The recession will present unique challenges for businesses management and leadership.
Since COVID-19 was first discovered in December 2019 in Wuhan, China, it has spread rapidly across the globe. Once the World Health Organisation declared it a pandemic, many countries went into lockdown in an attempt to curb the spread of the virus. While lockdowns have been fairly effective in reducing the number of infections, they have also put tremendous pressure on the world’s economy. Millions of people lost their jobs, thousands of businesses have closed for good, and entire industries have been devastated. The resulting recession will possibly be the most severe the world has ever experienced. So, what does that mean for the future of your business? Is there anything you can do to prepare for the recession?
Previous global recessions
Although the financial crisis caused by the coronavirus outbreak is like nothing else we’ve experienced before, it’s important to look to the past economic downturns to identify potential remedies we can apply today. Often described as “the worst economic downturn in the history of the industrialized world,” The Great Depression began in the US after the stock market crash in 1929 and lasted until 1939. In the following decades, the economy went through several other crises. But the one that marked our recent history was the Great Recession, which lasted from 2007 until 2009. During the recession, many countries experienced a fall in GDP with a steep spike in unemployment. The global recovery was slow and steady. Governments worldwide implemented several programs to cope with the effects of the economic downturn and stimulate the economy. This involved creating new jobs, launching assistance programs, and cutting taxes.
The four phases of an acute recession
In order to keep up with the pace of change and make the right decisions in the midst of uncertainty and growing complexity, businesses should consider implementing a recovery framework that consists of the following four steps. In the first stage, companies are advised to simply respond to the crisis. Instead of just holding back and waiting for the situation to get worse, businesses should act quickly, assess the situation, and identify top priorities. The second phase of recovery is focused on achieving stability and financial health. After stabilising their business, companies are ready to take the next step, which involves developing new ways of thinking. In the last stage, organisations should test out different future scenarios to better prepare for the new reality.
Management and leadership impacted by the crisis
Leaders play a crucial role in any organisation’s success. It is a leader’s responsibility to strike a balance between two seemingly conflicting notions — the company’s short-term needs and its long-term strategies and visions. When a once-in-a-century event such as the novel coronavirus pandemic turns the world on its head, this discrepancy between immediate and future needs becomes even more pronounced. At this point, a leader needs to step in and come up with a plan for going back to work, as well as find a way to realign work processes so that the company’s operations can get back on track.
They also need to ascertain what the long-term effects of such a monumental event will be and act accordingly. Some of the ensuing changes to the business landscape will only be temporary, but others will be there to stay, and leaders need to identify which ones those are. They also need to figure out how their organisation can adapt to these changes and thrive in the future.
To survive a crisis, leaders need to “align strategy and execution”. Most importantly, they should put people first. That means that they need to create the right conditions for people to do what is required of them by making them feel “energized, resourceful and well-supported” and make sure that the functional requirements of the strategy are met by assigning the right roles to the right people.
Research & development (R&D) plays a crucial role in any company’s success. To get ahead of their competition and ensure future growth in an increasingly competitive landscape, companies need to allocate a certain amount of resources to R&D and innovation. It provides companies with numerous benefits, allowing them to increase their productivity, develop more efficient production processes, and reduce costs.
How to lead a business through a recession
One of the biggest mistakes a leader can make when a crisis approaches is to focus exclusively on the financial aspect of their business. Great leaders look beyond results and focus on their people as well.
As remote work becomes increasingly prevalent, leaders are going to need a new way to evaluate employee engagement. This could be done, for instance, by constantly measuring interactions in the workplace. Among other things, the recent coronavirus pandemic has given companies an opportunity to improve their employees’ decision-making skills, a crucial aspect of managing that is nevertheless often neglected.
Having access to cash is of crucial importance in times of crisis. With credit harder to come by, businesses need to shift their focus to cash flow, rather than concentrating exclusively on profit and balance sheets. They need to create cash flow forecasts at least six months in advance and update them on a weekly basis.
Leaders will sometimes try to keep people in the dark about the company’s prospects, future plans, and difficult decisions that need to be made in an attempt to keep their stress levels down and let them get on with their work. That’s a mistake, though. While being honest and transparent with your employees is always important, it becomes even more so during a recession. Difficult times can make people doubt your leadership abilities. It will make them question whether what you’re telling them is true. Try to present a positive vision of the future by focusing on your company’s strengths. Let your employees know you trust them.
A good leader is not afraid to turn to others for help in times of crisis. They will carefully analyse what other companies have done to adjust to the new normal and consider whether they could employ the same approach to lead their business through the recession. Stewart Butterfield, the CEO of Slack, says that the COVID-19 crisis presented his company with two major challenges: a sudden shift to remote work and a significant increase in consumer demand. To get a better handle on all of these new workstreams, the company also introduced new Slack channels, replaced on-site interviews with job candidates with videoconferences, and made the employee onboarding process fully remote.
The coronavirus pandemic has affected even tech giants like Apple, which has been forced to close its offices around the world. However, the company didn’t let the virus bring its business to a halt altogether. Product launches went ahead as planned, with Apple recently announcing the new MacBook Air, iPad Pro, and iPhone SE. “If we stay focused on doing what we do best, if we keep investing, if we manage the business wisely and make decisions collaboratively, if we take care of our teams, if our teams take care of their work, I don’t see any reason to be anything but optimistic,” says Tim Cook, Apple’s CEO.
Human resource management recession preparations
To mitigate the impact of the economic downturn on their organisation, HR managers are often forced to make painful decisions. Cutting costs in training and development programmes, talent loss, and pay cuts are some of the biggest challenges HR departments experience during a recession. But what many fail to realise is that recession can actually be an opportunity for the company in the long run.
To manage the layoffs effectively, employers must carefully examine who should be let go and who is still essential for the organisation. It’s also important to treat everyone with respect and dignity. Another strategic move that can help HR departments effectively manage their workforce and meet their company’s business objectives is rightsizing, a process in which HR managers adjust the workforce to get the organisation to the right size. This can involve either hiring employees with new skills and expertise, assigning new roles to existing employees, or reducing the number of workers to meet new business objectives.
When making layoff decisions, HR managers should first evaluate employee performance. Instead of using seniority as a key criteria in selecting which employees to let go, managers should focus on employees’ performance and productivity levels. By taking care of their workers’ wellbeing and ensuring a supportive organisational culture, HR managers can improve their organisational performance. A simple gesture like asking employees how their work is going or if everything is alright will make them feel valued and appreciated.
The future of human resource management after the recession
There are different predictions about whether the current crisis will be short-lived or last longer than we previously imagined. One thing is certain, HRM will have to find ways to navigate the new landscape after the recession. With more and more workers choosing to become self-employed, independent contractors, HR managers will need to update their traditional labour policies to include independent workers.
Leading organisations are increasingly relying on new technologies to monitor employee activity and get feedback on their productivity. IoT sensors and wearables, for instance, can monitor employee health and detect potential problems. Biometric technologies like fingerprint scanning and facial recognition now allow companies to automate time-consuming tasks like screening, onboarding, and employee relocation.
In the recruitment landscape, AI tools can help recruiting teams choose the most suitable candidates. Algorithms can analyse hundreds of resumes much faster than human recruiters, helping save a lot of time and money. The growing use of technology has also given rise to various security and privacy issues. Therefore, it’s essential for HRM to prioritise ethical values and re-evaluate their ethics policies.
Managing a business in a recession isn’t easy, and leaders are often forced to make rapid and difficult decisions. To get through economic shocks, leaders should turn to previous crises and use lessons from the past as guidance for the future. Successful leaders are people-oriented. They care for their workforce and make them feel valued and appreciated. HR managers will also need to find ways to navigate the new landscape. To monitor employees’ activity and gather feedback on their productivity, HR managers will increasingly use tech like IoT and sensors, while AI will help automate the hiring process.