MOST US companies believe they are reasonably well prepared to adapt to the challenges of the current economic environment, with only a few currently planning unilateral, across-the-board cuts.
In fact, the majority of companies anticipate that their key priorities for 2008 will combine positioning for growth with enhanced operational efficiencies.
A survey of more than 430 HR executives found that while 90 per cent were concerned about the economy’s impact on business performance, only 11 per cent foresaw a large-scale reduction in the workforce as very likely.
Furthermore, strategic growth initiatives was among the most likely areas of emphasis in 2008, with many companies planning to expand into new product or service lines (56 per cent) or new global markets (40 per cent), and pursue small-to-medium acquisitions or mergers (36 per cent).
“Companies seem to understand that, while they may realise short-term gains from across-the-board cuts, these benefits often come with long-term consequences that may take years to recover from, in terms of lost talent, reduced morale and employee engagement,” said Max Caldwell, managing principal at Towers Perrin, which conducted the survey.
While organisations report an enhanced focus on growth, the HR function’s readiness to manage that priority appears to be mixed. A majority of respondents believed they were very prepared to undertake transactional activities such as expense reduction or small-scale workforce cuts.
However, far fewer believed that HR function was ready to act when it comes to more strategic and growth-focused initiatives, with 27 per cent feeling very prepared to handle a large-scale M&A, 28 per cent ready to support expansion into new global markets and 41 per cent ready to assist with new product or service lines.
“Human resource organisations have been in a state of rapid growth and transformation in recent years,” said Caldwell.
Ray Glennon, director of professional services for SHL, said that as Australian companies brace for an economic downturn, CEOs need to focus on productivity and their organisations’ long-term viability rather than quick fixes.
“When organisations are facing a period of decline, it can be easy to think short-term and cut costs wherever possible, often from talent management programs, training and recruitment budgets,” said Glennon.
“A large number of companies followed this path in the recession of the early nineties; in many cases halting training programs completely. Australia’s current talent shortage has proven that cutting back on training has drastic long-term effects for business and the economy,” he said.
An alternative, he suggested, was that CEOs and boards turn to HR to improve productivity and retention, and support the organisation in developing its human capital potential. “Whilst the knee-jerk reaction of many boards may be to call in the CFO to slash costs, the long-term solution is to call in the HR director,” he said.
The economic downturn will not be enough to eliminate Australia’s widespread skills shortage, Glennon said, and as such, it is important for organisations to find and hold onto the right people, who will raise the bar for performance, no matter what the state of their business or the economy.
Preparing for an economic downturn
The top three mistakes employers can make as they secure their business for an economic slowdown:
• Ceasing training and development. The training dollar may become squeezed, but removing programs will affect retention now and hinder an organisation's ability to grow in the future because staff are not equipped with the skills to move into higher roles.
• Failing to recognise that talent is linked to business performance. If the talent war has taught organisations anything, it is that people performance and business performance are interconnected. Applying a strategic, organisational approach to talent management will help your business to continue to perform in any economic situation.
• Reacting only to the here and now. Forgetting that the economy moves in cycles could leave an organisation flailing when the economy shifts back into growth mode.
Source: Ray Glennon, director of professional services for SHL