I recently read a very enlightening article on www.CFO.com titled “Why Employees Are Like Napkins……and other observations from finance-savvy HR experts about the difficult job of downsizing”. The article quizzed three panelists, one of which was Infohrm’s own Executive VP of Client Services, Jeff Higgins.
The reason I liked the article was because it touched on the issue of headcount reductions and the current economic climate. With layoffs continuing to pulsate globally, CFOs are forced to make hard decisions about head-count and expenditure.
In reflection to the issues raised I found myself frustrated about the potential short term gains many organisations will see through cost cutting and specifically head count reduction strategies at the expense of their long term plans. I also feel that now is the most important time for Human Resources to ensure that data driven decision making takes place. The stakes are just too high.
I only have to take a look at Personnel Today’s Redundancy Tracker to get a daily update of the organisations reducing headcount. I can only wonder how many of them used a data driven approach and have drawn on workforce metrics, analytics and plans to understand where to reduce headcount and to model their future workforce needs.
Let’s firstly consider workforce analytics around the tenure profiles of our managers. A number of previous insights Infohrm has undertaken have identified a correlation between manager tenure and team performance which ultimately led to profitability. Now it would be costly to slice headcount of managers regardless of tenure if this held true in your organisation, wouldn’t it? If these aren’t the type of insights and considerations HR are taking to CFOs to better inform their decisions, it is time to change our tact.
Jeff summed up the issue of this up perfectly, calling it cutting by the “peanut-butter style” — 7 percent across the top, spread evenly. In a previous role, Jeff had to implement this “peanut butter style” strategy and knew for a fact that some areas had more fat and in other areas he’d be cutting muscle, stressing that in his view CFOs typically use some back-of-the-envelope technique to defining where the reductions need to be made.
Jeff then went on to say “In financial statements, corporations often refer to employees as being among their most valuable assets, but saw contradictions, given that employees are usually seen as period expenses. Put bluntly Jeff said that organisations see employees the same as a napkin. “They’re less than a chair, because if you bought a bunch of chairs, they are capital equipment. Computers rate far higher than people in accounting systems”.
Now we all know that CFOs may hold the purse strings, but what is HR doing to influence this potential blanket culling of headcount? Inform research has already identified some major issues here based on responses in our talent management survey. We learnt that the downsizing in the 1990s led to the emergence of leaner organisations, comprised of shallow hierarchies and fewer intermediate positions through which employees could transition to advance their careers. This outcome often narrowed career options and contributed to the emergence of employability as an employee aspiration. As such, in 2009 employee career pathways now more closely resemble mini-cycles, characterised by oscillations, including periods of acceleration, advancement and pauses, rather than a steady linear progression.
Given the complex eco system that our workforce represents, any brash decisions can ultimately lead to a negative flow on effect. Are we really just cutting costs to respond to the economic challenges we currently face or are we creating workforce issues for ourselves in 2015? Organisations hoping to take more of a decision science approach to headcount reduction can contact me at travis.burge@infohrm.com
Tags: CFO, decision science, economic downturn, headcount reduction, HR Analytics, HR Metrics, redundancy, Workforce Planning
I think these are great points. Interestingly, I’ve heard from a few organizations that seem to think that there’s no place for workforce planning now as things are too unpredictable and that everyone is just focused on cutting anyway. As Travis alludes to, failing to take a long-term view with regards to managing one’s workforce will simply exacerbate, in a number of years, to the problems of today.
It’s ironic that many of the economic problems being faced are due to the very same short-sightedness and unwillingness to consider alternative scenarios in planning for the future. To be sure this is the time for data driven and proactive HR to earn its stripes.
Excellent observations. My own research indicates that employee engagement is being significantly impacted in this crisis– perhaps no surprise. Even more reason to carefully plan for the future, as these decisions will impact an organization and their ability to get through these difficult times.