According to many economic forecasters, recession is coming. Whether it is a full-on recession or a cyclical downturn in the economy, it is vital organisations understand what this means for their people. External factors, like the economy, can have a huge bearing on motivation and wellbeing and consequently on people’s behaviour and performance. Scarily, many organisations cut back on people initiatives during such times. A senior adviser at a big consultancy firm recently told us their revenues from restructuring and reorganisation rise rapidly in recessions but revenues from organisational culture and development work fall off a cliff. And yet it is precisely in such times that firms need a detailed understanding of motivation, communication and knowledge flow in their organisation to prepare for the storm.
Imagine how it feels when the rising cost of living is eating away at the household budget, and suddenly the cost of your mortgage payments is rising too, it’s not great for your motivation.
It is not the purpose of this article to go into economic analysis, but it is important to understand a little bit about what is happening because this slow-down is likely to have a much greater impact on people than other economic contractions we have seen since the early 1990s.
Typically, economies slow because of a lack of demand, in which case policy-makers respond by cutting interest rates, which isn’t a problem because weaker demand usually means lower inflation. Alternatively, economies slow because policy-makers raise interest rates to control inflation after a period of excess demand. This is also not too problematic because things have typically been going well and people feel financially sound. Now, inflation is rising, but not due to excess demand. It has been boosted by an external shock in the form of rising energy and commodity prices. Policy-makers are raising rates to control inflation but this is happening as higher prices are eroding people’s spending power. Imagine how it feels when the cost of food and heating is rising steadily, eating away at the household budget, and suddenly the cost of your mortgage and credit card repayments is rising too.
This is likely to have a destabilizing effect on people’s motivation through several channels. First, anxiety levels are likely to rise, which is a powerful demotivator. Social and even physical health may also deteriorate, as people can afford fewer leisure activities, and our research has shown this can damage people’s perception of their job and employer. Life balance may also come under pressure as people feel they need to work harder in the face of job insecurity, or work longer hours to make up shortfalls in their earnings. These weaker foundations of motivation tend to predict lower levels of individual and collective motivation too, which means the negative impact on organisational performance can be quite protracted, even if the economy rebounds. Outside of the impact of wellbeing on the higher order motivators, there are several specific factors which can undermine individual and collective motivation in a recession: Uncertainty about the future damages self-confidence and this can have a detrimental effect on the proficiency factors in our model, while self-preservation instincts undermine trust and can make psychological safety harder to achieve. Finally, we expect an economic slowdown to shift the balance between individual and collective motivation. Employees in survival mode are likely to focus first and foremost on their own survival rather than on the team. Our research suggests that when there is an imbalance with individual motivation higher than collective motivation, attrition rates rise and fatigue and burn-out become endemic.
Declining motivation in a period of economic recession can create a downward spiral of higher staff turnover, lower productivity, lack of innovation and decision paralysis.
Decreased motivation has a negative impact right across an organisation, undermining performance at many levels. Staff turnover and productivity are adversely affected, innovation is stifled, and decision-making is compromised.
Retention may not seem like an obvious issue, as voluntary attrition rates generally fall when the economy is weak, however lower collective motivation often means talented employees, for whom there is always demand, leave while the less talented batten down the hatches and hide. Moreover, there is a longer-term effect associated with cost-cutting exercises: Research by the University of Wisconsin-Madison and the University of South Carolina showed a 1% downsizing of the workforce leads to a 31% increase in voluntary attrition in the following year.
Employee wellbeing is another key area. As anxiety levels rise, people take more days off sick, and not just because of stress; mental health and physical health are closely related. Absence through sickness already costs the UK economy £27bn per annum.
Hybrid and remote working practices are also under the microscope. Rising travel costs may encourage more people to work remotely and companies may seek to reduce costs by reducing office space and encouraging remote working rather than reducing headcount. This could lead to a renewed up-tick in hybrid and remote work. With pressure on the bottom line, however, managers may be nervous about losing sight over what people are doing, leading them towards micro-management of out-of-office staff, which further undermines motivation.
Finally, adaptability and decision making are likely to suffer. As companies feel cost pressures and look to restructure, the burden of picking up the slack falls on the employees. Fewer people may be expected to do more, with less. Periods of contraction may involve people having to take on new roles or add additional responsibilities to their current roster. This requires adaptability; however, we know that under pressure we find change threatening. We have an in-built preference for the familiar, it makes us feel safe. The uncertainty which comes with a recession makes people uncomfortable with change at precisely the time where flexibility and adaptability are crucial.
Similarly, decision-making under pressure tends to deteriorate due to a cognitive bias known as loss-aversion: we are hard-wired to feel the pain of losses more than the gain of wins, it is a defensive survival tool. However, it tends to make people risk averse and when the narrative in the news we are fed every day is constantly negative, decision paralysis can take hold.
The keys to surviving the storm are; clarity of communication, treating people fairly and with respect, giving people a sense of purpose and, above all, staying positive.
The first step in mitigating the motivational impact of recession is to really understand levels of motivation across the organisation, and this does not mean just asking a few questions about engagement or belonging.
Mapping motivation is precisely what MindAlpha’s Motivation Metrics tool is designed to do. We evaluate over 60 motivational states and imbalances across 3 core dimensions of motivation which we examine through more than 20 different demographic lenses. With this information it is possible to build a precise framework to support employee motivation through tough times across an entire workforce.
With a clear map in place to determine which factors affect who and which groups of people are most at risk, there are three main areas in which companies can take simple steps to navigate more challenging times.
One of the most important factors affecting motivation in an economic downturn is being treated fairly and with respect. Most people are aware of the broader economic climate and are sympathetic to the challenges their organisation faces but they do not want to be patronized or feel disadvantaged. They understand that pay rises may not be forthcoming, but they want to hear it straight, not sugar-coated, and they want to know the playing field is level.
Pleasure and purpose can go a long way to offset a lack of financial reward. It is easy for an organisation to slip into a siege mentality with bleak forecasts dominating the daily news. It is important to keep the atmosphere light, no matter how hard things seem. This doesn’t mean mindless optimism, people should feel it is OK to voice their concerns, it means focussing on solutions and outcomes rather than on cause and blame. Similarly, a sense of purpose is a strong motivator. When people see how their efforts are contributing to the collective effort to weather the storm, they develop a sense of togetherness and support.
Finally, clarity around decisions and effective communication are more important than ever in hard times. People need to feel there is leadership and a sense of direction. It is OK to admit to being unclear about what the future holds, but it is not OK to be perceived not to be even thinking about it.
Keeping morale high and supporting motivation through a recession is tough, but it will pay dividends in the long run. Lower staff turnover, better productivity, greater adaptability and more robust decision-making are all supported by stronger motivation. The journey begins with really understanding what is driving motivation and this is where MindAlpha can help.
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