33% Plan Lay Offs
33% Plan Lay Offs
One third of companies in Europe are planning to lay off full-time employees, in a move which signals the scale of the collateral damage that the financial crisis is inflicting across the European corporate landscape, according to a report published by BCG and EAPM.
The UK has the highest proportion of companies preparing a major redundancy program for full-time workers: 57 per cent, reflecting the severity of the downturn in the UK. In Russia, the proportion is 40 per cent, Austria and the Netherlands 38 per cent, and France and Spain, 37 per cent. In Germany, Europes biggest economy, the proportion is 32 per cent. Among industries, the automotive, consumer goods and industrial goods sectors have the highest proportion of companies preparing radical cuts in their workforce: 46 per cent, 45 per cent and 44 per cent 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 given the short-term pressures, could have a serious and long-term impact on the company. Employee commitment is a key element of an effective culture: how employees are treated in bad times will be remembered by them in good times. This is not something which business leaders should ignore, since demographic factors mean that Europes companies will face shortages of skilled staff in the near future.
Rainer Strack, co-author of the report and senior partner in BCG's Dsseldorf office, said that, when shedding jobs, companies should act with great care. In the last recession, companies cut employees to save money, only to discover key shortages a few years later. In some countries, the future recruitment challenges confronting companies will be especially acute, because the size of the 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 which will be unveiled later this year features the responses of 883 executives on their companys 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 executives are planning to take during this crisis proved relatively ineffective during the last recession, and were damaging to the long-term health of the companys culture. The three most popular planned actions are cutting back on recruiting (identified by 69 per cent of respondents), cutting back on company events (54 per cent) and cutting back on bonus payments tied to company performance (45 per cent). When compared to the average action, the second and the third of those 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 currently one of the least popular of the actions (19 out of 22) in this crisis.
Linda Holbeche, Board Member of EAPM and Director of Research and Practice, CIPD, said: Companies should review people strategies deployed during the last recession to avoid using interventions which have been proven over time to be ineffective. Its important to recognize that a lot of managers will not have the experience of handling change of this scale, so in order to avoid mistakes of the past, companies must follow the good practice outlined in this report.
The best practices of some of Europes 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. Philip Krinks, Partner and Managing Director of BCG's London office, said: Despite the colossal pressures business and HR leaders are under, they still have choices. They can significantly shape the destiny of their companies. During 2009, as well as responding to the pressures, companies have opportunities to prepare for when the recovery eventually comes.
The 12 points 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 over 3-10 years. 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 companys 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
Linda Holbeche continued: As well as using these longer term measures to create companies with far-sighted strategies, employers also need to be considering short-term alternatives to redundancies to get through current crises. These might include implementing short- time working, pay freezes or even pay cuts and sabbaticals.