When the economy improves, top talent will leave if they feel they were treated badly during the recession. Bettina Pickering and Amy Finn stress that all measures taken during the downturn are done with the long-term consequences in mind.
In the face of the recession, it is unsurprising that a number of companies have introduced severe cost-cutting measures, from redundancy programmes, to slashing business travel expense, to capping employee salaries and benefits. Even the Chartered Institute of Personnel and Development (CIPD) has been forced to cut 12% of its workforce in a bid to reduce costs – despite stating at their Harrogate conference that redundancy remains a final resort. We asked ourselves: have the long-term implications of these significant cost-cutting programmes been justly considered?
Do recessions and cost-cutting go hand in hand?
There’s no doubt that pragmatic companies need to take action if the recession is adversely impacting their bottom-line. That being said, history shows that across-the-board, knee-jerk cost cuts in response to an economic slump are typically ill-thought through, create disengaged employees and build-up problems for the future. Halting all graduate employment in a downturn may certainly strip immediate budget spend, but can irrevocably result in an ineffective organisation four years down the road.
If not fully assessed, cost-cutting programmes have a real danger of creating a ‘recession culture’. We characterise this philosophy as:
- Decisions taken on the basis of short-terms needs (not long-term consequences)
- Ethics, values and trust in leadership superseded by an all-encompassing focus on cost and finance metrics
- Employees treated as resources – rather than people
- Projects without immediate cashflow benefits rejected without further debate
Yes, the above ‘recession culture’ will have devastating consequences on employees: loss of trust in leadership, de-motivation and resentment, to name but a few issues. Immediate resignations may be stalled by the shortage of other options in the marketplace, but we can predict compromised employees will leave as soon as the upturn arrives.
The market will recover
It’s easy to forget in the global doom that there will be a global boon once again. And so, today’s recessionary measures need to be considered within the framework that the economy will indeed recover.
As a strategic board partner, HR has a particularly critical (and difficult) role to play in advocating and ensuring that cost-cutting measures are both taken within the longer-term context and that core values are not abandoned.
How? We would like to share three key points that will make or break an organisation’s future when responding to today’s economic pressures:
1. Be selective about changing elements of your employee value proposition (EVP)
Before reducing or removing benefits, explore employee preferences to ensure that proposed changes don’t jeopardise your organisation’s core values:
- Cut those EVP elements that employees value the least – staff attach value to each benefit, so begin by gauging employee opinion to avoid inadvertently cutting low-cost benefits that actually hold a high perceived value. Reports on flexible benefit take-up will give you this immediate picture, as will a quick survey conducted by line managers
- Invest in those EVP elements which make a tangible difference to motivation and discretionary effort – now is the time for limited budgets to be focused on the most impactful activities. Investigate which levers can be used to optimise your people’s effort
2. Think about how you decide on changes
Knee-jerk cost-cutting actions equally and simultaneously damage an organisation’s relationship with its retained staff and its ability to achieve the desired long-term effects.
Few people react well to the delivery of a ‘fait accompli’, particularly when the decision impacts them personally. Most often, values like fairness, honesty and trust will have been clearly compromised in the decision making.
Imagine if employers were open and transparent about cost-cutting measures with their employees. By informing staff about the organisation’s challenges and issues, and most importantly involving employees wherever possible in making the decisions, staff will not only understand why changes are needed, but will feel a greater degree of acceptance.
3. Engaging employees in change programmes can never happen too early
Using line managers from the early-stages as your frontline communicators in change management programmes will help employees respond more positively and pull together to survive. If their opinions have been considered, it’s in our experience that staff are more likely to maintain motivation and productivity. Actions taken will not be seen as a breach of trust but rather as a well-judged response to the economic situation.
HR has a real chance to add value
As balance sheets feel the strain, so too do leaders. Against this increasing pressure to mitigate the immediate impact of the recession on organisations, it’s easy to lose track of the longer-term impacts of people decisions. HR’s role in contributing to financial stability is to champion the organisation’s core values and help leaders to take people and cost-cutting decisions that work in both the short and long term.
What not to compromise on
- Proactive and frequent staff engagement through line managers and leaders
- Vital training and development, mentoring and coaching
- Performance management (particularly those related to customer service)
- Company’s core values and ethics
- Office environment
- Stress management activities
Bettina Pickering is a managing consultant and Amy Finn is a principal consultant with PA Consulting Group’s people and organisational change practice
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Effecting Positive Change
Our five tips for effecting positive change (even in a negative situation) here: http://globoforce.blogspot.com/2009/06/effecting-positive-behavior-and-culture.html