Drastically downsizing a workforce can bring short term financial reprieve, however, research shows that such the result may actually cripple an organisation’s capability to recover from an economic downturn. It is crucial to invest in employees through the hard times as the ability to translate human effort into corporate goals requires organisations to be learning systems and not just production systems.

The universal belief regarding how profit is made in business is either by increasing revenue or cutting costs. Payroll often equates to the highest outlay of the business, which if reduced will increase profitability. This mantra was consistent among businesses experiencing the hardships of the global financial crisis, as thousands of frontline employees were made redundant by countless organisations across almost every industry.

What is the effect of downsizing?

The organisational reaction to drastically downsizing a workforce can bring short-term financial reprieve, however, research shows that such a reaction may actually cripple an organisation’s capability to recover from an economic downturn. Such a response may result in the loss of potential business due to the reduction of salespeople, the cessation of innovation due to the loss of personnel in research and development departments, the decrease of morale among remaining employees and most notably high rates of burnout due to increased demands on existing workers. Furthermore, a residual influence of downsizing can harm the organisation’s brand, weakening the ability to attract top talent when the economy improves.

Investing in people

It is crucial to invest in employees through the hard times as the ability to translate human effort into corporate goals requires organisations to be learning systems and not just production systems. Training has a tangible effect at a micro level but research has shown that the continual investment in people also boosts organisational financial returns over the long term. The decision to re-train existing employees for new roles that align with the organisational strategic direction is in many cases more financially viable than the lengthy firing and re-hiring process. If downsizing is required in your organisation the continual investment in remaining employees is an imperative function to preserve the existing organisational culture. The investment in training and development encourages employees to feel secure in their employment and demonstrates that their contribution is being recognised. Employees who are professionally supported through training and development are more likely to be engaged and contribute additional discretionary effort in their role.

The global effect of training

A recent analysis of investment strategies indicated that companies who invested roughly twice the industry average on employee development enjoyed extraordinary growth over a 5 year period. The return on investment of training existing employees has been demonstrated to increase productivity, flexibility and foster a greater ability to innovate processes and products due to greater knowledge and understanding. Furthermore, out of the companies assessed, those in the top quarter for employee expenditure in professional development enjoyed 24% higher profit margins and 218% higher revenue per employee than organisations in the bottom quarter.

Countering the effects of economic downturn

During economic downturns, organisations place preconceived talent and employee development strategies at risk through reduction or complete eradication of processes. Research suggests that the event of an economic downturn can allow organisations a unique opportunity to strengthen ties internally as the ability to reallocate resources to existing employees is demonstrated to be pivotal in the ability to preserve and build effective organisational culture. Professional development programs designed to counteract future employment trends or to complement organisational strategy could be invaluable in preparing the organisation for an improved economy.

Leadership training and professional coaching

The ability to counter the vacuum of leadership talent that will occur with the mass retirement of the baby boomer generation will be dependent on developing your organisation’s current human resources. The strategic selection of outstanding candidates and subsequent implementation of coaching programs is crucial when planning for the future. Coaching programs should be tailored to suit the individual development needs of each employee while also building on the strengths that the candidate already possesses. These could include assertiveness, building personal resilience, effective delegation and negotiation skills aimed at fast-tracking the professional development of future leaders. The development of key leadership capabilities from existing human resources will mitigate the need for external hiring and selection processes and facilitate an organisational culture of professional recognition and progression.