I have learned a lot about the role of HR in recession, cost-cutting and other organizational impacts over the years. This two-part article is especially for those in HR facing a recession for the first time in their careers. While it covers several key topics, it is not exhaustive. I’m looking forward to hearing from other who may have similar experiences or different perspectives!
Where were YOU during the last recession? For the “Great Recession” beginning at the end of 2007, I was Director of Business Transformation for Philips Consumer Electronics, working out of our headquarters in Amsterdam. In my previous role as a program manager in our North American region, I supported HR in a significant business model transformation and organizational restructuring. These experiences working alongside HR professionals eventually led me into formal HR roles. I later served as a Senior Director of Organizational Effectiveness and a Vice-President of HR (business partner) in our Healthcare sector. Being part of a publicly traded company undergoing multiple overlapping transformations and market ups and downs gave me a ‘baptism by fire’ in this area.
As of the start of June 2022 we are NOT in a recession. However, economists see the risk for a recession in the coming year or two about double what it was just three months ago. I can guarantee your CEO and CFO are already thinking about what steps to take regarding a potential recession. If you are the CHRO and haven’t been part of those conversations, now is the time to take your seat at the table! The voice of HR, backed by more data than ever before, can help balance the need to meet company targets while furthering company values and employee experience. Taking an active role with the leadership team in early discussions can help set the tone for things to come.
One of the biggest challenges is that no one knows how long or severe a specific downturn will be. Yet you don’t want to wait until the panic of bad quarterly results to start your recession mitigation. Start evaluating potential scenarios and related options NOW. Look for ways to manage costs that minimize the impact on company strategy AND employees as a start.
We used to always joke about doing our international travel in the first fiscal quarter of the year. The reason being that nearly every year travel restrictions went into place in Q2 after the first sign of uncertainty in the first quarter results. Cutting travel, deferring training, freezing hiring, and delaying capital expenditures are examples of early cost management steps to consider. The United States Small Business Administration has a great list of ideas to consider. But how do you decide which steps will reduce costs while minimizing negative impact to the employees and the business?
Team up with your partners in finance and strategy to look at scenarios with varying levels of cost and people impact. You can then begin to define a series of actions that can be activated based on specific metrics, with more severe actions reserved for more serious situations. If you have a strategic plan for the business (bonus if you have a related strategic workforce plan), use it to guide your actions. Consider which elements of the strategy must be protected or even accelerated, as well as activities to stop or delay.
Specific research and development investments or sales and marketing spend may need to continue as-is to secure future business. Other planned investments with payback periods of less than a year should stay on track or be sped up. This may include already planned transitions to shared service centers as one example. You may have divestments that can accelerate, such as planned office closures or product line retirements. Stopping or delaying specific projects to move resources to more impactful activities is another tactic. Be clear about the potential employee impacts as part of the decision-making process. Consider this for existing employees as well as your external talent pipeline.
HR dedicates a lot of effort to improve employee well-being, as well as organizational effectiveness. Economic downturns provide more challenges in both areas. Uncertainty, distraction, and anxiety all grow as times get tougher. It doesn’t matter if you are the CEO or the janitor, you worry about the potential personal impacts. Outside the company, rising prices along with increased difficulty in acquiring credit can create personal economic challenges. Inside the company, a hiring freeze can delay a project, a salary freeze can turn into an effective pay decrease, and the threat of a reduction-in-force can weigh heavy across the company.
At a minimum people will be distracted and can even become actively disengaged. Start involving them as early as possible. Be as transparent as you can about the position of the company in relation to the economic situation and competitors. Remember, employees are seeing the same news you are! Share the challenges and what the company is doing to mitigate them. Remember, the rumor-mill will be going full speed. By providing clear, formal statements you can help remove some of the uncertainty and build integrity for the leadership team.
Helping managers help their teams
HR must prepare people managers to support their teams on a personal level, up to and including the CEO. It can be as simple as a script outline for managers to check-in with employees on a regular basis. Feedback from these discussions is then used to address specific personal issues and identify broader topics coming up around the organization. Leveraging a strong partnership with the communications team, HR can provide a formal response to broad concerns through various channels (leader discussions, coffee corners, internal social media, FAQs, etc.).
Clear and repeated messaging will help keep the organization focused on critical activities, while sharing ways to manage mental and physical well-being. Be sure the team is utilizing existing benefits like an Employee Assistance Program (EAP) or other locally available resources. Maybe you can even free up cash from other savings for a special one-time bonus, or cover healthcare insurance premiums to provide tangible relief.
Empowering the people
Another way to involve employees early on it to ask them for ideas on ways to save costs, accelerate sales, and drive continuous improvement activities. This empowers them in the situation, along with the benefit of their great ideas! Once we ran a campaign asking for people to identify things that did not add value that we could stop doing. This uncovered several processes that we stopped to save resources and reduce complexity. This offset the level of cost-cutting necessary based on our overall plan, and we publicly recognized everyone who took part.
HR is one of the leading stewards of company values. Regardless of what words you use to describe your culture, be sure to uphold integrity during a downturn. Leaders may drive their teams even harder than before on top of the existing anxiety and uncertainty. This can lead to managers and employees feeling additional pressure to make things happen and push the bounds of ethical behavior. The last thing you need is an overzealous sales manager submitting false projections or an accountant making questionable allocations to make things look better than they are. Or worse yet, a senior leader encouraging this type of behavior. HR must be a role model and hold others accountable. As Tom Peters writes, “There is no such thing as a minor lapse of integrity”.
There is no such thing as a minor lapse of integrityTom Peters
In the second part of this article, we’ll explore the role of HR in upholding another core value, respect. Even in the tough case of a reduction-in-force. Let me know if you need experienced help Consulting Services > Escape To Expand.