'We are in the business of survival.' And a survivalist mindset involves cost cutting. So the obsession becomes with cost cutting, which is fine, I'm not disagreeing with that.

But you have to remember that the best time to get ahead of competition is down markets, not up markets. If you look at market churn data—churn is change in relative market position—you see maximum churn in down markets, not up markets. It's really hard to leapfrog somebody when the markets are booming.

How do you create a growth mindset? How do we create an environment saying, 'Yes, we're going to have to manage costs, but—because people want to be on a winning team—how do you change the mood?' ‘Morale’ is too restrictive a term. It is managing the mood in the organization and the mood you want in the organization is that we see this as opportunity.

What are effective levers for managing the mood?

One way of managing the mood is about outlining a growth agenda. People say, 'Let's think about our agenda for the next 12 months. Where are we going to cut costs?' And I'm not saying don't do that. Yes, here's our cost-cutting agenda, and by the way, here's our growth agenda. Here's how we're going to lean into the downturn to really leapfrog competition, take advantage of opportunities, organic and inorganic, that we are creating. That means sometimes even excess cutting. We're creating the space, the resources, the slack to grow while others are in conservation, defensive postures. We want to find also a way to grow. So it's really outlining an agenda for growth.

Your research found that there are a few areas that were opportunities for investment during a downturn, including research and development and marketing...

That was what we found across those three recessions that we looked at, though I wouldn't want to over-generalize from that to today. I would say it's really about a scalpel rather than a sledge hammer. You've got to identify pockets where you really want to invest and double down. And it's also going to be industry specific. It's going to be company specific. Where do we see avenues for growth? Which sectors, which geographies?

I've seen companies saying, 'We need to rethink our geographic footprint.' Others are saying 'We need to rethink our customer footprint.' So what you're trying to do is be very deliberate. In strategy, we say the two fundamental questions are what game are you playing and how are you going to win? So think about what game you are in and how you are going to win that game.

What I would borrow from professional sports is a winning mindset, playing to win rather than playing not to lose. A defensive posture is what really whacks companies in these markets.

What are the implications for talent investments in an economic downturn?

Some organizations—not a lot—have understood this idea that part of our pay package includes money and status benefits, but it also includes a nice environment, includes a challenging place to work where you're going to grow, learn, and have responsibility. And we're hopefully going to help you connect and make it personal and feel good about what you're doing. In a downturn, that's presumably more important than ever.

When people start giving short shift to all that, when you go into this financial-oriented mindset, you start to neglect those kind of things because it does involve some minimal deployment of resources, investing in culture, investing in talent investing—all that goes out the window. All training programs go out the window, all employee wellness programs go out the window, all this other stuff. This is seen as frivolous stuff. And that's a big mistake.

Then what we'll do is to retain talent, we spend money, we'll pay them more. And then you're going to get what kind of talent? There's a vicious cycle built into this model. I cut costs in the wrong places when I'm not investing for my talent, for helping them feel connected with the organization. The less connected they feel, the more they're leaving. Then I've got to buy my talent, effectively swapping out the right talent for the wrong talent.

Are there any takeaways for leading through inflationary times, including for how to navigate that with your colleagues?

One of our favorite buzzwords in business schools is innovation. We love innovation. The problem with innovation is innovation comes in two flavors. There's 'big I' innovation, the disruptive, radical, Uber kind of innovations. Then there are 'little i' innovations, the tiny innovations, what you might even consider part of 'Kaizen' continuous improvement, like an obsession with getting better. A lot of organizations underappreciate how to do that.

I think it's going to be a period of 'little i' innovation, lots of it both on the employee side with productivity and the supply chain and all that. But also on the customer-facing side.

The part I find interesting in this context is that businesses know how to add or they know how to subtract, they don't know how to do both at the same time. And inflation is a period where you need to learn to do both at the same time.

Read a transcript of the full conversation.

Read a 2019 Harvard Business Review roundup of ideas for surviving a recession and thriving afterward.

Read our briefing on Gulati’s book Deep Purpose from earlier this year.

What Else You Need to Know

Managers are struggling with burnout and lower levels of job satisfaction. Scores of overall satisfaction at work have fallen 15% for executives over the past year, according to a survey conducted in August by Future Forum of 10,766 knowledge workers.

• Executives indicated 20% worse work-life balance and 40% greater stress and anxiety than a year ago.
• About 40% of workers surveyed said they felt burned out, with women and younger workers more likely to report burnout. Some 43% of middle managers and 40% of individual contributors reported feeling burned out.
• “It's partly the economy,” says Brian Elliott, the executive leader of Future Forum. “People are feeling more stressed in their lives.” He also links the decline in executive satisfaction to “an accelerating pace of change and competition.”
• The survey found that Black employees report the most positive scores of any racial/ethnic group in their “sense of belonging at work,” up from the lowest of any group in May 2021. That correlates with greater workplace flexibility and diversity, equity, and inclusion investments.

A gender gap is emerging in leaders quitting their jobs. Women in leadership positions are resigning at the highest rate in years, with a growing distance between the quit rates of male and female leaders, according to research from McKinsey and Lean In. Reasons why, according to the report, which surveyed more than 40,000 employees:

• Some 43% of women leaders say they are burned out, compared to 31% of men in similar positions. Much of that comes from doing extra work on well-being and diversity, equity, and inclusion initiatives that are often overlooked by management. An imbalance in caregiving and household duties is also a key factor: As workers move up the career ladder, men take on less responsibility for that work, while women continue to shoulder the majority.
• Women in leadership say they want a better work culture. Nearly half of the women surveyed said they considered flexibility a major factor when deciding whether to leave a job.
• Women of color in leadership positions often have experienced microaggressions like being confused for a junior employee or having someone imply they are not qualified. Some 55% of the Black women surveyed reported having their judgment questioned, compared to 28% of men and 39% of women overall.

Remote work is giving employees better sleep. US workers have gained a total of 60 million free hours each day by shedding their commutes, using most of that time for sleep and leisure, according to the American Time Use Survey from the Federal Reserve Bank of New York.

• Thanks to hybrid and remote setups, workers are getting roughly an extra hour of sleep daily, on average.
• Other research suggests that a four-day week also leaves workers more well-rested. In an analysis of more than 180 companies piloting a shortened workweek, the average employee gained nearly an hour of additional sleep each night compared to when they were working a full five-day schedule.
• Sleep experts recommend that hybrid workers maintain the same sleep schedule across both remote and in-person days, noting that regular sleep and wake times can support stronger performance at work by helping employees consistently align their daily work rhythm with their biological clock.

The gap between inflation and wage growth has some workers looking for second jobs. In response to the rising cost of living, more than half of the 1,000 respondents in a recent Qualtrics survey said they have already searched for additional jobs or have plans to do so.

• The inflation rate was 8.2% in September, well above the 4% median pay increase identified by Salary.com in a recent salary-budgeting survey of more than 1,000 HR professionals.
• Some 59% of startups are either on the fence or have opted not to increase worker pay to keep up with inflation, according to a recent report from venture-capital firm Lightspeed Venture Partners. Of the 190 companies surveyed in Lightspeed’s 2022 HR and Recruiting Trends Report, half of which were Series B or earlier, roughly two-thirds also said they weren’t making adjustments to their equity approaches for the coming year.
• Workers who saw their salaries shrink with inflation may find some relief in the IRS’s tax-bracket adjustments for 2023, which are more significant than in years past.

Most workers aren’t “quiet quitting.” Of more than 1,600 workers polled by the Conference Board, 81% said that they are putting in as much or more effort as they were six months ago. Still, 30% of workers reported that their level of engagement at work is lower than it was six months ago.

• Worker engagement is lower for all workplace setups: Some 30% of fully remote workers, 31%of hybrid workers, and 30% of fully in-office workers reported a decrease in engagement from six months earlier.
• More women, millennials, and individual contributors reported decreased engagement and effort.
• While 37% of workers said that their intent to stay at their company has decreased in the past six months, only 12% are actively planning to leave in the coming six.

Return to workplace speed round:

• Office occupancy rates in New York and other major American cities were higher at the beginning of this month than at any other time since the pandemic started, but they remained below 50% in most cities, according to building card-swipe data from Kastle Systems.
• United Airlines CEO Scott Kirby said he’sis confident that hybrid working will drive airline traffic, as increased flexibility allows workers to travel during traditionally off-peak seasons. “There’s been a permanent structural change in leisure demand because of the flexibility that hybrid work allows,” he said during a quarterly earnings call.
• Some 65% of Goldman Sachs employees are back to working five days a week in the office, says CEO David Solomon, who has long pushed for a full return to in-person work. Before the pandemic, daily attendance in the office was closer to 75%.
• Harley-Davidson CEO Jochen Zeitz announced that the company won’t be reopening its Milwaukee headquarters to workers. Instead, employees will continue to work remotely, and the 500,000 square foot space will be “repurposed” for non-office uses (though Zeitz declined to specify how).

Here are some of the best tips and insights from the past week for managing yourself and your team:

• Avoid “always” in performance reviews. Move away from using absolute terms like “always,” “never,” or “constantly” while describing reports’ performance. They can lead you to overstate behaviors and potentially fall into biased descriptions. Instead, give concrete examples that can demonstrate your point.
• Use time-traveling language to bring presentations to life. Help listeners visualize your point with phrasing that encourages them to imagine a scenario in the past or future, like “what if,” “picture this,” or “remember when,” which can engage the audience and evoke an emotional response.
• Observe a sabbath day. To fight against overwork and burnout, try taking inspiration from 19th-century Sabbath laws, which gave workers a work-free day to focus on rest, family, and their physical and spiritual health. In the modern day, that could look like logging off completely for a whole day each week, silencing all notifications and powering off all digital devices.
• Share your insecurities with reports. Many employees have a hard time talking about imposter syndrome and other professional insecurities with their managers. To make team members feel more comfortable sharing their feelings of inadequacy, start by talking about your own work-related insecurities and failures. It can help build trust and normalize setbacks in the workplace.

Coda

Another strike against hard pants. A welcome fashion trend for those reluctant to shed their work-from-home sweats: Track pants have gotten an office-appropriate makeover, with dressed-up versions making their way onto runways and workplace outfits alike. (Though traditionalists can relax in the knowledge that the business suit, at least in certain corners of the working world, is still alive and well.)

The great desk-bomb divide. There are apparently two types of employees in this wold: those who embrace the ‘desk bomb’—the surprise stop-by from colleagues that’s seeing a resurgence amid the office return—and those who dread it.

• Financial Times columnist and desk-bombing prononent Pilita Clark’s guidelines: “People wearing headphones are given a wide berth, obviously. So is anyone staring at their screen with a panicked look on their face. But otherwise, all are more or less fair bombing game.”

The handbook for this new era of business doesn’t exist. We’re all drafting our own as we go along—and now we’d like to start doing so together. You can sign up here to receive this briefing by email.