Developing a long-term employee growth strategy
During times of sudden or unexpected economic hardship CEO’s and their leadership teams must quickly engage short-term solutions and tactics that will bolster their company’s bottom-line against falling sales forecasts and lowered earnings expectations. Among the many cost-cutting options reviewed by a company’s strategic thinkers is often “human capital,” a term wielded with little sense of the true significance it has with regard to a company’s most significant worth.
The widespread immediacy with which layoffs are announced following a proclamation of less-than-expected earnings is disheartening. This is an ugly and all-too-predictable chain of events that seems to accompany even relatively minor hiccups in the business cycle. However, layoffs during an economic slump may actually have roots in the good times just prior to a downturn. During an up-swing in the business cycle, when the key indicators of a company’s success and worth are positive and on the rise, it is a common practice to recruit and hire new employees at a pace that often exceeds the company’s growth rate. These hiring practices are frequently haphazard and uncoordinated short-term bursts of expansion with little correlation to the long-term sustainable growth plan of the entire enterprise. Over time these poorly conceived hiring plans may contribute to the company becoming inflated and inefficient, only to create a financial problem-in-waiting for the CEO and their leadership team by exasperating the difficulties of surviving an economic slump.
The immediately-expendable nature of a company’s employee base is evidence of a kind of cyclical pandemonium that sweeps through the executive offices of far too many companies in times of fiscal stress. It is the responsibility of the CEO and their leadership team to make tough decisions for their company. The best time to develop a strategy is during the good times. Recently Corporate America has witnessed multiple waves of layoffs in the economic slump associated with the Dot-Com fallout on Wall Street. It is more crucial than ever, and an opportune time, for corporations to devise a comprehensive plan and system for the growth of their employee base that will help to improve the company’s operational efficiency and ability to weather future transitions between the peaks and valleys of the business cycle. Certainly there will be more to come.
The effects of a layoff ripple far beyond a short-term strengthening of the corporate bottom-line. The factors involved are many and can penetrate deeper into the psyche and well-being of a company than many executives may realize. When such a solution seems so simple and obviously apparent it is often the case that better questions need to be asked. In the case of layoffs some important questions to consider may include: What consequences do layoffs have on the company as a whole, including to those laid-off employees, remaining employees, clients, investors, and the public? What are the real long-term effects, both financial and psychological? What contributing factors, other than the current economic climate, may have added to the current need to reduce costs and employee base? What viable alternatives to layoffs are available to the company?
The idea that layoffs are a negative aspect of competitive business only to those who have been dismissed is a poor assessment of the full spectrum of the issues related to laying off employees. The remaining employees are often greatly affected, potentially altering the company culture and possibly the productive output of the company. Job stability becomes a significant issue for those who will come to view themselves as survivors of the first wave of cuts. This leads to an erosion of company loyalty. It is also during this initial phase of layoff-recovery that competitors will take advantage of the remaining employees’ feelings of instability to hire away the top talent and feed on the cycle of “abandoning ship.”
Setting up a chopping block for human resources is good cause for clients and investors to have serious concerns regarding a company’s financial outlook. Clients and investors receive a stark and alarming message that the company is not stable, potentially fueling concern about their association or investments with the company. Potential clients and investors may avoid the company entirely, opting to do business or invest with a competitor that has demonstrated a more stable reaction in the face of market adversity.
These questions and issues are just a few that should be addressed before the hatchet falls. By tackling these issues, and analyzing the ramifications, it may very well be in the best interest of the company to avoid layoffs and to implement an alternative plan for cost savings.
Alternatives to Layoffs
- Reduction through attrition
- Hiring freeze
- Cut part-time employees
- Cut internships or co-ops
- Give subcontracted work to in-house employees
- Voluntary time off
- Leaves of absence
- Reduced work hours
- Job enlargement
Changes In Job Design
- Job sharing
Pay & Benefits Policies
- Pay freeze
- Cut overtime pay
- Use vacation and leave days
- Pay cuts
- Profit sharing or variable pay
Figure 6.4 Alternatives to Layoffs, Gomez-Mejia, L. R.; Balkin, D. B.; Cardy, R. L. Managing Human Resources. 3rd Edition. Prentice Hall, 2001.
Smart hiring is the ongoing process of planning and controlling the growth of the Human resource. It is also a concept that values employees as the primary business process contributor, and therefore recognizes their priority over all other assets. Smart hiring is about preparing a plan that will enable the growth of the employee base to be managed and controlled in such a way that, when unforeseen events radically alter the financial landscape and market place, the company will be able to side-step layoffs and soundly continue toward its customer objectives and financial goals. A key component to any smart hiring plan is recognition of the employee base as the most critical factor for success. The right employees must be hired for the right positions at the right time. Their contributions and value to the company will be apparent in both the down and up swings of the business cycle.
Smart hiring is more than a human resource management addendum to a company mission statement. It is an integral component of a company’s business strategy, to be discussed in the board room and on down. Just as marketing, sales, research, finance, and a number of other strategic departments of a company have representation on a CEO’s leadership team, the Human resource must also be involved in planning at such a level as a means to coordinate and integrate the company’s most valuable resource into the implementation process of corporate strategy. Utilization of the Human resource and implementation of corporate strategy are mutually dependent to one another.
The gloomy side of C-level planning reveals that employees are often thought of as a simple headcount, or line-item in a budget, rather than being viewed as the most significant investment and worth of a company. By developing a comprehensive plan to help guide a company through both good and bad economic conditions it is possible for a company to maintain a solid and productive employee base without the need to resort to a layoff solution during an economic slump. The How-To Guide below is a good big-picture starting point for understanding the basic issues that need to be addressed in order to develop a strategy that includes smart hiring.
A Simple How-To Guide for Smart Hiring
Develop a Master Plan for Hiring—It should be very focused and built on the foundation of your firm’s Mission and Vision.
Develop a Contingency Plan—Your comprehensive rainy-day plan should outline your firm’s crisis management strategies.
Stick to the Plan—Deviations only put your firm at risk, though regular reviews and adjustments will be necessary along the way.
Be smart about retention and development—Maintain focus on your core competencies and plan for Human resource growth.
Nurture the company culture—Encourage your employees and help them contribute as the foundation of the firm that they are.
Build and strengthen your firm’s brand image—A strong brand image is a valuable asset no matter the economic conditions.
Steps 1 through 6 should be part of your firm’s standard operating procedure at all times (that is why you have those strategy mavens to think this stuff up). The first six steps will help to build a strong operational foundation for your firm (and it looks good to investors, too). The following four steps are a supplement to the first six and should be followed in times of economic difficulty.
Do not panic—A rash reaction will become a serious PR problem and will not look good to employees, customers, and investors.
Prioritize your firm’s core competencies—Always maintain a view of the long-term / big picture when you are strategizing.
Pull back on operational non-essentials—Temporarily suspend the frills, but try to keep the key perks most valued by employees.
Work hard to avoid layoffs—Remember, employees are your most valuable asset. Do the real work to value and protect them.
[Originally published in October 2002, following the Dot Com Bust, and revised in June 2009.]