Leaving Employment Even When Unemployment Rises -- What?

by TMT Editor

Leaving Employment Even When Unemployment Rises -- What?

Yes, it's true. In the current jobs climate, even as unemployment continues to be high. Just go to the Retention Institute for some of the latest resaerch into this phenomenon. And read the following article from Infohrm to learn more about combating the trend.

Keeping An Eye on Your Talent
Despite rising unemployment, companies are still at risk of losing key talent
Andrew Jacobus, Senior Consultant, Infohrm, and Shweta Gupta, Reporting Analyst Intern, Infohrm

While many organizations have been grappling with cost reductions and increasing efficiencies in the current downturn, economic realities and drops in turnover have shifted their focus away from retention and acquisition of key talent. Much to their surprise, turnover of high performers has not decreased at the same rate as overall turnover (link takes reader to a related chart), as the graph below shows, and their critical roles are at risk, as well.

The current focus on managing costs has sidetracked many organizations’ drive to acquire talent, as is evident from the 9.5 percent unemployment rate at the end of July 2009. Instead, many organizations seem to be focusing on keeping the lights on rather than retaining key talent as a foundation for future growth. This can be exacerbated by the lack of a strategy to develop existing and future high performing employees, particularly with regards to their skills, competencies, and experience. More damaging is the practice by some organizations to apply workforce reductions equally across functions and roles, even including those skills in positions most critical to the success of their business operations and strategy.  

This is in contrast to those organizations that are proactively seeking to take advantage of the buyers’ market for labor by cherry-picking high potential employees who will drive future business growth. Organizations that hire aggressively now are able to avoid paying premium prices when the economy revives. A classic example is Salesforce.com, a provider of web based CRM applications, which grew its payroll by 24 percent in 2008 at the same time when its competitors were laying employees off. The boost was an attempt to capitalize on the economic downturn and use it as an opportunity to increase its talent market share.

For many organizations, downsizing is a necessary evil. Some of the companies on Fortune’s Best Companies to Work For list, such as Google, Goldman Sachs and Cisco Systems, were forced to trim workforce size in response to the troubled economy. While terminations are inevitable, smart organizations are using the economic downturn as a tool to get rid of ”dead horses” and pave way for a more skilled and efficient workforce supporting organizational competitive advantage. These companies are creating opportunities for talent acquisition in two ways; first by leveraging an advantageous labor market to recruit high performers, and secondly, by poaching from belt-tightening competitors their top talent and those with the critical skills still scarce on the market.

Furthermore, firms unable to retain key talent or which aren’t paying much attention are at increasing competitive risk.  According to the advance estimate released by the Bureau of Economic Analysis, the Real GDP decreased at an annual rate of 1.0 percent in the second quarter of 2009, a significant improvement compared to the 6.4 percent decrease in the first quarter. Signs that the economy may be reviving faster than expected means organizations may find themselves facing a shortage of employees with critical skills within the next 12 months. And despite the current environment, long term trends in the labor market suggest demand for many skill sets will exceed supply for the foreseeable future.

If workforce reductions are necessary, companies should take steps to ensure that critical job roles and capabilities are not compromised. It is as important to be able to identify critical roles as it is to identify high performing employees themselves, especially in a downturn. A good example is the recent shortage of nurses in the US.   Peter Buerhaus of Vanderbilt University Medical Center forecasts the gap to reach 500,000 by 2025, with many nurses retiring just as the demand for their services balloons in tandem with the aging of baby boomers.  Hiring to meet the future needs of the organization is undercut by short-sighted labor management policies to cut near-term costs, and companies neglect to acquire skills and competencies that could be valuable both now and in the future. 

The key is to get an aerial view of current and future talent requirements, as opposed to just the specific capabilities required for today’s jobs. These should fit with strategic workforce plans; e.g., regional market knowledge for store managers opening stores in a new metropolitan area in 24 months, or nuclear engineers familiar with the conversion to thorium from uranium for power plants that are minimizing waste-weapons proliferation risk. One of the most recent examples of a failure to balance the near term with the long term is Circuit City. In March 2007, 3,400 experienced sales employees were fired to be replaced by lower-paid salespersons that did not necessarily have any prior experience. The company announced this decision as a strategy to lower costs in order to be more competitive, but it led Circuit City to lose its USP of critical and experienced sales staff, which was much valued by their customers. After 15 months, they filed for bankruptcy resulting from the core competency that became extinct due to management’s ignorance of future vision.

Another unseen risk of downsizing is the collective knowledge loss that can occur, also known as "corporate amnesia." Such job-specific, organization-specific, or industry-specific knowledge is extremely difficult to replace. Few organizations have implemented robust knowledge management systems; much of the embedded knowledge of experienced workers simply walks out the doors when those employees retire or switch jobs. Instances of corporate amnesia are all too common in organizations going through mass reduction in workforce. 

An organization that reactively performs layoffs not only hurts its image – who really wants to work for a company knowing they could be let go the next time things get tough? It reduces its chance to improve its overall organizational performance when the economy improves. Those with a strong knowledge of their workforce composition with regards to performance, criticality, skills, competencies, experience, and retention risk, and the strategic plans to manage it closely, have a much better chance of retaining high performers, mitigating impact on critical roles, and maintaining or even improving overall performance while navigating tough times. As more indicators start to point to a sooner economic recovery rather than later, organizations have little time to waste in planning for their future workforce.

For more information, contact Infohrm at 202-589-2660 or info@infohrm.com.

Andrew Jacobus is a senior consultant for Infohrm, delivering strategic guidance, in-depth analytics, and thought leadership to companies in all stages of their Workforce Planning and Analytics evolution. Prior to joining Infohrm Andrew designed, launched, and managed global HR and Workforce Analytics groups at a Fortune 100 Financial Services firm; and held various HR Strategy, Planning and project roles in a Fortune 15 Telecommunications company.  His more recent work has focused on building and linking Planning and Analytics Centers of Excellence, and his analytical work has emphasized workforce movement and demographic analytics, Scorecard development, and predictive modeling of employee performance and attrition. A certified Human Capital Strategist and PHR, Andrew received his MBA from the Cox School of Business at Southern Methodist University.

Shweta Gupta, reporting analyst intern for Infohrm, has more than 6 years of work experience in Operations, Management and Reporting Services with companies like Fidelity International and IBM Daksh e-services. She is an expert in workforce analytics and has played a significant role in development and delivery of multiple reporting projects directed toward strategic business. In her role at Fidelity International, she was primarily involved in designing and revamping the management reports to facilitate decision making for the Senior Management Team in India, UK and Europe. She has also worked on projects based on predictive modeling and resource utilization to help the organization manage its resources at an optimal level. Shweta completed her post graduate diploma in Business Administration and is currently doing her Master’s in Project Management at The George Washington University.