Shifting Fast ... to a Slow Economy

Corporate sentiment tends to move slowly, even in downturns. But mark this month as a time that one corporate CEO after another apparently threw in the towel for recovery for even part of 2020—and maybe next year too.

Only a couple weeks ago, Goldman Sachs, while lowering its forecast, predicted a 25% jump in the economy for the third quarter. But in a series of earnings calls, especially from major banks, corporate leaders talked far gloomier, telling employees to hunker down and other stakeholders to view the world through a much longer lens. It was a realization, experts say, that business needs a whole new shift in strategy, structure, and staffing. “Leaders have not made all the changes they need to make yet,” says Debra Nunes, a Korn Ferry senior client partner.

To be sure, a recent Korn Ferry survey of about 3,500 organizations suggested this kind of reality check hadn’t quite come yet: as of late May, only 30% were considering enterprise-wide restructuring, and 17% were contemplating permanent layoffs. Relatedly, 20% of organizations surveyed were considering additional furloughs, with or without government aid.

Melissa Swift, a Korn Ferry senior client partner and leader of the firm’s Digital Advisory practice globally, says the prolonged uncertainty over COVID-19 and business is unlike anything leaders have had to deal with in recent history. It took 18 months for the economy to recover from the 2008 recession and six years before the unemployment rate reached pre-recession levels, for instance. By contrast, some estimates now project the economy won’t fully recover from COVID-19 for at least a decade, and even then it may not ever reach pre-pandemic growth levels. “The sprint of the early COVID days has proven unsustainable, and cracks in the system are starting to show,” says Swift.

One way those cracks are manifesting is in the form of battle fatigue, says Swift, noting that people are becoming less tolerant of clunky management as the pandemic moves from temporary crisis to permanent situation. Over the longer term, the heightened state of agitation could morph into a serious cultural problem for leaders. As organizations institute layoffs, salary cuts, and other measures, Swift says any culture or communication issues that lurked beneath the surface have multiplied due to the lack of in-person interaction with troubling effects on morale. “So task one for long-haul planning,” she says, “is actually to take a really searching look at short-term engagement issues before they become permanent.”

Her advice: find out what is irritating people by surveying how frontline managers are perceived by their direct reports. “Frontline managers have a meaningful impact on overall organizational culture, so if there are issues with them, it is important for leaders to quickly intervene,” Swift says.

In this type of environment, one of the toughest adjustments leaders have to make is understanding that they can’t mark success with the usual metrics like sales, growth, and earnings, says Nathan Blain, a Korn Ferry senior client partner and the firm’s global leader of organizational strategy and digital transformation. He says it’s important that leaders, who are typically highly motivated by achievement, reevaluate how they measure success during this period. “There are winners and losers born in this stage of the cycle,” says Blain. “You can use this time to build greater customer intimacy, capture market share, and innovate. And you can make sure that your sales team is ready to drive the rebound, even if it is slow.”