Navigating the retrenchment road

by 11 Nov 2008

A number of companies are retrenching staff in light of the economic downturn. Provided companies take a long-term, sustainable approach to workforce decisions, outplacement can play an important role in assisting organisations to downsize. Craig Donaldson reports

When it comes to the global economy, it’s been said that when the US sneezes, the rest of the world catches a cold. It appears that Australia has so far come down with a less severe form of the global economic flu currently sweeping world markets, and many organisations are battening down the hatches in response.

While some sectors such as engineering, mining and healthcare are less affected by the downturn and are still hiring professionals with the right skills, other sectors such as banking and finance have put hiring freezes in place and are retrenching considerable numbers of staff.

With analysts estimating that 1 million Australians could be out of a job by 2010, further layoffs are expected across a number of industries. A recent Sensis Business Index, for example, found that 40 per cent of businesses have cut their workforce since May as a result of the deteriorating economy.

However, when it comes to retrenchments, experts believe that a measured, long-term view to a resourcing, skills and business strategy will serve an organisation much better than a short-term, knee-jerk reaction to any downturn in the market.

General response

In general, Australian businesses are looking at how they can reduce costs, according to Susan Robinson, head of corporate services for HRSolutions. The resultant drop in expenditure by the general public will see a sharper focus on business development, especially where it involves export because of the low Australian dollar. “Businesses are reviewing their product or service range [and] getting rid of anything that has a margin issue,” Robinson says. “Spending is being cut in a number of functional areas, such as training, management support services and outsourcing.”

Simon Moylan, general manager of talent management for Hudson, says that businesses are continuing to review their operations carefully, and planning further contingencies in case the situation worsens throughout 2009.

“This means minimising their cost base in all areas, while trying to embed as much flexibility in their resource base as possible. In addition, some businesses are investing, albeit conservatively, both in the people who are staying in order to maximise productivity and through relevant acquisitions,” he says.

“Most people agree there are some excellent buying opportunities in the market right now.”

Geoff Officer, CEO of The Donington Group, says that this downturn is reminiscent of the 1991 recession. He believes businesses are taking it very cautiously at the moment, especially across NSW. “The market has been so volatile, so many organisations are taking a ‘wait and see’ approach. They don’t know what’s going to happen next,” he says.

“Most organisations are looking to rein in their costs and manage these much more tightly. We’re seeing the start of strategic reviews, so companies will be looking at their structures, the way they do business and how they can be more efficient in going about that.”

Any kind of review or restructure involves people, and Sean Reddell, director of Blaze Unlimited, is seeing two distinct differences here in response to the economic downturn. Some businesses are seeking to reduce costs across the board and looking at staff layoffs to remain viable. Others recognise that staffing shortages will remain beyond a slowing of the economy, and are first exploring alternative approaches to forced redundancy to manage for their future.

“Options like re-training, career planning and redeployment are options that help an organisation to reduce its labour costs,” Reddell says, “while not eroding the goodwill they have worked so hard in their efforts to attract and retain their good people.”

The retrenchment road

For the early part of this year, as the economy began to slow, organisations paused to determine the impact that the slowdown would have on them, according to Moylan. More recently, as further downturns have been felt here and worldwide, organisations have begun decisive action, ensuring their resource levels match anticipated demand and making some tough decisions.

“Smart businesses understand that while the short-term impacts have lessened the skill shortage, soon enough they will be faced with a tough recruitment market, when a strong employment brand and relationship with employees (past and present) will be critical. Outplacement is seen as a necessary process to assist departing employees move on with their career, develop as professionals, and possibly one day return to the organisation,” Moylan says.

Since May this year, Robinson says, HRSolutions has experienced a 50 per cent increase in demand for outplacement services, however, businesses appear to be evenly split on their attitude to handling redundancies. “Companies mindful of social responsibility are adopting a personal approach to redundancy, providing outplacement services to cushion the blow and help their people to make the transition,” she says.

“While others who treat people more as a resource are quite happy to put them out the door and not be overly concerned as to displaying some sense of loyalty. Businesses need to guard against the long-term impacts their aggressive cost-reduction activities on the people side will have on their reputation and the growing skills shortage.”

When it comes to retrenchments, Officer has observed that: “The way you tell people is the way they’ll react. If people are told badly, then they’re going to react badly. If they’re told well and they’re really prepared for the change, then, generally, it has a very positive effect when people have to leave. So people don’t mind honesty, they don’t mind the harsh realities, but they don’t like to be treated badly,” he says.

Understanding outplacement

While in recent years Australia has experienced excellent growth, high-performing businesses continually review their resource models, transforming themselves to meet the changing demands of the market, according to Moylan.

“In this respect, the market has become far more experienced at the process of retrenchments,” he says. “We have definitely seen a trend towards more effective redeployment practices, which, in turn, minimises the need for retrenchments.”

However, while more seasoned managers are now quite experienced in conducting retrenchments, he says, there is also a younger generation of managers who have never managed through tough times. “These less experienced managers are not necessarily equipped with the confidence or skills to deal with retrenchments appropriately, and will benefit greatly from coaching from a more experienced outplacement expert.”

The difference with the current downturn, Officer says, is that there has been a vast improvement in management capability over the past 20 years, and as a result, companies have been run better.

“This is the bread and butter of HR professionals. Because we’ve had economic growth, strong recruitment and a skills shortage, people aren’t used to retrenchments, unless they’ve been through a large-scale change such as a merger or acquisitions process,” he says.

“So I think we’re going to see some testing of skills, and we’re going to see some people really having to think through how to they handle these kinds of processes because they are going to be foreign to them. The question is: ‘Will they need these kinds of processes now?’ I would say that the acceptance of something like outplacement is seen as a normal process in exit arrangements by 70 per cent of organisations in Australia.”

Robinson says there has been a sharp increase in demand for redundancy advice, especially among SMEs without an HR function. “They are unfamiliar with outplacement services, rather than lacking the resources to invest in them. However they understand that where people are given an outplacement package they are less apprehensive, disenfranchised and more understanding of the company’s position, which leads to a better frame of mind for the displaced employee in selling themselves to new employers,” she says.

Talent management and outplacement

Short-termism is a common problem with many organisations, and in an economic downturn there is a danger that retrenchments can cut too deep, leaving an organisation crippled in the long term.

“There is a real risk that we will witness a short-term, knee-jerk response by some organisations that will result in large layoffs,” says Reddell. “This short-term attitude will have a deleterious knock-on effect with respect to the morale, trust and engagement of the staff that remain in the organisation and again when times improve and that employer seeks to again expand their staff.”

A more sustainable, long-term view is a much wiser approach, he says. Smart firms have long been investing in career planning programs that promote a healthy level of attrition and that link into talent management. “Remember that a large part of the Gen Y ‘What’s in it for me?’ attitude stems from the large layoffs in the 1980s, so it is important for business to remember that they contribute, through their actions, to the situation they then need to manage,” Reddell says.

Moylan says outplacement is an essential part of long-term talent management. “Smart businesses are constantly reviewing and reinventing themselves, and while they have become much better at redeployment, it is simply not possible to avoid the need for outplacement on some occasions,” he says.

Moylan has found that some businesses approach the need for outplacement strategically, while others do not. He says businesses must be clear about their strategic plan and the type of competencies required to achieve it, as well as their short- and medium-term priorities for action. “This will ensure that decisions made are data-driven, and ultimately strengthen the business by minimising or realigning its cost base, but ensuring it has the necessary skills to drive the organisation forward,” he says.

Officer says that, as a result of the higher calibre of management in place today, most organisations take a longer-term view of their workforce when it comes to retrenchments, while only about 15 per cent take a shorter-term view.

“The management capability is the real test for the future,” he says. “There are managers in place who have been used to the boom time and probably used to quite a bit of money. But if the money is drying up, then that requires a whole different management skill set to keep the business running and to keep motivating employees.”

Future trends

The recent market turbulence has been very unsettling for organisations, and the time it will take for the market to recover is unknown, Robinson says. “Collectively, my colleagues have been through five credit squeezes, however this one is the most difficult to forecast in terms of when things will improve,” she says.

“Redundancy is on the increase and, like other firms within the outplacement industry, demand for our services has grown dramatically, particular over the last six months, and this trend is set to continue for at least the next 12, possibly 18, months.”

Moylan also expects to see further retrenchments in the short term, and says that over the next six months organisations will continue to review their resource models and ensure they have the right competencies and HR plans to achieve their strategic goals. “In the long-term, as the economy recovers and demand grows once again, organisations that have parted with employees respectfully, with a strong employment brand intact, will find it easiest to grow and prosper,” he says.

Officer says that while the economy is shaky and organisations continue to retrench staff over the coming months, it is important that high potentials be managed carefully. “The morale of staff is going to be absolutely fundamental. In this kind of change, the trust bonds between employer and employee are shaken badly, because it’s management that has suddenly changed strategy,” he says.

Reddell also predicts that there will be an increase in outplacement for those organisations that simply have little option but to reduce costs. “Outplacement doesn’t need to be a catastrophic experience when managed appropriately. It’s a part of a cycle, and when managed with professional support, can result in positive outcomes for the individual affected, as they get an opportunity to contemplate and proactively manage their career and their future,” he says.

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