Is it possible for companies to achieve sustainable profitability in a time of economic crisis? If yes how? Ph.D. Jeffrey Pfeffer suggests a formula. It is based on a simple principle: the most important assets of companies are people, their motivation, commitment and their brains.
twsm You wrote a book entitled Building Profits by Putting People First. How can people be considered an advantage towards sustainable profit?
jp In today’s world, particularly in advanced industrial economies, the drivers in almost every business, either manufacturing or service, are technology, innovation and customer service. This is true whether you are talking software, car or even fashion design, airlines, restaurants, hotels or healthcare. In businesses and industries that depend upon innovation and services, and basically brain power, the most important assets of companies are people, their motivation and commitment. The evidence is quite clear. If you manage people effectively, you will be more successful as measured by either profit or quality of service.
twsm How do you think it possible to ask a company to have this kind of approach?
jp The Great Place to Work® Institute has talked about what companies need to do. They need to invest in their people by spending money in training and development. They need to share information with their employees so employees know what is going on. They need to decentralize decision making, so that anyone in the organization is able to use his/her gifts and skills towards the organisation’s success. They need to share in the success of the organisation through profit sharing or stock conversion. They need to select people into the organisation who are not only company oriented and collaborative, but are also self-motivated. They also need to build trust between managers and workers.
twsm What do you think are probable business behaviours or conduct related to sustainable profits?
jp Sustainable profit means to build competitive advantage over a long time and this means doing things that really differentiate you and your organisation from others. It means not copying what everybody else is doing, but instead providing a real good value proposition to the market place.
twsm During a crisis companies would be oriented to a cutting cost strategy. How much can and must a company commit itself to keeping staff?
jp The worse trough of an economic downturn is when companies have the opportunity to differentiate themselves from the competition and gain market position. For example, Google emerged from the tech-crash of 2000 while Apple computers put itself back on top when it launched the iPod in 2001. You also need to take the long-term perspective. It has never made any sense to me for companies to lay people off at the same moment everyone else is doing the same. Later they have to go back and try to re-hire people, to rebuild their workforce at the very same moment when everyone else is doing likewise. To me this is buying high and selling low. Many of the most successful organisations are trying to retain their employees during the hard times because they are the company’s most important asset.
twsm When do you think is right to lay off a minimum part of employees in order to save bigger numbers?
jp I think it depends upon the situation. In general, it would be more desirable to reduce everyone’s wage proportionally than to start downsizing the numbers of people. Experience suggests that companies often make the least productive cuts. They often cut product development and innovation while keeping advertising. They cut people who provide the service that the customers demand and this in turn leads to even more revenue and customer loss.
twsm Do top managers need more courage in pursuing sustainable profits?
jp Yes, I think top managers often do what they think they should do or what business journalists say they should do. You can never achieve exceptional returns by following the crowd. The successful organisations have a true understanding of what makes them successful, and are willing to go their own way. So, yes, I think courage would be helpful.
twsm Moving on to your future projects, we are aware that your ‘Organizational Survival Guide’ will be published in 2010. What are the new key words that you will introduce to this guide as a result of this crisis?
jp What is important is not terminology, language or words used to describe the crisis. I think what is important is the substance of ideas. Keywords do not equate with enduring truth.
Jeffrey Pfeffer is Professor of Organizational Behavior at the Stanford Graduate School of Business. Jeffrey’s book, “Power: An Organizational Survival Guide”, was published in early 2010.
Published in the hard-copy of Work Style Magazine, Spring 2009