Thought Leadership

Are we approaching a global downturn? Will that be the legacy of the credit crunch? The economic indicators are showing mixed signals. In a climate characterised by uncertainty market volatility looks set to continue. However, companies, and more specifically HR leaders, can turn the situation to their advantage if they are prepared to adopt a proactive approach to any slowdown.

Proactive HR professionals get ahead of the game

Before it demonstrates leadership, HR has to be totally aligned with the business and develop robust plans. But what does being aligned with the business mean in practice? And how can HR professionals step up and play an important role in preparing their organisation for the future? In other words, what does it really take to get ahead of the game?

Proactive Group HR Directors need a thorough understanding of how their company really makes money. This sounds obvious enough, but determining what is crucial to business success and what is peripheral can be difficult. Understanding what adds cost and what adds value is key to providing constructive challenges to decisions by the executive team. Moreover, when business slows down understanding and managing talent effectively in a group can add tremendous value. Deciding who to retain and develop through a downturn and who to let go is a major challenge for any manager.

In all businesses there are leading and lagging indicators that can be used to forecast or confirm market changes. Are these familiar to everyone in the organisation and does HR use them to change workforce plans? In some companies HR sends out questionnaires monthly to monitor current workloads and ask what will drive staffing needs in the next three to six months. They use this data, together with productivity statistics, to quantify the size of the future workforce and optimise resource planning.

Aligning with the CEO

Providing a proactive HR service in a downturn is clearly easier if the HR Director works closely with the CEO. In many successful companies a triumvirate of the CEO, Group Finance Director and Group HR Director steer the organisation through turbulent waters by sharing perspectives. In a recent presentation to the UK’s Confederation of British Industry’s HR Forum, Ian Muir, an HR Director at Cable and Wireless, challenged HR leaders to drive organisational efficiency, not only by reducing costs, but by linking this to improved service levels. “What has changed is the accelerating need for focus, delivery and urgency,” explained Muir. Leadership is what will see us through uncertain times, he argued.

One way to rejuvenate your HR philosophy is to construct plans around worst case scenarios. What would happen if your company lost that vital contract, how would you advise the CEO to restructure the company if 30% of its revenues evaporated overnight? How could you manage with a Group resource of no more than 5 people? It’s also important to understand the risk and cost of having too many or too few people in certain critical functions. According to Peter Cappelli, Professor of Management at the Wharton School and Director of Wharton’s Centre for Human Resources, the question HR managers need to ask themselves when contemplating staffing levels is: “What does it cost us in each case? Does it cost us more if we have too many, or if we have too few [employees]? It’s almost always the case that it is much worse in one context than another,” he concludes. (Peter Cappelli, Talent on Demand: Managing Talent in an Age of Uncertainty, Harvard Business School Press, 2008).

Taking care of top talent

Undoubtedly, HR has a critical role to play in employee engagement. Rumours about redundancies and takeovers often abound in a downturn and can have an unsettling impact. Clear communications and the use of both formal and informal networks are vital at such times, to stop the best people from leaving. Does the company really know who its key executives are (before they resign)? What is being done to draw them close to the heart of the business and value their contribution? Following the principles of the public opinion polling firm Gallup, there are 12 key questions that everyone in the company, including the CEO, should be able to answer with absolute clarity. Some examples are listed below:

• I know what is expected of me at work
• I have the materials and equipment I need to do my work right
• At work, I have the opportunity to do what I do best every day
• My associates (fellow employees) are committed to doing quality work
• In the last 6 months, someone has talked to me about my progress

If all these questions do not have an affirmative answer then the organisation has the potential to improve its productivity. Alarmingly, Gallup reports that the average UK employee engagement score is 16% according to its model. This is based on their 12 point questionnaire. The only UK company to win a prestigious Gallup Great Workplace Award recently was the do it yourself home improvement retail chain B&Q, which had an engagement score of 60%. But surely we can do better than that? Although employee engagement should be every manager’s concern, HR should lead efforts to assess and promote it.

Reaping the rewards of targeted recruitment

Whilst it is important to recognise, reward and retain your own talent, downturns can also be an opportunity to hire great talent too. “In the depths of recession the last thing many leaders want to do is hire more people, but it’s precisely at the trough of a recession that the labour pool is at its deepest and highest quality. Moreover wage pressure will have subsided. That’s why a recession is a great time to cherry pick,” explains Peter Narravo Professor of Economics and Public Policy at Paul Merage School of Business, University of California-Irvine ("Well-Timed strategy: managing the Business Cycle for Competitive Advantage”, Wharton School of Publishing, 2006).

Even if we are not on the threshold of recession, the future looks uncertain. To stay on top, firms need to be ready to react fast with clear leadership and by engaging with their workforce. This is an exciting opportunity for HR Directors to raise their profile by providing valuable counsel to their CEO. If managed well, a downturn can even be turned into a golden opportunity to prepare for the better times ahead.