Tag: recession

Roar Out of the Great Recession

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It’s time to place some bets on the recovery.  Buy low and sell high.

 The labor market is softer than it has been since 1982.  It’s time to act.

 0. Reset the terms of employment with staff.  Reduce health care, pension and other benefits to a sustainable level.  Increase the share of incentive versus base compensation.  Hire some support staff to avoid burnout.  Offer a nominal pay increase now.  Provide extra time and flexibility to staff to balance.

  1. Hire qualified director/VP level staff to lead “on hold” initiatives.  They are available for lower base compensation and are highly motivated to earn incentives.
  2. Identify the most qualified scientific and technical staff in key R&D and product development areas.  They are unable to obtain venture capital support and would welcome a paycheck or contract.
  3. Complete your quality staffing, training and initiatives.  The market is loaded with very highly qualified individuals who have the business savvy to deliver value.

 Most suppliers are in weak positions, eager to begin to make progress.

 0. Propose long-term agreements with key supplier partners in return for a 5% per year reduction in unit costs.  Negotiate to a win-win position.  The best partners can reduce costs every year.  Focus on professional services firms.  Legal, accounting, insurance, HR and real estate firms face a new reality of lower revenues and profits.  They are ready to negotiate to maintain business.

  1. Take another look at outsourcing areas that are not strategic core competencies.  The third-party providers are more effective than ever and eager to do business.  All of the line and staff areas should be reviewed:  customer service, finance, accounting, HR, marketing, purchasing, logistics, distribution, manufacturing, and R&D.
  2. Engage contingency based cost saving consultants.  They are eager for business and can do their work with limited time from your staff.
  3. Look at domestic suppliers of key products and components.  The dollar is falling.  Transportation and environmental costs are rising.  Inventory and stock out opportunity costs are rising.  The remaining domestic manufacturers have outstanding capabilities.

 Make a few strategic investments.

 0. The real estate market is very weak.  Re-negotiate existing leases.  Look at sale and lease back deals.  Lease or secure options on properties for the future.  Hire or contract for unemployed real estate experts to reduce total costs of facilities and their associated risks and taxes.

  1. Take out those IT investment project lists.   Invest in the high ROI projects.  IT firms are ready to bargain, especially for larger, long-term deals.  Consider applications like Microsoft Sharepoint that knit together web, sales and communications.
  2. Pursue strategic acquisitions to acquire market share, products or talent.  Equity values have recovered.  Debt for solid larger firms is becoming available at low rates.  Smaller and highly leveraged firms are nearing the end of their liquidity options and need to sell.

 Pursue market share.

 0. Strategically evaluate the structure, number and incentives of your sales force.  You’ve maintained market share for the last 2 years.  Remove low performers.  Revise incentive schemes.  Invest in sales training for younger staff.  Make sure that your sales management team is the best possible.  Hire strong performers from the real estate, banking and insurance industries.

  1. Invest in export sales opportunities.  The markets are growing.  The dollar is falling.  The infrastructure is available to get started with a lower initial investment. 

 Great firms make progress at times like these.

10% Labor Force Growth, 1998-2007

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 US Employment by Industry         
         
   1998   2007   Change   Pct 
 Extraction/Utilities       2.3      2.5          0.2 9%
 Construction       6.2      7.6          1.4 23%
 Manufacturing      17.2    13.7         (3.5) -20%
 Wholesale/Retail Trade      18.1    19.8          1.7 9%
 Transport/Warehouse       3.9      4.3          0.4 10%
 Information       3.1      2.9         (0.2) -6%
 Finance/Insurance       5.4      6.0          0.6 11%
 Real Estate       1.7      2.0          0.3 18%
 Profl, Bus, Adm Services      21.2    25.0          3.8 18%
 Education       2.0      2.7          0.7 35%
 Health Care      11.2    14.3          3.1 28%
 Arts, Entertainment, Recreation       1.4      1.7          0.3 21%
 Accommodations/Food       8.1      9.4          1.3 16%
 Other Services       5.3      6.0          0.7 13%
 Government      18.7    20.2          1.5 8%
    125.8   138.1        12.3 10%

Labor Market Failure and Recovery

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After 18 months of hiring freeze, it’s time for all profit-maximizing firms to kick start their recruiting.  At present, we’re hiring too few, we’re too focused on exact hiring matches and we’re unwilling to invest in the future.

 The recession was first sensed by wise businesses in 2Q 2008.  The banking crisis of Fall, 2008 terrified even those whose careers went back to 1974-1982 when the last panic of gas prices, inflation, interest rates and Japanese competition derailed the post WWII expansion.  While the freeze and risk-averse decisions were justified at the time, they are wrong today.

 The all-in cost for a senior professional staff member is roughly $100,000 per year.  A good hire lasts for up to 10 years.  A typical hire is a $1 million investment.  In the current environment with 16M candidates chasing 3M jobs, the odds of finding a great candidate are excellent and the ability to hire at 20% below old market salaries is a given.  Firms with a strategic view of human resources should be first in line to hire these high ROI assets – TODAY.  Every good hire is a $200-300,000 addition to the firm’s net worth.

There is little joy in HR departments these days.  Hiring volume is down so the pressure is on to reduce HR staffing and to NOT use external recruiters.  The volume of applicants per position has quadrupled.  HR’s ability to use on-line application forms and screening tools has improved, but not enough.  To cope with the excess supply, HR and hiring managers have decided to make an exact match of past experience by industry and function to the position the penultimate criteria for hiring.  This allows the greatest percentage of candidates to be eliminated in the first screening. 

 Unfortunately, this means that many qualified candidates are not considered.  Narrowly experienced and over-tenured candidates are favored, even if they have had the same experience for 8 years in a row.  Firms pursuing this approach will soon find that they have hired adequate candidates who have limited upside potential.  They are also likely to find that they have made many “hiring errors” because they have not given equal weight to the questions of personal motivation/drive and teamwork/manageability.  I recommend Martin Yates “Hiring the Best” as a guide.

Firms that continue in “hiring freeze” mode have a bias towards replacement of existing positions versus investment in the staff who deliver future value.  There are thousands of highly skilled project managers, business analysts, scientists, quality specialists, product managers, marketing researchers and other professionals who are unemployed because firms are unwilling to restart the investment cycle.  This recession will end and success will depend upon investing in new products, new customers and better processes.  There may be some areas where NOT replacing a separated employee is the right choice.  Successful firms make decisions one choice at a time rather than relying on simple rules.

 Firms that have their financial house in order need to race to the labor market while supply exceeds demand and hire skilled, motivated team players to pursue the next cycle of business investments that deliver long-term value.