In March last year, business leaders of US Companies with annual revenues in excess of $500m stated their economy was inevitably heading into a recession, and that their company would not be able to avoid the effects of an economic down turn. Many felt that they were already in recession, based partly on a slow down in sales and payments from their customers. As the saying goes, "when America sneezes, Britain catches cold", and the UK now finds itself firmly in a downward economic cycle, with little sign of recovery in the short run.
Instinctively in such circumstances, business managers look for ways to reduce costs and overheads, and improve productivity. In plain language this means negotiating lower prices and more generous terms with their suppliers, reducing non-revenue generating activity, down-sizing and changing current working practises. This results frequently in:
- decrease in marketing spend and suspension of training and development budgets
- reduced headcount - often the more experienced/expensive employees are 'let go' first
- remaining employees have to work harder and smarter, foregoing pay rises in the short term to remain in employment
The aim is to 'survive the recession'; however, as many companies have found to their cost in previous recessions, the opposite is often the case with companies managing through a downturn, only to find themselves unable to take advantage of the up-turn when it comes - as it will. The two main causes of this are:
- a 'talent crunch'
- survivor syndrome
The Talent Crunch
Barclays recently announced further reductions in headcount[3] in order to "match the current market conditions" in the UK. They have stated that they hope to avoid using compulsory redundancies in doing so. During the recession in the early 1990's, Midland Bank (now HSBC) did exactly the same, encouraging many of their senior (expensive) employees over 49 to take early retirement. This they did, with many subsequently taking their experience, skills and market knowledge to work for competitors, severely jeopardising Midland's ability to remain competitive through "corporate amnesia" due to a failure to capture the tacit knowledge of their former employees.
As a result, when the economy started to recover they were not strongly positioned to take advantage of market opportunities, or to fully meet customer's expectations of products and service levels with more junior staff - they faced a talent crunch. In addition, the competitive threat they faced was stronger as many of their former employees now worked for other financial institutions.
Survivor Syndrome
Down-sizing is never a pleasant experience for anyone involved - from the HR department to the individual concerned. However, neither is it a positive experience for those who manage to remain in employment, many of whom fall victim to "survivor syndrome". Put simply, once the initial relief that they have still "got a job" has subsided, the realisation sets in that they have survived at the expense of their colleagues, who are often close friends. They experience feelings of guilt that others have lost their jobs and livelihood, whilst they remain secure in post. This guilt may then turn inward and become anger which is directed at their employer who they see as the architect of their situation, with the result that:
- morale falls, and with it productivity and overall performance - one of the key objectives of the down-sizing
- loyalty is compromised - when the up-turn comes, many of the survivors will look for employment elsewhere
So the employer is left with a situation where they have met their objective of reducing costs, but not increasing performance. In addition, having let some "talent" go, if they do not address the "survivor" issues, they are also reducing their own capacity to "survive in the long term".
'This kind of "survivor syndrome" may be cultivated by businesses accidentally'
So what's the solution?
To paraphrase Meatloaf "Two out of three ain't good". Companies who adopt a long term perspective in the current recession and emerge stronger and more competitive at the end, need to develop strategies which address all three challenges. Of necessity, many are already addressing the "credit crunch" - this will enable them to survive in the short term. For the longer term, they need to deal with the "talent crunch" (to ensure product/service quality), and the "survivor syndrome" (to ensure continuity and growth of operations).
"Successful organisations ... will be organisations that have a plan to retain genuine talent and don't rashly cut back on investment in skills. They will also be ... best able to weather the storms of recession and be ready to prosper once the deluge has subsided"
In addition, it is accepted that successful companies are those who continue marketing through an economic downturn. Evidence shows that those companies who increased their marketing activity during the recession in the early 1980's grew 275% throughout that decade, compared with 19% growth experienced by those who cut back on their marketing spend.
Training
Yes this means spending money - but it is investment in human capital which will have the following outcomes:
- Training increases the skills base of the organisation - addressing the talent crunch
- performance and productivity improve, not just in the immediate term but also into the future
- reduces dependency on out-sourcing and develops opportunities for diversification
- Training motivates - overcoming survivor syndrome
- employees feel they are valued and their efforts are recognised when companies invest in them
- employees are more likely to embrace change, providing a more flexible/competitive workforce
- retention rates improve/churn decreases
All the above will result in lower costs and an increased revenue generating capacity for the organisation. In the medium term, training can be cost neutral. Companies can take advantage of the "down time" provided by slower trading conditions to look at their skills base, identify training needs and support employees through their development. In real terms, sponsoring an employee on a training course may cost only a fraction of a pay rise in more buoyant times, but have considerably higher intrinsic value to the individual.
Marketing
In the absence of in-house resources and capabilities, there are many consultancies in the UK providing professional marketing services to organisations ranging from multi-nationals to SMEs. Many are industry and sector specialists who work with companies to develop viable marketing strategies for their business on a project by project basis, which address their marketing objectives.
Alternatively, companies can combine their training and marketing objectives and develop internal marketing competencies which are relevant not only to their sector and markets, but also to their business in the long term. Supporting employees training for professional marketing qualifications, e.g. CIM Professional Qualifications, organisations could leverage synergetic benefits which would not only meet their business and marketing objectives, but also deliver the training outcomes above at a cost on a par with 2-3 days consultancy.
In The End
Only "three of out three" will do. As stated recently, "employers should hold their nerve and focus on retaining talent and investing in the skills of their people. It is these people, with their commitment, productivity and ability to add value, who will ultimately keep individual businesses ... competitive, and put us all in a strong position to recover from the downturn quickly."
It may be going against instinct; it may be counter-intuitive - but as recent history has shown, those "who dare, win".
