By adopting transparent communication, using your people as part of the solution, and retaining investment in key strategic areas, HR can help businesses to weather the storm of a potential recession.
Will we see a recession in Australia this year or won’t we? It’s a question that has economists and business leaders divided. However, something we can all agree upon is that we’ll face economically challenging times in the year ahead.
Whether or not we experience an official recession this year, business will likely be tightening purse strings and, in some instances, cutting headcount in order to weather the storm. We’ve already seen this occurring overseas, with Amazon announcing that it’s slashing six per cent of its workforce.
With all this in mind, it’s important for HR professionals to start preparing leaders and teams for how the business might respond to a downturn. Here are a few things to keep in mind.
1. Forefront communication
Communication during good times in business is nice to have, but during a downturn it is absolutely vital to get it right, says Wayne Cascio, a Distinguished Professor Emeritus at the University of Colorado, and the Robert H. Reynolds Chair in Global Leadership at its Denver campus.
People are more concerned than ever about losing their jobs during these times, so engagement, or at least a sense that we’re all in this together, can only be created by consistent communication from leadership teams.
“It’s essential to have good communication from the top, with the leaders willing to be transparent and having a strong game plan,” says Cascio. “That’s the way they give people hope. Leaders must be very transparent about their plans, so everybody understands there aren’t going to be any surprises.”
Read HRM’s guide for how leaders should communicate about job insecurity during challenging times.
2. Involve employees in the solution
Downsizing should only be considered a last resort in anything but the direst of economic circumstances, says Cascio.
Businesses that performed well during the recent US recession, he says, were those that saw their people as part of the solution rather than part of the problem.
For example, the CEO of DuPont, one of the world’s largest producers of chemicals and science-based products, required every manager to meet with their direct reports and come up with at least three suggestions for cost-saving. These ideas were then further developed and finessed by a screening committee.
“They needed about US$35 million in cost savings to avoid any layoffs, and they wound up generating about US$60 million in cost savings because they saw their people as part of the solution,” says Cascio. “Any company could do that, but it takes leadership and communication from the top.”
Another case study is Lincoln Electric, which makes arc welding equipment.
“It’s pretty unglamorous work,” says Cascio. “But the company has never had a layoff since the 1930s. One thing it did during the [2007-2008] recession was create what it called ‘Leopard teams.'”
Leopard teams means employees are required to “change their spots”, to get off the factory floor and go out and find opportunities in the marketplace.
“One team identified a market for home welding equipment, and nobody was tapping into it. So they started working with big-box retailers and ultimately generated a US$800 million per year line of business.”
“They needed about US$35 million in cost savings to avoid any layoffs, and they wound up generating about US$60 million in cost savings because they saw their people as part of the solution.” – Wayne Cascio, Distinguished Professor Emeritus at the University of Colorado
A third example Cascio shares is Southwest Airlines, which put a freeze on hiring during the 2007-2008 recession. This left its 80-strong team of recruiters wondering how long they’d hold onto their jobs.
However, instead of downsizing, the airline introduced a corporate redeployment program. Recruiters naturally boasted excellent interpersonal skills, so they were retrained into customer service roles. As the economy recovered, they were gradually brought back into their previous roles, with a renewed sense of loyalty to the business.
“The best thing a company can do during a downturn is to practise something called environmental scanning,” he says. “It works around the acronym PESTLE because it involves identifying trends in the political, economic, social, technical, legal and environmental arenas.
“The key to success is to identify trends that are likely to affect your business and where opportunity or threat can reveal itself. Some companies set up small groups of staff to be responsible for each area, but why not establish broader networks during a downturn, bringing all staff on board to help solve problems? HR can take the lead in this.”
Of course, no matter what a business does, the last resort of downsizing can always become a reality. But even then, as long as leaders have communicated well and done all they can to avoid layoffs, staff will feel gratified that the company at least made an effort, says Cascio.
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3. Create agile leaders
During a downturn, a different type of leadership is required at all levels of business, says Tina Shah Paikeday, Global Head, Diversity, Equity & Inclusion Capability of Russell Reynolds Associates Global D&I Consulting Services.
Leaders need to be agile enough to navigate difficult and constantly changing circumstances by shifting strategy.
At the same time, HR officers need to have tough conversations with their business leaders around talent within the workforce, and about ensuring great resilience.
“That’s going to be the skill set that will enable you to weather the storm during the downturn. What you want to look for are leaders who are able to change from being pragmatic to disruptive, depending on the circumstances, in terms of their strategic approach,” says Shah Paikeday.
“As we anticipate the economic downturn, we’re going to see hiring slow down. So in that case, identifying the people who do have that agility is something I’d recommend. In addition to that, as we think about talent in the downturn, the emphasis from leadership advisory firms like ours will be on development.”
Most important, she says, is identifying those in the organisation at all levels who already have agile leadership skills. Develop those people and then focus on others. If a large gap is identified, if the organisation does not have enough agile and resilient people available in the current workforce, now is the time to hire for those traits.
“Organisations able to harness the power of diversity are able to get to higher levels of innovation, which is important when you’re trying to navigate highly ambiguous situations.” – Tina Shah Paikeday, Global Head, Diversity, Equity & Inclusion Capability, Russell Reynolds Associates Global D&I Consulting Services.
What about diversity and inclusion? Is that put on hold when times are tough? Actually, that’s when it becomes even more important, says Shah Paikeday.
“The perspective on this is that organisations able to harness the power of diversity are able to get to higher levels of innovation, which is important when you’re trying to navigate highly ambiguous situations,” she says.
“You have novel problems to solve in a recession, and the research shows that when you have those diverse perspectives at the table… you’re better able to navigate the circumstances in the same way that I was talking about leadership agility.”
Cascio agrees. If a company is serious about diversity and inclusion at any time, he says, then the best time to demonstrate that is when diversity and inclusion matter most – during the hard times. It says something about culture, and culture backed up by communication is what’s most important during a downturn.
The reality of a recession is that budgets are cut across the board. Training and development is often brought in-house and recruitment slows or stops. Technology may be utilised to increase efficiencies in HR and other functions. But Cascio points out that new technology has the best chance of being implemented successfully if it is a cost-saving suggestion by those closest to the action, rather than a staff-cutting strategy by management.
“People like the idea of a shared fate,” says Cascio. “They’re most comfortable when it’s clear that we’re all in this thing together. You’ve got to demonstrate that with your actions.”
Excerpts of this article were first published in the December 2020 edition of HRM Magazine. This has been republished with the permission of the interviewees. You can view the original here.