This Week's Herman Trend Alert

Leadership in Normal 2.0

  The Herman Trend Alert

January 24, 2001

Recession Vulnerability

All the talk about a possible recession may lead employers to adopt strategies that could be disastrous long-term. Short-term thinkers may consider laying off workers in an effort to control costs, placing themselves in an extremely vulnerable position.

Employers currently face serious challenges in attracting and retaining qualified workers. Top talent is scarce and in high demand. Labor shortages plague every industry in an employment condition that is clearly a sellers' market. Competition for competent employees is intense, with recruiters becoming increasingly aggressive.

If employers panic at the thought of a recessionary downturn and begin selective lay offs, their other workers may leave, as well, fearing for their job security. Workers already have a lot of choices of employers, and many are being courted by recruiters already. It won't take much effort on the part of nervous employers to motivate a significant number of their people to accept other employment. Energetic recruiting will continue, so there will be plenty of opportunities for departing employees, even if some companies are reducing their staffing levels. The first employers to take steps to tighten their payrolls will be at-risk for dangerous uncontrolled departures.

The vulnerability is two-fold. First is the immediate exposure. Without enough employees to serve customers, companies will lose business to their competitors. Too much defection by fickle customers will impact cash flow, productivity, profits, and investor confidence.

The second vulnerability is more long-term. Economists suggest that the slow-down that some call a recession is just a temporary slowing of growth. The growth curve is not dropping; it's just moderating. "Reduced growth" is not a sharp economic downturn, just a reduction in the RATE of growth. The underlying economy is strong and will pick up again soon. Employers who reduce staffing levels will find it difficult to recruit replacements for the departed workers. Recruiting costs will be unexpectedly high, threatening the companies' profit potential. Recovery for these employers will be slow, or even impossible.

Employers who retain their people during the slower times that may be ahead will have an advantage, particularly if they invest this slack time in retraining.

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