Avoiding Layoffs: Recession-Proofing Your Business

Most of your competitors are shifting their mindset on how to weather a recession. But the springboard for truly monolithic business results is built during recessions.

Amazon. Google. Facebook.

Now is the moment to solidify your priorities and over-communicate them to your direct reports. One of those priorities is business continuity – which means avoiding layoffs by any means necessary.

 

The Impact of Layoffs 

Layoffs are a somewhat recent development in the corporate playbook. Before the 1980s, it was unheard of to utilize layoffs tactically to improve short-term financial performance. But when US President Ronald Reagan eliminated the jobs of over 11,000 air traffic controllers, it planted the seed that such sweeping measures were within the realm of possibility in the business world. 

As Organizational Psychologist Dr. Alan Weinstein and former General Motors Plant Manager Donald Rust covered in their co-written book Human Energy, layoffs have a systemic effect on the lives of both the impacted employees and their remaining colleagues. Their long-term research captured financial hardship, mental health struggles, educational struggles in children, family rifts and divorces, and even community instability that could be directly traced back to layoffs.

Survivor’s guilt, the introduction of fear into the decision process of workers, and the replacement of company goals with the pursuit of job security as the north star of employee efforts are simply the symptoms of work environments where layoffs are on the table. Even more prevalent in the larger economy are generational attitudes internalized by entire swaths of the workforce. The Millennial generation was raised by parents who were initially impacted by the “performance layoff.” During their formative years, they watched as their elders dedicated entire careers to one company – companies that suddenly viewed those dedicated people as expendable. If you’ve ever complained about a lack of company loyalty in younger generations, it’s no wonder why it’s absent.

RecessionProof_PostGraphic_1

Preventing layoffs in your company means resisting the common tendency to signal a retreat during a downturn. Instead, view it as a period of opportunity. Navigating the road less traveled during this challenging time will open doors to future prosperity and growth that will remain closed to less-savvy leadership teams. Make your priorities strategic and opportunistic – not reactive or fearful.

 

5 Strategic Priorities in a Downturn 

RecessionProof_PostGraphic_2 (1)

There are five key priorities that you must maintain absolute focus on, no matter what happens. All five are equally important, so never engage in one at the expense of the other four.

1. Cash Flow.

You don’t often hear HR discussing cash flow. That’s tremendously problematic because cash flow is the lifeblood of your organization and should be the centerpiece of any halfway decent human resources philosophy. Before we get into topics that feel more traditionally “HR-ish,” we’re going to talk about this and four other topics.

You should be looking at cash flow along these lines:

  1. What cash flow is not: cost cutting. Cutting costs as a primary means to the end of improving cash flow is short-sighted and damaging to the longevity of the business. Instead, ensure that your focus on cash flow begins in forecasting. It should center around conservative forecasting and planning for how the most likely risks will present themselves in your business.
  2. Product mix and customers. Profitability should be your only consideration here. Market share without strong profitability will lead you down a road to nowhere. Steer away from products or services that do not meet your profitability targets.
  3. Bottlenecks. Your production processes and supply chains are most likely hiding anvils that are slowing you down, as well as ticking time bombs that are ripe for inflationary impact on your COGS. Not to mention, if you’re not intimately familiar with the constraints and bottlenecks in your processes as an HR leader, you’re probably not structuring your organization correctly – and your head of Ops most likely has hidden capacity he or she doesn’t recognize. In other words: attention to your bottlenecks can prevent layoffs.

2. Digitization.

If you do not devote all deliberate speed to digitizing the information around your operational processes and customer behaviors, you are driving blind into hostile territory. Your complete picture of the business at a glance is indispensable for your ability to make decisions as a leader. The speed of that reaction to changes inside and outside your organization will make or break you. Industries like manufacturing and professional services have long lagged behind in digitization around their operations and customer behaviors. Inflating costs and the gloom of recession will prompt most of them to halt these efforts (if they’ve begun them at all). If we’ve learned anything coming out of COVID-19, it’s that the businesses that doubled down on these efforts during the pandemic prospered. Those who did not are still struggling to recover. 

3. Maintenance and capacity.

When times are tough, most organizations immediately begin slashing CapEx budgets and postponing preventative maintenance schedules. Do not do this. This will come back to cripple your organization in the long run. Ensure that you maintain the agility and resources to build capacity. Remember that it will always become necessary because inflation is not simply a monetary phenomenon. Inflation will change the world and alter the way your industry interacts with it – and it will happen sooner than you think. The way to be ready to act before anyone else can is to never place today at the expense of tomorrow. Not to mention, the maintenance and user experience of your equipment is well established as a primary factor in the satisfaction and engagement of your frontline employees.

4. Innovation.

The first thing to go for most businesses in a downturn. When making decisions out of a place of stress or fear, leaders may try to stick to what they know. In some instances, they even cut corners, detracting from their product or service and jeopardizing profitability. Instead, continue R&D efforts. Keep making what you sell better – not worse - but laser focus those efforts around profitability. What is so valuable to your customers that price is less of an object – even durviewinging tough times? Justify your place in customers’ minds.

5. Continuity of the business.

This is a widely and dangerously misunderstood priority. When the crowd is moving to maintain the present at the expense of the future, you must be acting in the opposite manner. Do whatever you must do to preserve the future without destroying the present. This has two dimensions. Both are intimately related to cash flow:

  1. OpEx. We’ve already mentioned CapEx. But in addition to slashing their ability to invest in their future, many managers believe that cutting down operating expenditures to skeletal levels is the best way to weather a storm. It’s not. Instead, ensure you’re looking at protecting certain kinds of expenditures in the present rather than throwing them overboard. These costs will galvanize the above components for the longevity of your business and shoulder out competition that is no longer agile and resilient – those unable to proactively respond to change.
  2. Talent strategy. This is our segue into the real purpose of this article. The “HR-ish” stuff. Many organizations pay lip service to layoffs being their last resort. But that doesn’t feel accurate when it’s so difficult to point to a business success story whose inflation or recession track record includes layoffs. Viewing your workforce through the same lens that we’ve talked about CapEx, maintenance, innovation, or digitization is imperative to rising out of economic downturns.

Becoming a Downturn-Proof Workforce

Removing layoffs from the toolkit requires you to have a toolkit in the first place. The tools on your belt are communication, capacity, compensation, curriculum, and discarding Lean. 

Communication.

Overcommunicate to the second line (The 2 Coffees Rule). Make sure your direct reports understand the concepts contained in this piece, their relationships with one another, and why they are so critically important to the business. They need to have internalized these concepts enough to discuss them intelligently. Unless you plan on having individual conversations with every employee in your organization personally (you should, but we both know you won’t), most of the conversations are going to be led by your reports, their reports, and so on. You need them to be your evangelists. They need to know this backward and forward like their job depends on it. Because it does.

Capacity.

Do you really understand your operational capacity? Because this is going to be your main prevention of layoffs. Preventing over-hiring during economic growth and stable currency periods means understanding how to grow without adding headcount. This is not your standard “do more with less” philosophy or asking employees to bootstrap productivity. This means looking at your systems and eliminating the points of friction or drag within operational processes. It’s giving your employees the tools they need to do their job more easily. Conducting an employee experience assessment is how you discover the hidden capacity, capabilities, and problems holding your employees back from truly efficient execution of the expectations you’ve placed on them.

Compensation.

Make changes to your compensation program. Compensation and bonuses are usually based on bottom-line results and net profit. As we’ve covered, that’s not the right metric to aim for in an inflationary environment or general economic downturn. The goals of our team and their compensation need to align with the right metric. Incentivize your employees to engage in behaviors that optimize cash flow. Educate them on the organization’s plan toward that end. Help them think about how it’s different from the net profit or EBITDA goals you usually pursue. And then get out of their way.

Curriculum.

Education for employees about inflation and creating financial literacy for themselves as individuals. Especially if your frontline employees do not generally possess advanced degrees in business, finance, or economics. This is a real-world topic that we, as a country, woefully underprepared our high school (and even college) graduates for. Help your people weather this personally as well as professionally.

Discarding Lean.

Resilience requires a bench. Your leanest processes are also your most vulnerable. We saw countless businesses that were champions of Lean and were brought to their knees when COVID-19’s impact highlighted the importance of resilience in processes – not just efficiency. Other companies built their processes not only for efficiency using Lean, but in a manner that incorporated the foresight of external risk factors. 

Cross-training is almost too simplistic an example, but one that many Lean businesses fail to incorporate. If you’re too routinely lean to cross-train employees, you’re too lean to survive players that are taken out of the game. And if you’re a multi-shift operation with only enough people in a particular role on a particular shift to function, you’re too lean to weather staffing disruptions without placing undue pressure on other members of your team. By the time you recover from a shortage of a key person, you’ll have burned out another, triggering the disruption all over again.

Identify the points of your processes that are most susceptible to disruption where people are required. Build resiliency into not only your organizational structure but your talent strategy.

 

Org Dev for Recession Periods

Fear is an effective short-term motivator. Employees concerned about job security will stick around. But they won’t be engaged enough to prepare and build during the downturn – and will almost certainly begin to look elsewhere when the recession or inflationary period fades and opportunities begin to pop up.

Holding onto your talent requires the same line of thinking as proper cash flow optimization. When your competitors are emptying their “non-essential” budgets, it’s important to think about your people's budgets similarly to your preventative maintenance and CapEx budgets.

What Not to Cut

What expenses are most important to your employees and their long-term contributions to the organization? Defining those, making sure they’re as effective as possible for your investment, and prioritizing the protection of those practices is the long-term, customer-obsessed thinking required for a business to launch out of a recession period like a bat out of hell.

  1. Find the collision point between your strategy and employee engagement. Which piece of your business strategy can your employees exert the most control over? Direct investment toward that thing. Inflationary and recessionary periods have historically occurred in the United States on a relatively predictable schedule of every 5 years – with the deeper, longer recessions of 12 to 18 months occurring on alternative, or approximately the 10-year mark. If most aspects of your strategy are highly susceptible to external factors during a downturn, why not outfit your employees with every possible tool at your disposal to drive the results you (and they) can exert control over?

    RecessionProof_PostGraphic_5 (1)

  2. Focus on input metrics rather than output metrics. Too many leaders get caught up in their output metrics at the expense of the inputs that generate them. This may create a distracting vantage point that can hamstring their employees’ ability to directly impact key inputs. (If you’re struggling to make the distinction between input metrics and output metrics – or your business measures only the latter – perhaps it’s time for a consult with us.)

    RecessionProof_PostGraphic_6

  3. Guard organizational knowledge and horsepower fiercely. It’s said often, but viewing your employees as an asset to be held rather than a cost to be managed is of critical importance at this juncture. However, the maxim can easily become a platitude without sufficient explanation of how one might execute on it. Particularly in the context of a downturn, keeping up with business volume is likely to lose its place as a top priority. Where most short-sighted business managers see this as an opportunity to cut costs to protect their immediate cash-in, cash-out balance, instead see this as the opportunity for the growth of organizational knowledge along several lines:
    1. Product knowledge
    2. Industry/market knowledge
    3. Operational process knowledge
    4. Quality outcomes knowledge
    5. Customer knowledge

Too many businesses allow these aspects of who they are to slide when times are good, cashflow is well balanced, and the priority of the day is growth. Losing touch with them can signal the future decline of even the most successful businesses. Rather than allowing them to slip and sound your death knell, use these five- and ten-year waypoints to catch your breath as a team. Reinvigorate these five central points of what makes your business what it is. Stay in touch with them. Better them. And use them as platforms of readiness to launch out of downturns when your competitors have failed to do so.

 

4. Avoid Layoffs. When approached properly, the previous three points are often of more than sufficient consequence and complexity to occupy whatever portion of a workforce may have otherwise been slated for layoff. At the risk of putting perhaps the most rousing point in this article too casually: the above three points generally have an immediate enough effect to generate cost savings that will exceed the deceptively attractive figures layoffs post – and sustainably so. Employees generally pine after the time and breathing room necessary to go after improving processes, focusing on quality outcomes, and deepening their knowledge of and relationships with customers. These things often can’t get done when growth is the priority. But they can get done during a downturn.

5. Maintain Reliability. When most businesses are experiencing disruption, both B2B and B2C customers begin to notice the distinct difference that certain things generate in their day-to-day experiences. Reliability – and its close relative, consistency – stands out keenly amidst disappointment and uncertainty. A business that maintains its long-term focus will generate this experience for its customers. The energy that your employees receive from their superiors and their perspective on your business priorities will also get transferred to your customers. Anyone interacting with the human energy your employees generate will immediately associate that with your business’s brand. Does that energy inspire confidence? Or something else?

 

We’ve covered the five strategic priorities to use cyclical economic downturns to the business’s advantage: cash flow, digitization, protecting future capacity, innovation, and true continuity. All of these in some key way demands the avoidance of layoffs to achieve. Building a downturn-proof workforce to engage your employees on the dimension of your business strategy that you – not external factors – control, and creating an environment where they can continue to innovate and sharpen the company’s operations means holding onto those employees at – sometimes quite literally – all costs.

Feeling overwhelmed by this or want an expert opinion? Schedule a consult with Wayforward.

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