Employers must learn lessons of past recessions

Europe's top companies should learn the lessons of past recessions in order to build a sustainable and high-performing workforce for the future, says a report By BCG and EAPM.

One in three companies across Europe is preparing to cut their workforce, according to a survey by The Boston Consulting Group and the European Association of People Management. But business leaders risk doing irrevocable long-term harm to their companies if they repeat some common mistakes made during the last recession.

The UK has the highest proportion of companies preparing a major redundancy programme for full-time workers with 57%. In Russia, the proportion is 40%, in Austria and the Netherlands, it is 38%, and in France and Spain, it is 37%. In Germany, Europe's biggest economy, the proportion is 32%. Among industries, the automotive, consumer goods and industrial goods sectors have the highest proportion of companies preparing radical cuts in their workforce with 46%, 45% and 44% respectively.

But the report, Creating People Advantage in Times of Crisis: How to Address HR Challenges in the Recession, indicates that this strategy, while understandable from a short-term cost-cutting perspective, could have a serious and long-term impact on the company. Employee commitment is a key indicator of a company's culture: how employees are treated in bad times will be remembered by them in good times. Given that demographic factors mean that Europe's companies will face shortages of skilled staff in the near future, it is something that business leaders should not ignore.

Pieter Haen, Vice-President EAPM and Vice-President NVP-board said that when shedding jobs, companies should act with great care. "In the last recession, companies cut employees to save money only to discover that they then faced key shortages a few years later. Today, the recruitment challenges confronting companies are especially acute because the size of Europe's workforce is set to decline as a result of a 'double whammy' of factors: falling birth rates and the rising number of 'baby boomers' entering retirement."

The report - part of a broader survey of 3,348 human resources and other executives from more than 30 European countries and more than 15 industries that will be unveiled later this year - features the responses of 883 executives on their company's strategy in the current economic crisis and the lessons learned from the last crisis. These views, collated between November and January, have been supplemented by detailed face-to-face interviews with senior leaders of more than 90 major European companies, which were conducted between December and March.

The findings show that some of the most popular actions that HR executives are planning to take during this crisis were not only a relatively ineffective corporate response during the last recession but were also damaging to the long-term health of the company's culture. The three most popular planned actions are cutting back on recruiting (identified by 69% of respondents), cutting back on company events (54%) and cutting back on bonus payments tied to company performance (45%). However, when compared to the average action, the second two were less effective and had an unfavorable impact on employee commitment during the last recession.

Another popular action in this crisis - cutting back on training - was also relatively ineffective, when compared to the average action. The action that had the most positive impact on employee commitment during the last recession - hiring high-performing employees of competitors - is one of the least popular of the actions (19 out of 22) in this crisis.

Pieter Haen, co-author of the report, said: "Companies should evaluate the strategies deployed by HR executives during the last recession. In this way, they can avoid making similar mistakes all over again."

The best practices of some of Europe's top companies - which were gathered during the interviews with board members and senior executives - have been used to develop a 12-point HR action plan to help companies reduce costs in a way that will not harm their prospects when the crisis comes to an end. Pieter Haen,  said: "HR executives can play an important role in helping their companies address the very real challenges that they face today and to prepare them for when the recovery eventually comes."

These include:

• Strategic Workforce Planning: Companies should build scenarios based on a precise understanding of their supply (influenced by retirement and other attrition rates) and demand (influenced by business strategy and productivity) needs. In this way, they can better redeploy their staff - rather than simply sacking them - and anticipate any future shortages of skilled workers.
  
• Performance Management: Companies should overhaul their performance management and rewards systems so that these better reflect long-term business goals and reinforce the company's values.
  
• Employee Engagement: Companies should engage with employees in an honest, direct and empathetic way and create excitement around the opportunities at a time when traditional motivators - such as pay increases and promotion - are not an option.
  
• Leadership Capabilities: Companies should equip their leaders with the very different set of skills needed to run a company struggling with cutbacks rather than growth opportunities.
  
• Change Management: Companies should ensure that, when restructuring or introducing reforms in the wake of the crisis, they have a sustained and rigorous program management and change agenda in place.
  
• Internal and External Communication: Companies should communicate with employees in a way that is more personal, more frequent and more trusting

Pieter Haen, said: "Collectively, these six topics form a sweet spot for far-sighted companies that want to develop state-of-the-art people processes to tackle the challenges of these turbulent times."