Bracing Up for Recession 2020: What CHROs Should Do
In the wake of COVID-19, know how CHROs can come out stronger, work on new strategic hiring plans, improve workforce productivity, lessen mass layoffs, and encourage staff retention.
Stock prices taking a downward plunge. Mass-scale layoffs. Businesses shutting shop. Home prices plummeting. The economy slowing down.
What does it tell you?
We are heading toward another soul-crushing recession.
There, I’ve said it now.
With crowd-associated economic activity contracting practically everywhere in the face of COVID-19 jangling global supply chains, we are witnessing the clocks turning back to 2008.
Forecast of A Deeper Recession with Widespread Global Insolvency
President Trump’s trade conflicts. Europe and China decelerating. Industrial production flattening globally. Brexit uncertainty.
What was already en route since 2019 was simply fast-tracked during the months of the pandemic.
The domino effect has already started, with the impact being felt far and wide. As the epicenter of the virus left China and triggered worldwide lockdowns, the global markets suffered losses unseen since the financial crisis of 2008.
Let’s take the example of South Korea, a country that handled the virus outbreak efficiently in the eyes of the world.
Being heavily dependent on China, President Moon Jae-in of South Korea referred to the virus as “more serious than [they] thought and said action would need to be taken,” as reported by the Financial Times. To support the export deficit and the chaos surrounding the outbreak, South Korea issued a $356 million emergency aid plan to get struggling companies back on track.
Now move on to the European Union.
The EU is knee deep in recession with a projected contraction of the Eurozone economy by 8.7% in 2020. 2021 looks to be no better with a projected growth of 6.1%, according to the Summer 2020 Economic Forecast.
Valdis Dombrovskis, Executive Vice-President at the European Commission, said: “The economic impact of the lockdown is more severe than we initially expected. We continue to navigate in stormy waters and face many risks, including another major wave of infections.”
Lessons that CHROs Learnt from the 2008 Meltdown
Last time around, we saw 9 million Americans losing their jobs, 170,000 small businesses closing down, and unemployment rates peaking at a high 10%.
No one was prepared for the meltdown, even though the bigshots saw it coming for a while.
That said, there is no secret formula for CHROs. But it’s important to learn the right lessons from the event.
Adapt to A Changing Economy: Rather than being in denial, it is key for CHROs to get a grip and adapt. Instead of looking at it from a ‘what you want’ perspective, the focus shifted to ‘what you can do’ from this opportunity.
Focus on Training & Development: It was also a time for harsh realities to come to the forefront. When you see that the markets have only gone on an upward surge for 10 years straight, most tend to get complacent, or plain lazy. With a hard punch in the face, HRs in 2008 seriously took up the cause of training and development of their workforces.
Review the Right Metrics: A critical aspect of achieving the goal of a more productive workforce was to review the right data. Tracking the right metrics, even in 2008, was vital to ensure that organizational policies were adjusted in the right direction.
Optimization of Resources: By being able to forecast what skills were going to be in demand post-recession, CHROs could look at performance documents to match and move key resources to positions and roles where they would be most useful.
The learnings are many. However, they are only valuable as long as they help in tackling major HR issues coming to the forefront in the ongoing recession of 2020.
Changing Role of HR in Managing a Global Recession
Let’s take a look at the key HR areas most affected during the recession and what can be done to overcome these roadblocks.
Payroll Management: For businesses, their biggest expense is payroll. Therefore, it requires a myopic perspective to restructure it during a recession. Amidst layoffs, a number of companies are looking into pay cuts or pay freezes. This means no bonuses or pay raises and the possibility of reducing compensation for employees looming large.
HR departments can consider atypical approaches like reduced working hours or shorter work weeks instead of a wage freeze, shrinking pay packages, or layoffs.
Training & Development: One of the first to be put on the chopping block, it is common for employee training and development to take a backseat during an economic meltdown. Few HR professionals see productivity as their direct concern; hence the need to build capabilities allowing employees to emerge from this downturn better.
In spite of going through multiple rounds of staff layoffs, which is a way to combat the economic challenges of recession, an SHRM study reported that 76% of companies chose to train their existing workforces, helping them to be more successful in their respective roles.
Optimize & Outsource: The general tendency among companies at this time is to be skittish rather than flexible with their employees. The approach should in fact be contrary to this general trend.
When the economy goes into recession, rather than only considering layoffs as a definite cost-cutting policy, HR departments should look into staff retention and optimization of existing resources. Combine that with agile outsourcing to allow businesses to pull back quickly if necessary.
Layoffs: Recession or not, mass layoffs or recurring cycles of job cuts can be extremely demoralizing. It’s a gut-wrenching exercise most HR divisions have to get through in times like these.
It is best to use layoffs as a last resort of cost-cutting rather than the first. Without a sense of security, your employees even during the recession, may start looking at the possibility of employment elsewhere. What you then could get saddled with is training a valuable workforce that may no longer be productive and performance-oriented in a situation like this.
Recruitment: Assessing the needs of the company, HRM has to come up with new and agile strategies for hiring. At this point in time, the organization will need new skill sets and competencies to strengthen its position in the market.
With a heightened focus on recruitment optimization, hiring managers need to find candidates low on staying power and lacking in tenure at their respective companies. Instead of depending on recruitment sites, the idea is to mobilize individual networks and databases to identify passive candidates.
Facing the New Reality with an Action Plan
HR has no rote answers on how to survive a recession. With no means of support, it is the perspective and the mindset that need modification.
The recession brings with it a new reality for CHROs across the globe. In comparison to the good times of pay raises, bonuses, and ramped-up recruitment, the slump demands a frugal, more carefully-thought-out expense plan that scrutinizes every capital investment. The show must go on.
The right strategy depends on your business — the size, industry, debt, strategy, and many other factors. The right solution should include a mix of both defensive and offensive actions. This should be supported by a careful analysis of the current circumstances and the future aspirations of the company.
The recessionary time can also be considered as an opportunity for HR professionals. Challenges bring about innovation in the strategic refinement of existing operations and structures. While the primary responsibilities will hover around hire, fire, and rehire, the same HR will also play an integral role in the expansion, recession, and depression as part of the economic cycle.
Even with business expectations changing drastically in terms of people management, HR needs to take on a more proactive approach in this diverse time to manage issues cropping up whilst maximizing the productivity and profit for the organization.