Seven Lessons of the Past for Insights Today on Managing People in a Recession
By | Dave Ulrich | Speaker, Author, Professor, Thought Partner on HR, Leadership, and Organization
We often learn how to deal with the four seasons by adapting what we learned from the past to the present (winter clothes, spring cleaning, summer vacation, fall harvest). Economic or business cycles also exist with predictable stages: expansion, peak, contraction, and recession. Lessons from previous cycles can be adapted to the current stage.
As today’s global economy leans toward recession, many organizations face cost pressures and respond by lowering labor costs with whatever term: layoff, downsize, rightsize, reduction in force, cutback, or furlough. Having lived through previous economic cycles, let me share seven lessons about managing people in recession times that can be continued and adapted to today’s changing business context.
1. Seize opportunity.
Stanford economist Paul Roper said, “A crisis is a terrible thing to waste.” And an economic downturn may be an opportunity to make lingering and difficult strategic and staffing decisions. Trees and shrubs need to be pruned to grow. Similar growth can come from managing people well even in difficult circumstances.
Managing downsizing due to recessions should be strategic and not standard. For example, instead of cutting 10 percent across all departments, one department may need a 20 percent cut, while another may only need 2 percent. Strategic reinvention during a recession may also be an opportunity for accessing employee skills based on future business requirements. A firm moving to a more digital strategy may need to discover the skills required to do so.
As we face ever-changing and uncertain business contexts, a recession may be an opportunity to create a mindset of continual renewal of employee skills and of commitment to employee performance.
2. Share experiences.
Reducing labor costs does not just mean downsizing. A recession may be an opportunity to signal commitment to employees by taking a short-term pay cut (often senior leaders take a higher cut), working ten days and being paid for nine, encouraging early retirement, managing a buffer or contract workforce, job sharing, reducing overtime, allowing furloughs for education or personal development, exploring job transfers, and including employees in discussions on managing costs.
In today’s ecosystem or network of businesses, leaders may be able to share employees through collaboration with partner companies (e.g., suppliers, joint ventures, alliances, or customers).
Recessions often create layoff rumors, most of which dampen employee morale. Leaders who face downsizing realities should over-communicate why the downsizing is necessary, what criteria are used for making decisions, and how employees can manage their work choices.
With our technological and transparent work world, leaders can use technology (as well as personal touch) to connect with employees, answer questions, build collaborative groups, collect data, and offer options. Even more, with the increase in mental health challenges in today’s workforce, leaders have learned to respond with compassion and empathy for those in transition.
4. Be bold.
A common lesson learned from past transitions is to be bold both in terms of timing and depth. Shorten the time between announcement and action for downsizing. One firm announced three months early when people would be let go, and the most competent employees who could find other jobs left because they thought they might be let go. In addition, be bold in making required cuts. Another firm needed to cut 10 percent but felt they could get by with 5 percent. Then a few months later, they made another cut and then another. Each cut created more morale issues than the original needed amount would have.
Even in today’s social media world, leaders need to be personally accessible to announce the downsizing agenda and planned actions. Leaders need to make tough decisions with clarity and confidence that the decisions will be of benefit to those who leave and who stays.
5. Attend to those who leave.
Those who are let go often have many questions and concerns about severance packages, skills retraining, benefits, finding a new job, and other support. Offer this support to those who leave, often through vendors who specialize in downsizing services. Even more, ensure that you have a fair process for how people were selected to leave and help employees craft a narrative that will help them find other work.
In a mobile and ever-changing work landscape, few expect to stay at a single company their entire career, so mobility is acceptable. Often a critical talent pool is comprised of employees who have left (voluntarily or involuntarily). Stay in touch with and be open to rehiring those who leave.
6. Attend to those who stay (even more!).
Many companies have extensive services for those who are let go. But paying attention to those who stay is also, if not more, important. Share a commitment to them by letting them know they are valued by involving them in strategic realignment and work redesign. Some may face a survivor syndrome where they feel guilt or shame about having a job when their cohorts do not. Have open discussions to explore those feelings.
A major employee trend today is to personalize work. This means engaging with those who stay to find a personalized employee value proposition that works for each individual. This personalized deal comes from conversations about what the employer expects and what the employee offers. Also, help those who stay navigate uncertainty by sharing information and future employment plans.
7. Redesign work.
Companies have learned that when removing a percentage of the workforce, a similar percentage of the work needs to be removed. One company cut 25 percent of the workforce but kept the same work, which meant those who stayed were obligated to work 25 percent more to keep their jobs thus burdening those who stayed. Engage those who stay by removing bureaucratic or low-value-added work (often in reports, approvals, meetings, policies, and practices).
Today, workforce planning focuses primarily on headcount (full- or part-time) and having skills or talent pools to do the work. Workforce is evolving to worktask planning where the focus is on the tasks required to meet strategic goals and then identifying how those tasks get done (full- or part-time people and technology [AI, machine learning, robots, or automation]).
Recession cycles allow learning about downsizing to occur from one setting to another like a spiral (see figure 2). Continuing to do the seven lessons with today’s adaptations creates insights into how to manage people today.