The UK economy isn't in a recession, just. But smart companies know that if you wait until a recession arrives, you’ve waited too long. But what strategy should organisations use to address a potential downturn? Just about everyone knows the traditional responses.
Capital investments are postponed. Operating costs are constrained. And, perhaps most importantly, head counts reduced. It’s a tried-and-true response to an economic downturn: trim the sails, batten down the hatches, and wait until the storm passes.
However, if a recession does occur in 2023, will the impact require businesses to do what they have done in the past especially as many market watchers and economists believe it will be fundamentally different than any that have come before.
For perhaps the first time ever, the world’s business organisations will be forced to endure declining economic growth while also trying to somehow manage a pre-existing global skills shortage. What it means is that all the traditional strategies that business organisations have used in the past to weather recessionary storms will be of little value.
This is a new type of economic crisis, and new approaches will be needed to ensure survival.
What’s different this time
In 2021, the global GDP grew by more than six percent, reclaiming most, if not all, of the lost economic activity during the worst part of the pandemic. However, growth is now projected to be only 3.2 percent this year and even lower next year. However, as fast as things were growing, a skilled talent shortage continued to prevent the global economy from reaching even greater heights.
Although the numbers vary from study to study, almost every private company and think tank that has done the calculations on the combined costs of the skills gap measures the impact in the trillions of dollars. Rand Europe estimated that a shortage of skilled workers in digital industries will cost the 14 largest economies in the G20 a staggering $11.5 trillion in lost GDP growth by 2030. And it’s not just a shortage of digital skills that is holding the global economy back.
For many years now, the International Monetary Fund looked at the potential impact of enhancing the basic educational skill levels of younger workers. The IMF found that the global economy would grow by $700 trillion over the remainder of this century if more investments were made to ensure all workers had “universal basic skills.”
The magnitude of the skills shortage is so enormous, it simply must be considered in any strategy to navigate a recession. Thankfully, there is evidence that the pandemic helped move a lot of employers to a new way of thinking.
The pandemic caused many employers to think differently about redundancies
Employers needed to think quick and act fast during the first few months of the COVID-19 pandemic, as social and economic restrictions shut down entire sectors. Employers responded with several strategies, some that worked and others that did not.
For those industries that could continue operating, albeit outside the normal office setting, they quickly mobilised hundreds of millions of people worldwide to work from home. Applications that allowed for more reliable virtual communication ramped up capacity quickly, allowing many organisations to continue offering goods and services without any interruption.
Other industries – particularly those in the retail and hospitality sectors – did not have a “work-from-home” option. The most-affected sectors worked quickly with government to create taxpayer-funded support programmes. Furlough schemes were used to reduce headcounts while still retaining talent in the event they could resume normal operations. Others worked with government to keep their workers employed through subsidised wages and funds to underwrite business losses.
Although it will take years to fully appreciate the impact of these programmes, it did demonstrate that when faced with a crisis, companies and government could think outside the normal human capital box.
There were also some extremely bold experiments to move workers from devastated sectors like airlines and tourism to in-demand jobs in supply chain, e-commerce, and essential retail businesses. These efforts were largely unsuccessful in providing sustainable employment, but the fact that employers were willing to try different approaches was promising.
The willingness to think differently and act decisively is going to be critically important when the next recession arrives.
Top employers lead the way on re-imagining redundancies
There are always going to be instances where headcounts need to come down. It’s equivalent to the law of gravity in the world of human resources. When economies expand, so do headcounts; when there is economic contraction, people start to lose their jobs.
The career transition and outplacement industry has seen this traditional approach to talent management play out over and over again. However, the industry has also witnessed the arrival of a new way of thinking about downsizing and headcounts.
Increasingly, the world’s leading companies – those that have managed to maintain a solid employer brand regardless of economic conditions – have started to demonstrate an entirely different, future-focused strategy for dealing with downturns. Although the pandemic certainly amplified the need for such strategies, many top employers were committed to a new path before COVID-19 arrived.
The core of this new way of thinking is the realisation that if you wait until an economic crisis arrives, you’re largely going to be too late to weather the storm. Although the pandemic showed how truly agile many organisations could be, the ones that have performed the best through this global public health crisis had already put in place the tools and tactics to draw out the greatest amount of value possible from existing human capital before going out onto the open market.
This has been done through a number of different strategies. Top employers have more information about their employees than ever before. Not just skills and experience, but also ambitions and motivators that can be used to help develop and prepare individuals to fill the jobs of the future.
For these leading employers, layoffs are still one of the tools in the talent management tool box. However, before any layoffs take place, these organisations are asking three critically important questions.
Who, why and when?
New strategies for a new talent management challenge
The future of talent management will hinge on the ability to be more tactical around layoffs and more selective around recruitment. Once again, top employers are showing us the way to this new kind of thinking, by embedding a number of key strategies in the core of their talent management functions.
Building and sustaining a true internal talent mobility strategy.
The best employers invested significant amounts of financial and human capital into building tools that allow for internal talent mobility. These tools involve sophisticated employee assessments, guidelines that require hiring managers to look internally before going outside to look for talent, and job-specific re-/upskilling opportunities. With all these tools in place, employers can gain confidence on two key human capital challenges: realising the greatest possible value from existing employees; moving ahead with layoffs with the assurance they are transitioning the right people at the right time. With that capacity in place, a whole range of other opportunities will materialise.
Becoming a strategic player in external recruitment.
Once you have an internal talent mobility protocol in place, you are well-placed to become a strategic buyer in the open talent market. In this scenario, you can search and recruit the exact people for the exact jobs that you cannot fill with internal candidates. Far too many organisations maintain a firewall between recruitment/hiring and career transition, creating instances where money is being spent on hiring an outside candidate when inside candidates provide a more cost-effective alternative.
Maintaining a strong alumni network to bring back top talent.
No organisation has been spared losses from the Great Resignation. However, the best employers cultivate continued relationships with departing talent to ensure that if they have second thoughts about their new jobs – the so-called Great Regret – then they know there is an open door waiting for them. Again, alumni networks have been part of a hiring and recruitment strategies for many years now. Those employers that have one in place before a recession hits will be in a much better place to address talent management.
Employers can simply not afford to take their eye off the skilled labour shortage when planning for recessionary responses. The good news is that there are strategies – tried and true – which can help an organisation respond to the economic realities of a downturn while sustaining its employer brand and addressing its shortage of skilled labour.