Businesses are going to do whatever they need to, regardless of government policy, to survive the sharp economy downturn. Economists are now indicating that the recession will last 14 months and a recovery is not likely to begin until 2010.
The Center for Automotive Research, a Michigan think tank, issued a study Wednesday that showed 2.5 million jobs could be lost in the next year if GM, Ford Motor and Chrysler were forced by the downturn to shutdown half of their U.S. plants. Creating new jobs in this environment will be very difficult.
10% Staff Reduction
Staying employed in 2009 is going to be a challenge. I am employee in the financial services industry and my company has just revised its 2009 budget to include a 10% reduction in staff in the division that I work in. Ugh. The only question is who is going to get cut. The interoffice butt-kissing and joisting for projects that are likely to survive has already begun. The good news is that my company has limited the damage to 10% while some of our competitors are taking much deeper cuts. But who knows, maybe 10% is just the number that they are starting with to reduce the panic and drop in efficiency from the distraction. I’m not likely to get cut because of my key role on key products, but only time will tell.
Reduce Profit Targets
One of the ways that I think companies can reduce these staff cuts is to reduce their profit targets. At a questions and answer meeting, I questioned my company’s profit targets. My question was, Why do we continue do budget for high profit targets while investors expectations have been drastically reduced? During the boom years our profit targets were 20-25%, which were comparable to our competition in our industry. But now that the global markets have dropped by 40-70% investor expectations have been drastically reduced, and therefore we should be able to lower our profit targets.
Investor expectations are always relative to the current market conditions and those expectations drop with a market drop, just like they did after 911. That said, companies need to consider the long-term implications of losing high valued staff at the expense of continuing to try to hit profit targets – which were based on a booming market which is no longer the case. An executive team should be able to make the case to its investors to lower the profit targets in order to preserve a companies intellectual capital during this slowdown.
This is a question that every company will be asking when deciding how to respond to the economy crisis. The answer that I got was not what I expected. The answer that I got was that other divisions within our entire organization are struggling more than we are and therefore we need to keep our profit targets high to help offset the losses within other divisions. This is a very compelling reason and your company may have a similar answer, but I still think the question should be asked.
How Long Will The Recession Last?
A related question that executive teams will be pondering is, “How long will the recession last?” Every company needs to make decisions based on how they answer this question. If they think the recession will be short, they may be more willing protect and invest in staff to maintain a much stronger advantage over their competition and to be better positioned to grow their business after the recession. Then again, if the recession goes long, they may run out of money and end up in bankruptcy.
If a company thinks the recession will be long, they may be more willing to cut staff now, reduce expenses and store up cash to put themselves in a better position for weathering the storm. It’s a bet either way, and the company that guesses right will be rewarded.
The key to staying employed will be different for every industry. Some industries are declining so fast that no one in the industry will be employed after next year. In this case, maybe its time for a career change. Other industries are declining at a much slower rate, giving a lot of wiggle remove for the best employees to show their value. In this case, bloated companies now have a very good reason to cut the fat and increase efficiency and productivity. Staying employed through these cuts is also an excellent opportunity to show your employer that you are a dedicated hard worker.