Corporate Recruiting: Action Steps During a Recession
Things that recruiting and HR can do to protect the budget
Monday, April 14, 2008 | by Dr. John Sullivan
Anyone who has worked in corporate recruiting for any period realizes they work in a profession that has dramatic up-and-down cycles. Unfortunately, the down cycles following rapid growth tend to be the harshest. Who can forget the literal "implosion" of world-class recruiting functions like those at Cisco, Nortel, and Trilogy after the 2001 downturn? Those dominating recruiting functions have never recuperated.
During the "great recruiter massacre" that followed the tech crash, many of the best recruiters from a wide spectrum of firms were forced to leave the profession for good. Whether there is a large or small recession, and whether it occurs this month or in six months, it is critical that you be prepared for it, regardless of when it actually occurs.
If you manage or work in a corporate recruiting function, now is the time to come to the cold realization that another downturn in recruiting is about to occur. You can refuse to acknowledge this possibility (as most in HR choose to do) or instead you can confront the likelihood and as a result, perhaps spare your recruiting function some of the trauma that corporate recruiting functions have undergone during past downturns.
If you're new to the profession and don't realize that your job security may be at stake, it's incumbent on you to speak out and take action now, so that you might be the last recruiter to remain on staff.
"It's better to be prepared...then surprised"
Action Steps to Minimize the Impact of a Downturn
If you're part a corporate recruiting function that is likely to see less demand for recruiting and hiring (it's important to note that some industries like healthcare, pharmaceuticals, oil, green energy, etc. will be somewhat exempt) here are some tips and action steps to consider:
1. Beware of vendor reliability. If you rely heavily on vendors for recruitment outsourcing, ATS, VMS, or Web technology, an economic downturn might threaten the reliability or even existence of some vendors. The recent sudden failure of the RPO firm Axium and its subsidiary Ensemble Chimes might be a warning sign; vendor failure has occurred during past recessions, so re-assess your situation.
2. Fight any attempt to institute a hiring freeze. Once your CFO believes that your business is about to enter a downturn, they frequently take the knee-jerk reaction of instituting a corporate-wide hiring freeze. Obviously, a company-wide hiring freeze makes everyone begin to think of cutting the recruiting budget. After all, without hiring, why do we need recruiters? But other than weakening the firm's recruiting capabilities, there are many other reasons why hiring freezes are a dumb idea that need to be preempted by strong arguments from recruiting and HR. Across-the-board freezes make no sense, because in any firm, there are business units that are growing while others are shrinking, and as a result, a selected spot-freeze makes more sense. A "new" approach is known as constant churn, where you continuously seek out top talent in high need or mission-critical areas while simultaneously releasing talent with antiquated skill sets or poor performance. Hiring freezes also cause managers to retain weak employees out of fear they won't be able to refill their position. Because other firms will be actively releasing top talent during downturns, a complete freeze prevents you from "cherry picking" from this rarely available pool of top talent.
3. Determine recruiting results. During downturns, executive focus shifts either toward cost containment or revenue generation, primarily the former. Both are critical, but given the extremely small size of the recruiting budget, the area where recruiting can have the largest impact is in increasing revenue. The first step in developing a "revenue impact" focus is for recruiting to begin to convert its results into dollar impact on revenue so there is no doubt about their impact on the bottom line. Work with the CFO's office to convert talent-management results (i.e., quality of hires, speed of hire, strength of the employment brand, and recent hire retention rate) into the actual dollar impact that they have on revenue. If you can demonstrate that HR and recruiting actions directly increase revenue, you will avoid many of the budget cuts that are targeted toward functions considered to be "overhead cost centers."
4. Prioritize and focus. When recruiting resources are cut back, it's even more important than ever to focus your limited resources on the jobs that have the most impact on corporate revenue. That means that corporate recruiting must focus whatever resources it has on high-impact individuals (recruiting innovators, top performers) and filling high-impact positions (mission-critical, revenue generating, and revenue-impact positions). In addition, business units that are growing in those that directly produce revenue should also be prioritized.
5. Contingent workers. During tough economic times, it's important to be able to rapidly cut costs by reducing labor costs. This often means "releasing" employees and as a result, it's important to increase the percentage of your workers who can be more easily "released" because they are contingent workers. This means replacing some vacancies with contingent workers and converting some traditional "permanent" jobs to a contract basis. Within recruiting, this contingency emphasis might also mean relying more heavily on contract recruiters and third-party vendors for peak hiring periods.
6. Strengthen your offer process. Even a few scattered press reports about a shaky economy can cause currently employed people to increase their fear (and thus unwillingness) of changing jobs. As a result, it is essential for recruiting to re-examine and then strengthen its current candidate "sales" approach. Work to reassure nervous individuals (and maybe even their families) that it's ok to leave their current job and to join your firm.
7. Strengthen your relocation process. During most economic downturns, individuals are more than willing to relocate in order to get secure employment. However, the current mortgage /housing crisis makes it much more difficult for individuals to sell their home and move to another area, so revisit the relocation process.
8. Prepare for a flood of applicants. If you are a well-known or a well-branded firm, as layoffs increase and the unemployment rate rises, you are likely to be inundated with a huge volume of resumes from the "soon-to-be " or the currently unemployed. To prepare for this jump in volume, it's critical that recruiting managers look at their resume-sorting process to ensure that it can handle this dramatic increase in volume while maintaining quality standards. It's also important that recruiting managers recognize that even the best employer-referral programs can be inundated with referrals during high unemployment times.
9. Look for global recruiting needs. If your firm is a global organization, it's very likely that there are significant recruiting needs in geographic areas where the downturn is not so severe. In those cases, shift recruiting talent to those regions or countries where great recruiting is still a business necessity.
10. Review workforce plans. Unfortunately, most workforce plans tend to be overly positive and many have no downturn projections of any kind. As a result, during the threat of an economic downturn, it is critical that recruiting and HR revisit their workforce plans to ensure that they include a significant "downturn component." The plans should include elements for workforce reductions, the increased use of contingency workers, and the shifting or redeployment of workers internally to areas where they can have the most impact.
11. Identify any low-hanging fruit in recruiting. Whenever budgets are about to be cut, it's critical for any function to look its very best and to maximize its immediate results. In recruiting, that means a shift away from long-term projects and toward activities that can produce immediate measurable business impacts. Actions that are most likely to produce immediate low-cost results include updating the employer referral program, targeting boomerangs (former employees), increasing recruiting at professional events, and targeting individual candidates who would be considered to be a superstar or magnet hires by senior management. Redesigning your recruiting and HR processes so that they fit a customer relationship management model in order to improve both the candidate and the employee experience would also be an excellent use of HR resources.
12. Do other things. When there's little actual hiring to be done, there are other things that recruiters can do that still add value. This might include shifting recruiter efforts toward retention, improving the onboarding process, using recruiters to shift key talent around internally, or developing the firm's workforce plans so you can more accurately anticipate and prepare for future downturns. Recruiters can also use their time to prepare a recruiting plan that enables the firm to explode "out-of-the-box" the minute the downturn is over.
13. Over-hire when there is a surplus of top talent. When many firms in your region or industry reduce or freeze their hiring, it becomes dramatically easier to recruit available top talent simply because there is no competition for it. Although it might seem counterintuitive, smart recruiters "over-hire" (especially relatively cheap college students and "game changing" industry superstars) during these downturn periods, because they can now get candidates they could only dream of during the recent talent war.
14. Improve the quality of your recruiters. Because downtimes mean that some excellent recruiters will be available in the market, take advantage of this opportunity by dumping your weak or mediocre recruiters and hiring a superstar or two.
15. Focus on employment branding. It's important to use any "surplus" recruiting resources to build and improve upon your branding efforts. Building a corporate employment brand takes time to develop. As a result, your improved external image is likely to appear and to have its designed impact exactly when your firm is ready to resume large-scale hiring.
Broader HR Activities to Handle the Downturn
If you have any influence on the broader HR function, there are some action steps that HR can take in order to prepare the firm for the downturn in the recovery:
1. Productivity improvement plans. Because increasing productivity and getting more out of your current resources are always key issues during tough economic times, an obvious area for an action plan is increasing employee productivity. These efforts might include increasing the percentage of pay that is based on performance, increasing non-monetary motivators, improving management and supervisory training, or even improving "best practice sharing" processes to speed up the adoption of productivity improvement practice across the firm.
2. Shift from a "buy" to a "build" strategy. When large-scale hiring comes to a halt, it's often wise to shift your HR strategy from one that focuses on "buying talent" (recruiting) to one that instead focuses on "building talent" (developing your current employees). This means shifting your HR resources toward a stronger employee development and training effort. Because there will also likely be budget cuts in corporate training, it's critical to use cheaper and faster learning and development tools.
3. Labor arbitrage. Because labor costs become a major issue during a downturn, HR needs to develop action plans that allow the firm to "shift" work rapidly to areas where the labor costs are lower. This focus on getting the lowest cost labor (while maintaining quality) might mean geographically shifting the work, outsourcing the work or replacing work done by people with machines and technology.
4. Headcount fat assessment. HR needs to work with the CFO to identify the ideal number of employees you need. Establish an ideal ratio of either the revenue per employee ratio (i.e., the number of employees divided into the total company revenue) or the dollar of employee costs to revenue ratio (i.e., dollar of employee/labor cost divided into revenue generated by the firm). Use one of these "target" ratios as the baseline standard to determine where the firm currently has too many or too few employees given the amount of revenue that it is generating. In addition to identifying overall corporate headcount fat, there needs to be an action plan to continually identify the specific jobs and individual business units where the actual surplus of employees is occurring.
5. Release bottom performers. If your organization has traditionally lacked the courage to release (fire) bottom performers, that attitude should change during an economic downturn. HR should consider increasing the number of individuals on performance management, shortening the time and individual is allowed to stay on a performance management program or the outright releasing of poor performers at the beginning of any downturn. Another option is to "swap" employees, which means that you actively look for replacements for these poor performers and only when you have clearly found a superior candidate, do you actually replace them.
6. If-then scenarios. The best way to prepare managers for potential problems is to force them to participate in "if-then" or "what if?" scenarios. What this means is that at least once a year, key managers would be asked to prepare "if-then" plans that are designed to handle each of the people-management problems that would most likely occur during a downturn and the recovery.
7. Conduct a "mock" layoff. Many in HR literally squawk when I suggest this action. But preparing for something doesn't cause it to actually happen. In a mock layoff, you go through the organizational chart with individual managers and you jointly identify which positions would most likely be reduced if your firm were to have a layoff of 1%, 5%, or 10%. You can also identify the specific employees in those jobs who are most likely to be laid off, should layoffs occur. The results can be kept confidential. Other options include putting these individuals on an employment contract, or if you're bold, you can warn them individually that their job is at risk, so that they can work to increase their skills or so that you can minimize any surprises to them.
8. Pay freezes. Most employees might choose job security over the short-term need for an increase in pay. Unfortunately, limiting compensation opportunities for top performers only drives them to seek the increased compensation that they believe that they have "earned" externally. Instead of across-the-board compensation freezes, consider requiring any additional pay to be based strictly on superior performance. In a similar light, some organizations freeze promotions. This approach is just silly, as it drives top performers to seek higher positions at other firms.
9. Retention plans. If your analysis indicates that the downturn will affect your company disproportionately within your region or industry, your action plans should include steps to handle the likely increase in turnover among your top performers as they invariably migrate toward "non-struggling" companies. On the other hand, if you forecast a broad downturn, sometimes you can put less emphasis on your general retention efforts because fewer individuals leave a secure job during a broad economic downturn. In either case, it is still essential to retain your key employees and top performers. Schedule one-on-ones with each of them to make sure they know how important they are to the firm.
10. Fast recovery plans. Because all downturns eventually come to an end, the very best firms accurately forecast the "end" of the downturn, and HR develops talent-management plans that allow the organization to rapidly "scale-up" and recover, just as the downturn is ending.
Every strong leader knows that in the face of a large disaster, the very best employees and managers often confront the issues and come forward with bold solutions. If you are an individual corporate recruiter, now is the time to demonstrate your value both during high- and low-volume hiring. In addition, you can help your teammates by actively contributing to the plan to handle the potential downturn.
If you manage the recruiting effort, it's time to be proactive and preempt any attempt to make major cutbacks in the recruiting budget. Don't let the ugliness of 2001's "recruiter massacre" return again in 2008!
Dr. John Sullivan (JohnS@sfsu.edu) is a well-known thought leader in HR. He is a frequent speaker and advisor to Fortune 500 and Silicon Valley firms. Formerly the chief talent officer for Agilent Technologies (the 43,000-employee HP spin-off), he is now a professor of management at San Francisco State University. He was called the "Michael Jordan of Hiring" by Fast Company magazine. More recruiting articles by Dr. Sullivan can be found in the ER Daily archives. Information about his numerous other articles, books and manuals about recruiting and HR can be found at www.drjohnsullivan.com. Dr. Sullivan is also the editor of VP of HR, an e-newsletter providing "out of the box" solutions for senior HR managers. Free subscriptions can be obtained on his website.