Snippets From The World Of Psychology - April 2009
How Organisations Can Manage During the Economic Downturn
We are all aware of significant difficulties being experienced by all global economies. There are several cost reduction strategies open to organisations, including inventory control, re-financing, debtor management and the like. However, with direct labour costs ranging from 30% to 80% of an organisation’s cost base, decision-makers can readily slash personnel as a quick-fix strategy for addressing declining profits. However, it is important to consider the subsequent consequences of downsizing, including the following:- Severance costs can be quite significant.
- Companies that downsize typically experience subsequent voluntary turnover rates of 50% or greater. That is, the survivors move on and these people may be the organisation's best people.
- The cost of replacement, particularly for knowledge-based businesses, can be up to ten times the salary of the job in question.
- HR experts such as Professor Wayne Cascio note that more than half of the companies that downsize end up hiring replacements.
- The dynamics of the workforce can change, with survivors acting in an overly conservative and self-absorbed fashion.
In addition, Professor Wayne Cascio, as noted in the Australian Financial Review (11 February 2009), has found that the S & P 500 companies that had downsized their staff under-performed competitors whose workforces did not fluctuate more than 5%. Staff stability is important for productivity.
The Australian Psychological Society has just released an information sheet titled 'The Psychology of Managing Unemployment in an Economic Crisis'. One of the contributors to the sheet is Colin Beames, whose White Paper on Employee Engagement is downloadable from the Compass Consulting website. This information sheet suggests options which a business or organisation should canvass, including:
- Re-deploy employees who are satisfactory performers
- Reduce temporary staff and contractors
- Reduce work hours, reduce or eliminate overtime and introduce flexible work hours
- Offer voluntary retirements
- Implement salary cuts or salary restrictions and eliminate bonuses
- Implement hiring restrictions
- Implement work sharing
- Implement mandatory holidays; offer unpaid sabbaticals or unpaid 'time out' for an agreed period
- Dismiss poorer performers in a constructive and caring manner
In his recent visit to Australia, Professor Cascio also mentioned the following options:
- Allow staff to work from home to reduce office space.
- Provide staff with company stock/shares instead of one day’s pay per week.
- Suspend employee superannuation contributions.
- Supplement the incomes of workers who move from full-time to part-time work with the dole or government subsidised training wages.
- The government could consider extending notice requirements for people who are made redundant.
- Retraining subsidies should be aimed at sectors where there is a high demand and which can recover quickly, such as aged care and IT.
This is a difficult time and it will require lateral thinking as well as open communications. What is clear, however, is that the shedding of staff can have knock-on effects – particularly if it is handled poorly and if there is a perception from the stayers that those retrenched are not given a fair deal and provided with appropriate support (for example, job search or outplacement assistance).
Organisations can also show initiative by facilitating training and development opportunities for good employees or those with potential. It is one thing to shed poor performers but it is another thing to lose good performers in key areas because of a failure to commit to the development of talent. There are still job opportunities in the marketplace and it is important for organisations to keep this in mind. Furthermore, it is important for organisational leaders to maintain a sound balance between ‘doom and gloom’ versus unsubstantiated optimism or blind faith. The overt demonstration of realistic, open and positive behaviours (and demeanour) should be encouraged at senior levels within the organisation.
Finally, organisations will need to think carefully about the nature of the competencies required if job restructuring is implemented. A systematic and comprehensive review and assessment of the management and leadership talent may well form an integral part of the restructure. A proper assessment process can provide a good return on investment and helps to bring a considered and systematic approach to a potential re-organisation, but with an eye to the future.