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Organizations are reducing their workforces to reduce costs, but they may be sacrificing long-term stability for short-term savings.
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The current crisis represents an existential threat to businesses large and small. Even if a company can remain viable during the unknown recovery period, the decisions made today will have ramifications well into the future.
Human capital tends to be a company's most expensive asset, so in times of economic contraction, layoffs and furloughs are commonplace. There are different ways of approaching workforce reduction which include across-the-board percentage cuts, value-weighting, and creative approaches. Each is addressed below, along with some guidance about gig workers.
Being fair isn't necessarily being wise
If a company needs to reduce its costs by a certain amount, some percentage of workforce will likely be impacted. While it might be "fair" and make equal percentage cuts across the organization, businesses can hinder their recovery capabilities if they ax positions before thinking critically about what they're doing.
"[W]e're seeing you need to take 10% or 20% off the board. It's a peanut butter spread. When it comes to IT departments, companies have struggled to get the right talent and so if they start making cuts where it was hard to get that resilience, they're going to find themselves in trouble, said Carrie Duarte, PwC's workforce of the future leader. "Pausing and saying where do I still have current demands for knowledge and services and where is that going to be in the future, so you need to consider that when you're thinking about reduced workforce costs."
Carrie Duarte, PwC
Value-based approaches need to consider longer-term impacts
Value-based approaches and percentage cuts are not necessarily mutually exclusive. Even when companies announced they've reduced their workforce by a certain percentage, that percentage may be uneven across the organization because some roles are considered more critical than others.
In times of crisis, it's tempting to focus on the short term. However, how companies handle the next few weeks and months will impact their long-term resiliency. Organizations should prioritize the skills they need to survive, recover and thrive.
"In addition to looking at the strategic value and the rarity of skills and roles, you're also going to want to look at roles that are involved in revenue-generating activities as well as those that play an important role in maintaining those day-to-day operations and that have the ability to perform in the current environment," said Jennifer Waxman, director, HR research & advisory services at HR research and advisory firm McLean & Company. "[Y]ou really need to think about the skills I need not only for today but also for the next year or two years. Another thing that can be helpful would be to create some sort of skills inventory of employees in your organization because that can also help you understand who has what skills and to help you in a selection process."
Jennifer Waxman, McLean
Don't forget to think about backup talent. Since anyone can be impacted by COVID-19, failing to have adequate backup skills could impact your company's operations, customers, employee morale, and partners.
"[T]raditionally IT leaders of the last few years have been focused on how do we innovate and transform the business and support the business with less of a focus on business continuity planning and risk management so there might be some lessons learned coming out of this that going forward in leadership," said Waxman. "There needs to be plan for business continuity as well as risk management."
Tracy-Lynn Reid, practice lead & research director, CIO - people & leadership at Info-Tech Research Group, said tech industry leaders are in the middle of their longer-term planning in response to COVID-19 and that they'll need roles that help them deliver services digitally or through self-service as well as roles that are keeping the lights on for business continuity purposes.
"When we look at positions that are being expanded or likely to be expanded, anything that can help IT move the business into that digital self-service space, opening the door to expansion and innovation roles, data roles, any of those that can equip the business to transform, move forward and respond to the way that services that need to be delivered now," said Reid.
Tracy-Lynn Reid, Info-Tech
In line with that, PwC's most recent CFO pulse survey of 305 US CFOs and finance leaders (at least at the time of the time of this writing), showed that 49% of business leaders anticipate making remote work a permanent option for roles that allow it and only 22% of finance leaders were considering deferring or canceling their planned investments in digital transformation. Only 6% stated they plan to cut cybersecurity. Twenty-two percent are evaluating new tools to support workforce location tracking and contact tracing as part of their plan to transition back to on-site work.
Bottom line: Think critically before eliminating IT roles.
PwC's Duarte said before organizations start cutting positions, they should be thinking about other ways to reduce workforce costs that can preserve as many jobs as possible. One way to do that is to consider a shared work program that's available in some states. For example, if costs need to be reduced by 25%, don't just eliminate one position out of four. Instead, reduce the hours of four positions so that all four employees keep their jobs.
"[T]hose employees get some of that compensation subsidized by state and federal programs, but what's interesting about that from a resilience perspective [is] that we've got all four people connected to us, we don't have to recruit and hire. We have that rare talent and then just ramp up their hours," said Duarte. " Those employees actually end up with more compensation than if you had the three employees who stay on and the other who goes on to unemployment compensation."
Another idea is to temporarily restructure benefits. While cutting healthcare benefits right now is unwise, investing in training may be a better option than a 401K match.
"[U]pskilling is considered a reward because every dollar someone spends on you for upskilling could mean more than a dollar in your retirement pay because it helps you become more relevant in the market and improve your earning potential," said Duarte. "We find that there are packages of rewards including upskilling that if you shift some of the spend, employees get greater satisfaction and perceived value."
Don't just ax gig workers
Contractors are often the first to be cut in times of economic contraction because companies would prefer to retain full-time employees instead. Yet, agility and resiliency will be critical to what will certainly be a non-linear recovery. Additional COVID-19 waves are likely, the economic impact of the pandemic is unusual, and different geographic areas and markets will recover at different times.
"We're telling employers they need to look at everything in a full, whole-hearted picture to get a sense of what's the rarity of the skill set that's necessary to carry out the initiative and if you just don't have that in your internal staff then use your contract staff and even hire," said Info-Tech's Reid. "The big thing is really taking a look at all of your critical, core, and supporting roles because that will help you decipher which employees get kept regardless of whether they're permanent or contract."
Reid also said though HR's data use is behind some other functions, it's important not only to have one option but multiple possible options as well as the data that does and doesn't support each so leadership can make informed decisions.
For more coverage on IT's response to the COVID-19 crisis, start here:
Lisa Morgan is a freelance writer who covers big data and BI for InformationWeek. She has contributed articles, reports, and other types of content to various publications and sites ranging from SD Times to the Economist Intelligent Unit. Frequent areas of coverage include ... View Full Bio
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