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Economic downturns are inevitable, so HR should act now to prepare for the next one.
Nearly 9 million Americans lost their jobs during the last recession. The unemployment rate peaked at 10 percent. More than 170,000 small businesses closed. And it could happen again—maybe this year.
Recessions are less predictable than taxes but as inevitable as death. Business cycles tend to run for seven or eight years, and the most recent economic downturn—the Great Recession—ended in June 2009.
The chance of another slump this year is 20 or 25 percent, according to Gregory Daco, head of U.S. macroeconomics for Oxford Economics, a U.K.-based economic forecasting group. (The odds of the pendulum swinging the other way and the economy growing at a higher rate are roughly the same, he says.)
“We should always be prepared for anything. That’s what any smart business would do,” says Miranda Kitterlin, assistant professor of hospitality management at Florida International University.
A recession forces painful choices for HR, so it makes good strategic sense to take steps now in anticipation of the next slump. Should the company reduce hiring, cap bonuses, alter its mix of staff and contractors? Should recruiters work overtime trying to fill openings knowing that unfilled positions may be eliminated?
Absent a crystal ball, economists suggest focusing on macroeconomic signs to determine if a recession is approaching: falling payroll, rising unemployment and declining quit rates. However, those data points generally lag the actual onset of a downturn. Instead, HR departments can find a quicker source of information that’s close to home: their own recruiters.
“When they tell you the number of job postings is going down critically, it’s usually three to six months ahead of the recession,” says Paul Falcone, an author and longtime HR executive in the entertainment industry who now works as an independent consultant in San Diego.
When a recession begins, there’s no secret formula for HR. It’s hard to know what to cut because each company and industry is different. Hospitality, for instance, may be the first to take a hit in a downturn as tourists eliminate extras. But the sector also has high labor costs that often can’t be slashed too deeply since beds and food still need to be made. Whatever the industry, HR can act now to prepare.
There’s no substitute for good information. Armed with the right data, you can confidently adjust organizational policies based on economic conditions.
Track metrics. Measuring the right things is an important start. “In planning for a recession, if you don’t have metrics in place, you’ve got to get them. Otherwise, you’re shooting in the dark,” says Debra Solt, director of workforce training and economic development at PBS in Las Vegas. “I look to HR to be the one that has a calming effect. You don’t want knee jerk. You’re making decisions with facts and figures.”
Data on productivity, compensation, training and other items related to business goals and financial results can help an organization know what impact downsizing will have. Cutting across the board generally isn’t effective, Solt notes, so HR needs the information to make changes strategically—but carefully. “If you cut critical positions, it can make a company anorexic,” she says.
Document performance issues. Before a recession, it’s important for HR to make sure that evaluations accurately reflect the work of employees. Some businesses think they can sweep underperforming employees out as part of a reduction in force. But if there’s no indication of problems in reviews, the organization opens itself up to lawsuits. A less-productive worker who’s older, for instance, can file suit claiming he was laid off because of age. “You don’t want to be stuck with a nine-month litigation. That will upset your team,” Falcone says.
Allocate scarce resources. Companies anticipating a poor economy can save money by making cuts to merit increases and bonuses. It’s up to HR to figure out how to allocate limited bonus money by working with managers and looking at performance reviews, Falcone points out. But salary reductions are another story. Starting new employees at lower levels can lead to discontent when they find out colleagues are earning more. “A lot of times employers think they are going to save money on salary … but you have to keep internal equity in mind,” he says.
Evaluate ongoing programs. Data can reveal what programs can be trimmed and which are effective and needed. For instance, if the company has a high rate of workplace accidents, it might need to increase, not cut, safety training.
‘A downturn, for a smart HR person, is a golden opportunity to highlight ... business acumen.’ —Tom Wimer, OneDigital
Training and development programs tend to be first on the chopping block. But training is often critical since it builds capabilities and focuses workers on the future, says consultant Tom Wimer, principal of human capital solutions for OneDigital in Reston, Va.
Using a SWOT (strengths, weaknesses, opportunities and threats) analysis, HR can pull together cost-benefit information about which initiatives contribute the most to the business and its bottom line. Which programs should be scratched depends on the organization and its values and weaknesses, so the analysis will differ by employer.
HR departments need to ask themselves, “What can we eliminate, what can we automate, what can we outsource?” Wimer says.
Recruiting is another function that is often flagged to be scaled back, and sometimes reductions there make good sense. “If you’re rightsizing your organization, you may need fewer recruiters,” Solt says.
HR departments should be willing to look hard at their own budgets instead of worrying about building fiefdoms, Wimer says. “A downturn, for a smart HR person, is a golden opportunity to highlight their business acumen,” he says. “Using good business logic, to come back to the organization and say, ‘We’re not just a cost center. We’ve got a business head that will save this organization money.’ That’s the way to absolutely become a hero.”
HR professionals who have been around a while know that the impact of a recession can be eased when the organization is in a position to react quickly to changing conditions.
Ensure flexibility. Develop a plan to move people to where they’re needed most. Look at the age and other demographics of your workforce so you can anticipate future needs and groom people to take on jobs from within the company when a slowdown suspends hiring, Solt advises.
Technology can affect how future staffing needs may change. Solt’s PBS station, for instance, is making hiring decisions strategically because it’s incorporating new technology that will impact staffing levels and comes with high capital costs that need to be absorbed. She has prepared contingency plans for the station so it can cut or expand as the economy changes. A company implementing new technology, she says, needs to think about both which jobs can be reduced and which ones, such as IT positions for people to support the new technology, need to be increased.
Another creative approach to staffing: alternative work schedules, such as 30-hour workweeks, which can reduce costs while preserving continuity, Wimer suggests. Technology might also be used to perform some of the jobs the HR staff handles, such as onboarding or training.
When staffing is tight and everyone needs to pitch in and take on multiple roles, cross-training can teach workers to handle additional duties. In the HR department, for instance, recruiters can help onboard and manage employees during the first 90 days of employment, Falcone says. (That has the additional bonus of giving them an extra incentive to hire good people.)
Optimize outsourcing. Many companies that are skittish about the economy have already become more flexible by carefully deciding what work should be handled by employees versus what should be outsourced. An agile outsourcing strategy can allow organizations to pull back more quickly when necessary, Wimer says.
Conversely, it’s important during a recession to prioritize the retention of full-time staff ahead of contractors and temporary workers. Otherwise, you can breed discontent among your top people and risk losing them. “Your best players are going to have choices,” Falcone says. HR can help keep them in the fold by improving onboarding; training managers; and sussing out whether departures are caused by deficiencies in management, hiring or training, which can be learned through exit interviews to identify underlying problems.
Having data handy about how much the company is spending on all of its buckets of workers helps HR make good decisions. At large businesses, contractors are spread across myriad spreadsheets without, sometimes, a centralized place to look at labor costs overall. HR can help gather that data, working with the supply chain and finance departments.
One tough challenge, though, is that publicly traded companies often see their stock price rise when they announce layoffs, Falcone notes. Cutting contractors, on the other hand, doesn’t get as much love from the markets.
Avoid recurring layoffs. Organizations need to avoid a demoralizing cycle of repeated layoffs. “Try and strip the Band-Aid off at the same time so people can go through this gut-wrenching exercise, but then there’s a sense it’s done,” says Falcone, who has been on both sides of the desk during cutbacks, including being laid off during upheaval in the entertainment industry. “You’re not going to get the best out of people when they are scared for long periods of time. Frightened people don’t do much good.”
Communication is more important than ever during a downturn. The following tips provide advice on how to connect with employees during tough times.
Keep employees informed. Companies need to walk a fine line between being transparent as a sign of respect to workers and not scaring them into searching for jobs elsewhere. “When in doubt, err on the side of transparency,” Falcone advises.
No one appreciates walking into work and finding out the business is cutting half the staff that day with no warning.
“Communication is a good business practice in good times and bad,” Kitterlin says. “If you’re communicating to your employees along the way where your company is, you don’t burn any bridges.”
[SHRM members-only resource: Toolkit—Managing Downsizing by Means of Layoffs]
A strong social media policy will be important. HR professionals should keep a watch out for and respond to disgruntled laid-off workers who could tarnish the organization’s image among future hires when the economy revs up again. HR staff can publicly respond to employee comments made on the website Glassdoor on behalf of their employer, for example, providing additional context and information.
Part of avoiding a social media backlash is, of course, being humane in handling layoffs. A business that mistreats workers during a recession will find that, after it’s over, the people who are left “tend to jump ship right away,” Wimer says.
Demonstrate gratitude. It’s important to show appreciation to staff who are taking on more responsibilities as others leave, Kitterlin says. That can come in the form of new titles, development opportunities or other recognition. Any show of appreciation helps quell workers’ fears that they will be the next ones cut.
Something as simple and inexpensive as a Starbucks gift card or pizza lunch can show workers that the company notices and acknowledges their efforts. “You don’t have to spend a lot of money to tell people ‘thank you,’ ” Wimer says.
‘HR doesn’t get to sleep. You work during a recession. You work out of a recession.’—Debra Solt, PBS
Show empathy. One of the worst practices in handling layoffs may be to treat departing workers like criminals and walk them out the door with security—and then to discourage remaining workers from ever mentioning them. “You have to have a certain level of respect for your employees,” Falcone says. “You’ve got to heal the wounds.”
That might mean having the department head sit down with remaining workers to explain what jobs were eliminated and that departing colleagues will receive severance and other benefits. And HR can help train managers to let them know it’s OK to tell the laid-off workers that their work was appreciated and that they will be eligible to reapply when the company starts hiring again.
“It’s really about who are we as a company and do we have a consistent message,” Falcone says. “Can we show gratitude to people who are being laid off through no fault of their own? You strip people of their dignity when they’re most vulnerable, and they … call 1-800-LAW-OFFICE and want their pound of flesh.”
Recessions end eventually, and HR needs to have a plan to kick-start hiring when the recovery begins. “HR doesn’t get to sleep,” Solt says. “You work during a recession. You work out of a recession. You have to be prepared to work quickly. If you don’t, your competition will.”
Tamara Lytle is a freelance writer in the Washington, D.C., area.
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