Preparing for a downturn

by 22 Jan 2008

No-one can predict where the economy will go, but there are enough worrying signs that savvy HR managers will begin thinking about what they would do in the event of a downturn.

There is a tendency to worry about HR’s budget getting cut. This certainly would happen in a downturn, but that should not be HR’s first concern. What HR needs to think, through, is how to use their special expertise to help the company manage the short- and long-term.

In managing the short-term, HR needs to ensure the company maintains morale. Both managers and employees will be stressed and disheartened in a downturn. A team of stressed and disheartened people will not be effective in helping the company survive.

HR will also want to focus on processes that keep employees aligned with the organisation’s goals. The company’s direction may change rapidly as the organisation navigates difficult times. HR needs to ensure there are processes so that everyone knows what they are supposed to do. Ideally, HR will create processes that get employees contributing ideas on how the company can save money and increase revenue.

HR can also look for ways to cut overall workforce costs, such as negotiating salary and benefit reductions or reducing work hours.

In managing the long-term, HR needs to make sure the company doesn’t damage itself by firing valuable employees, destroying trust, or abandoning useful programs like training and succession planning. These programs may need to be scaled back a little or done more cheaply, but abandoning core programs will damage a company’s ability to bounce back when the economy recovers. The smartest companies see a downturn as a time to acquire talent since very good people will be on the job market.

If the company is hell-bent on layoffs, HR needs to be sure it is done in an intelligent way. Wayne Cascio didn’t find any examples where downsizing – in the absence of other changes – helped the company (see Cascio’s Responsible Restructuring, Berrett-Koehler, 2002). So, if the leadership is talking about downsizing, HR needs to take them through Cascio’s research so that they know what works and what doesn’t.

Of course, HR will have to deal with cuts to its own budget. And it’s best to have thought about this in advance.

There are two sides to the economy, the real exchange of products and services and the creation of money to facilitate that real exchange. In our current system, money is created by banks when they loan money to someone. The loan is based on the promise that the person will pay the loan back. That promise is the basis of money. Without a reliable promise, money is just paper.

Almost everyone finds it difficult to prepare for uncertain future events. Here is what I recommend. Set aside time to meet after work with one or two colleagues to discuss what you would do in the event of a downturn. Ask yourself what the company could do to maintain morale in the event of a downturn. Think about alternatives to downsizing such as salary reductions or sabbaticals. Finally, think about how the HR department could respond to a 25 per cent reduction in its budget.

The value in working through this kind of scenario is that you will be better prepared emotionally and intellectually if the economy gets in trouble. If HR can go to management and say, “We’ve already thought this through and these are the key issues for the organisation”, then HR will have done its job.

By David Creelman, CEO of Creelman Research. Email: dcreelman@creelmanresearch.com