As the business press has well documented, we find ourselves once again in unprecedented (or at least unusual) times.
The Department of Commerce recently reported that the US economy contracted at the annual rate of 0.9%. This represented the second consecutive quarter that the US economy contracted (it contracted in the first quarter at the annual rate of 1.6%).
Yet labor markets remained tight with unemployment in the most recent Bureau of Labor Statistics report showing a rate of 3.5%. Job growth also appeared strong with a monthly increase of a robust 528 thousand additional jobs in July 2022. Pundits can be seen and heard debating as to whether we are or are not already in a recession.
For the moment we find ourselves in an environment where growth has stalled, yet labor markets continue to be tight. For managers, this raises the question: how should they manage their labor force in this seemingly contradictory environment?
As we discussed this issue with our clients and colleagues, we developed the following suggestions for managers to consider:
- Know your demand environment well – While the macro-economic environment should inform one’s thinking, there is simply no substitute for a candid assessment of the current demand situation within individual companies. Pipeline status, backlog, scheduled work and sales activity are essential forward-looking indicators of enterprise performance. Managers need to determine the objective reality of these factors in order to assess the likelihood of a fall off in future revenue.
- Know your customers well – In addition to understanding the current pipeline, backlog and sales environment, managers also need to critically evaluate the circumstances of their customers. We have all seen pipelines, backlogs, commitments evaporate as circumstances shift. Managers will need to make their own objective risk assessments regarding their customers. When conducting that assessment, managers need to evaluate the strength and breadth of their relationships. On more than one occasion, we have seen revenue streams jeopardized when a key customer executive departs and a once strong, healthy relationship is disrupted.
- Critically assess your needs – For most of the last 18 months or so, companies have been aggressively adding to their teams. We have seen this in multiple sectors and geographies. The current environment, however, requires that managers now pause for at least a moment and ensure that real discipline exists in their hiring processes. As always, key hires can fundamentally change a business and should be pursued. But managers have a real responsibility now to ensure that these additions are responsible and truly necessary.
- Establish flexibility – Companies can establish the ability to flex their cost structures by strategically utilizing interim staff or contractors to supplement their permanent teams. This strategy is not appropriate for all business processes and functions. But deployed strategically, it can allow managers to quickly adjust to a changing environment.
- Get your playbook ready – If the pandemic taught us anything, it was that extreme change can occur very quickly. Many managers were caught flat footed and forced to develop approaches on the fly to a severe, rapid decline in their revenue prospects.
Now is the time to give careful consideration as to how one would proceed should economic conditions change.
Expect very rapid change – reflecting on the last two and half years, we have been struck by how rapidly change occurred. Change is always a part of the management equation. But we now seem to be in a cycle of hyper-change; change occurring at an accelerated rate. This has impacted virtually all elements of how and where we work. It has even caused serious reflection regarding why we work. This change can be negative manifesting itself primarily as a revenue crisis. But just as frequently it seems to us, the change can be unexpectedly positive, presenting new opportunities for thoughtful, agile companies to grow.
Should managers shift their talent acquisition strategies?
Probably, but that should be determined by a thoughtful, critical analysis of their own situations not a knee jerk reaction to macro-economic headlines.
Written by Mark Bealin.