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Are you experiencing what President Obama is calling the “glimmers of hope in our economy?” Will the current global economic crisis, when it’s “over,” teach us how to avoid, to better deal with similar or other crises in the future?
In a volatile world, the ability to expand your workforce and then later to contract it, is fast becoming a required capability and necessity.
In the near future, it will likely be necessary for you to have the ability to hire new skills and talent in some areas, while simultaneously releasing workers in low-priority areas.
Your ability to handle this “continuous churn” will become a key competitive advantage and a primary differentiator between good and great leadership.
In a volatile world, the ability to expand your workforce and then later to contract it, is fast becoming a required capability.
Businesses everywhere are struggling to find ways to reduce labor costs. Rather than implementing sound and well-established workforce-reduction plans, many corporate leaders and talent managers appear to be making it up as they go, all in an attempt to avoid layoffs.
This, according to Dr. John Sullivan, Professor of Management at San Francisco State University in his recent article in ere.net, and the source of this article.
What many companies seem to be struggling with, he says, is actually a predictable and recurring problem.
Organizations are challenged to grow quickly during upswings and reduce labor costs during downswings. This time around, many organizations are proving that despite lots of practice, they are no better equipped to handle the problem than they were the last times they occurred. Surely we remember the dismal early 80s and early 90s?
Recognize business cycles
Executives expect all business functions to be able to adjust their expenditures with the changing business cycle. Can you imagine a store manager at Macy’s not realizing that there is an established retail holiday cycle where employees are added for the busy season but then “released” when consumer demand subsides? Ignorance of this business cycle would get any retail manager fired on the spot.
Similar cycles occur at ski resorts, amusement parks, and ice cream parlors. In fact, this “hire and then release” cycle occurs in every industry, the only difference is that instead of the down cycle occurring at the same time each year, it instead occurs in five, seven, or 10-year intervals. Just because they don’t occur at the exact same time every year is not an acceptable excuse for being unprepared.
Many leaders face up to the fact that they must periodically reduce costs. Managers of product inventory know it, production managers know it, even call center and shipping managers know it.
Establish permanent process for adjustments in labor costs and staffing levels
Because the total cost of employees is often 60% of all variable costs within an organization, it should never come as a surprise that the firm’s largest single expense item would be first on the chopping block when revenues decrease.
When HR is pushed by the CFO’s office to reduce labor costs, more times than not, they react emotionally rather than logically, which is a poor substitution for collecting data and figuring out the best ways to cut labor costs without negatively impacting productivity.
Companies need to stop developing an “ad hoc” cost-reduction program every seven years, only to immediately abandon it after its first use. What’s needed in its place is a permanent process that provides for the real-time adjustment of labor costs and overall staffing levels.
There are only three effective solutions that enable rapid labor cost containment:
• A fixed contingent workforce percentage program. Where workforce headcount growth and labor cost reductions are both handled through the use of a fixed percentage of labor cost being allocated to contingent labor. This approach uses a combination of variable cost outsourcing contracts and the hiring or releasing of temporary or contract workers to meet the required change in labor costs (Google and Microsoft are considered benchmark firms).
• A continuous reduction plan. Under this approach, surplus labor (usually bottom performers and those with obsolete skills) are proactively released each quarter (Cisco is a benchmark firm).
• A SWAP process. This approach is designed to continually improve your talent pool without changing headcount. Using the SWAP approach, bottom performers and those with skills that are no longer needed, are replaced whenever a high potential recruit is found. The net result is an overall increase in productivity and skills with no net increase in headcount.
All of these approaches provide an organization with the capability to adjust the capability of the organization while containing labor costs.
Take action steps
Pre-identify jobs that are likely to be protected, even during slow growth periods. By working with managers, you can identify jobs that should not be reduced, even when revenues drop. These “protected” jobs might include product development and sales. Individuals in these jobs should be informed of their relative job security in order to avoid unnecessary anxiety.
Conversely, there are jobs that are almost always reduced or declared “surplus” whenever revenues and workloads decrease. Typical jobs that are likely to have surplus employees might include customer service, supply chain, and production employees. There should be an absolute requirement that a fixed percentage of these jobs that have a high potential for becoming “surplus jobs” will be filled by contingent workers that are more easily released.
Make the internal redeployment and transfer process more proactive. Not only should the process be sped up, but individuals with key skills should be proactively “moved” from low priority and low-impact jobs to roles where these employees will have a higher ROI.
Make labor cost-reduction decisions more “fact-based” and metric-driven. Whenever any labor cost-reduction program like furloughs or voluntary buyouts are administered, use metrics to assess how effective they really were in cutting overall labor costs, while documenting their impact on morale and productivity. By collecting data, you can avoid implementing expensive stopgap measures that end up causing more harm than good.
A better, more long-term strategic approach
Any organization that tries short-term “stopgap” measures only to be forced months later to conduct large-scale public layoffs has to be classified as a workforce planning failure.
A superior and more strategic approach is a permanent workforce strategy that allows you to continually “vent” or seamlessly reduce workforce costs. Contingent workforce, continuous reduction, and SWAP plans all produce less workforce disruption, gossip, bad publicity, and surprises.
Whether adding or subtracting, your organization’s primary goal is to develop and promote its human capital.
In a volatile world, the ability to expand your workforce and then later to contract it, is fast becoming a required capability and necessity.
In the near future, it will likely be necessary for you to have the ability to hire new skills and talent in some areas, while simultaneously releasing workers in low-priority areas.
Your ability to handle this “continuous churn” will become a key competitive advantage and a primary differentiator between good and great leadership.
In a volatile world, the ability to expand your workforce and then later to contract it, is fast becoming a required capability.
Businesses everywhere are struggling to find ways to reduce labor costs. Rather than implementing sound and well-established workforce-reduction plans, many corporate leaders and talent managers appear to be making it up as they go, all in an attempt to avoid layoffs.
This, according to Dr. John Sullivan, Professor of Management at San Francisco State University in his recent article in ere.net, and the source of this article.
What many companies seem to be struggling with, he says, is actually a predictable and recurring problem.
Organizations are challenged to grow quickly during upswings and reduce labor costs during downswings. This time around, many organizations are proving that despite lots of practice, they are no better equipped to handle the problem than they were the last times they occurred. Surely we remember the dismal early 80s and early 90s?
Recognize business cycles
Executives expect all business functions to be able to adjust their expenditures with the changing business cycle. Can you imagine a store manager at Macy’s not realizing that there is an established retail holiday cycle where employees are added for the busy season but then “released” when consumer demand subsides? Ignorance of this business cycle would get any retail manager fired on the spot.
Similar cycles occur at ski resorts, amusement parks, and ice cream parlors. In fact, this “hire and then release” cycle occurs in every industry, the only difference is that instead of the down cycle occurring at the same time each year, it instead occurs in five, seven, or 10-year intervals. Just because they don’t occur at the exact same time every year is not an acceptable excuse for being unprepared.
Many leaders face up to the fact that they must periodically reduce costs. Managers of product inventory know it, production managers know it, even call center and shipping managers know it.
Establish permanent process for adjustments in labor costs and staffing levels
Because the total cost of employees is often 60% of all variable costs within an organization, it should never come as a surprise that the firm’s largest single expense item would be first on the chopping block when revenues decrease.
When HR is pushed by the CFO’s office to reduce labor costs, more times than not, they react emotionally rather than logically, which is a poor substitution for collecting data and figuring out the best ways to cut labor costs without negatively impacting productivity.
Companies need to stop developing an “ad hoc” cost-reduction program every seven years, only to immediately abandon it after its first use. What’s needed in its place is a permanent process that provides for the real-time adjustment of labor costs and overall staffing levels.
There are only three effective solutions that enable rapid labor cost containment:
• A fixed contingent workforce percentage program. Where workforce headcount growth and labor cost reductions are both handled through the use of a fixed percentage of labor cost being allocated to contingent labor. This approach uses a combination of variable cost outsourcing contracts and the hiring or releasing of temporary or contract workers to meet the required change in labor costs (Google and Microsoft are considered benchmark firms).
• A continuous reduction plan. Under this approach, surplus labor (usually bottom performers and those with obsolete skills) are proactively released each quarter (Cisco is a benchmark firm).
• A SWAP process. This approach is designed to continually improve your talent pool without changing headcount. Using the SWAP approach, bottom performers and those with skills that are no longer needed, are replaced whenever a high potential recruit is found. The net result is an overall increase in productivity and skills with no net increase in headcount.
All of these approaches provide an organization with the capability to adjust the capability of the organization while containing labor costs.
Take action steps
Pre-identify jobs that are likely to be protected, even during slow growth periods. By working with managers, you can identify jobs that should not be reduced, even when revenues drop. These “protected” jobs might include product development and sales. Individuals in these jobs should be informed of their relative job security in order to avoid unnecessary anxiety.
Conversely, there are jobs that are almost always reduced or declared “surplus” whenever revenues and workloads decrease. Typical jobs that are likely to have surplus employees might include customer service, supply chain, and production employees. There should be an absolute requirement that a fixed percentage of these jobs that have a high potential for becoming “surplus jobs” will be filled by contingent workers that are more easily released.
Make the internal redeployment and transfer process more proactive. Not only should the process be sped up, but individuals with key skills should be proactively “moved” from low priority and low-impact jobs to roles where these employees will have a higher ROI.
Make labor cost-reduction decisions more “fact-based” and metric-driven. Whenever any labor cost-reduction program like furloughs or voluntary buyouts are administered, use metrics to assess how effective they really were in cutting overall labor costs, while documenting their impact on morale and productivity. By collecting data, you can avoid implementing expensive stopgap measures that end up causing more harm than good.
A better, more long-term strategic approach
Any organization that tries short-term “stopgap” measures only to be forced months later to conduct large-scale public layoffs has to be classified as a workforce planning failure.
A superior and more strategic approach is a permanent workforce strategy that allows you to continually “vent” or seamlessly reduce workforce costs. Contingent workforce, continuous reduction, and SWAP plans all produce less workforce disruption, gossip, bad publicity, and surprises.
Whether adding or subtracting, your organization’s primary goal is to develop and promote its human capital.