Managing Workforce Strategies in Times of Crisis
To successfully navigate three critical phases of responding to the COVID-19 pandemic, companies must leverage workforce analytics at each step along the way.
The world has changed dramatically, and perhaps unalterably, since the start of 2020. In addition to the humanitarian toll of the COVID-19 pandemic, which is severe in almost every part of the world and continues to grow, the macroeconomic fallout of this crisis is just beginning to leave its mark. A global economic slowdown seems inevitable, with only its duration now in doubt.
For businesses, the challenge is unlike anything seen before. Companies first scrambled to protect their people, moving to remote operations where possible while adjusting customer-facing and manufacturing operations to comply with emerging safety regulations. At the same time, companies faced significant supply chain disruptions, tightening financial restrictions, and massive drops in consumer demand for non-essential goods and services.
Yet, while the COVID-19 pandemic is different from past crises, including the Great Recession of 2008-2009, they share some traits. In both cases, businesses must take quick action to adjust their workforce strategies and rewards programs to protect employees and stabilize operations.
Many governments across the globe have provided emergency relief to targeted industries and small businesses, but these initiatives are not enough for most organizations to weather a downturn without taking additional actions to strengthen their balance sheets. We have already seen many companies postpone merit increases, implement hiring freezes, cancel internship programs, furlough select employees or (usually as a last resort) turn to layoffs.
Consider the following data from Aon’s pulse survey on Adjusting Total Rewards Programs and Workforce Strategies in Response to COVID-19 conducted in mid-April:
- 72% of respondents expect that COVID-19 will have an impact on their workforce planning, ranging from a cautious approach to future hiring to potential downsizing
- More than half of respondents expect to adjust compensation in light of COVID-19, and we expect this number to continue rising in response to changing market conditions
- Most companies have taken multiple actions to assist employees, including 78% adjusting family care benefits, such as additional sick leave to care for family members that are ill with COVID-19
The ability to leverage workforce analytics and forecast how the pandemic will impact revenue, profitability, and consumer demand and supply, among other key metrics, will support quick, strategic decision-making that all businesses need both during and immediately following a crisis. During times such as these, where each day new information comes in that reshapes how we are approaching this pandemic, organizations that can utilize up-to-date robust analytics to inform decisions will be better equipped to make rapid fire decisions rooted in data — not just instinct.
As organizations continue to navigate the forces of this pandemic, they should consider a series of evolutionary steps over the next 18 to 24 months that allow them to proactively respond to the impact of the crisis on their workforce. The chart below illustrates the actions companies should take between now (the react and respond period), three to six months from now (the recovery period) and six months to two years from now (the reshaping period).
React and Respond
With many businesses closed, people ordered to stay at home, and only workers that are considered essential permitted to remain at work, the workforce has been completely disrupted. As organizations continue to navigate through these unforeseen circumstances, they are going to be faced with numerous challenges concerning how to protect the health and wellbeing of their employees and customers and identifying innovative and safe ways through which they can provide much needed support.
Simultaneously, organizations will also need to turn inwards to determine the extent of the pandemic’s impact on their business and revenue for 2020 and beyond and how the composition of the workforce will ultimately be affected.
Organizations are likely going to experience a loss over the next quarter if not much longer, which means they need to seriously assess cost-containment opportunities. They will need to realign their workforce based on costs (e.g., wages and rent) and effectively engage in a balance sheet management exercise in the short-term to offset the impending decrease in revenue.
Here are the actions HR and business leaders can take now to respond to the crisis:
Managing through attrition. Consider the expected attrition and hiring rates across your organization. While the voluntary attrition rate will likely shrink by up to 50%, which is typical during times of crisis, voluntary turnover will still occur. Furthermore, consider the expected hiring rates that were built into the budget over the next quarter or so. A quick forecasting exercise to analyze the expected hiring and attrition rates across your organization based on the external market and internal historical trends will help to determine how much financial flexibility will be provided through voluntary turnover and hiring freezes.
Creating near-term financial flexibility. In addition to accounting for voluntary turnover and hiring freezes, other easy measures include deferring bonus payouts and merit cycle increases and freezing 401(k) contributions. This will provide organizations greater financial flexibility that will strengthen the balance sheet in the short-term and increase cash flow — particularly to revive the harder hit parts of the organization. These temporary measures to reduce costs use relatively easily accessed data housed within your organization (i.e., bonus data, merit increases and benefits information). By analyzing this data across business function, department or region, you can promptly determine the pockets within your organization that will provide you with the most financial flexibility.
Ensuring consistent leadership and identifying critical roles. Managing through a crisis requires steady, consistent and visionary leadership. This is the time that companies need to be strengthening their succession plans, and not just for the C-suite. Organizations should identify first, second and third-level successors to business-critical roles. The long-term effects of the pandemic remain uncertain and ensuring you have the leaders in place, not only in the short term but the in long term as well, will be vital to navigating through the crisis. Proactively identifying successors to these roles will enable you to build a targeted retention strategy during a time of uncertainty for key individuals within your organization. Workforce analytics can use employee data that is available on most current HR information systems relating to performance and previous roles and experiences to generate insights on the talent pipeline for critical business roles.
Analyzing return-to-work strategies. As organizations work through the crisis, it will become critical for leaders to start thinking about restarting their business and/or bringing employees back to work. Leaders will start asking questions, such as: How can we plan a safe and orderly return to work? Which industries and occupations should be allowed to return first, and what waves should follow? Organizations and government agencies can look at a host of macroeconomic and social factors to help inform these decisions, including data on vulnerable employee populations, impact on public health and safety, and labor force reductions.
As businesses start reopening and work resumes, organizations are contemplating what the “new normal” looks like and what changes they will need to make to their business. HR leaders are at the forefront of this dialogue: working closely with CFOs to manage the balance sheet, engaging with sales leaders to ramp up their sales force to cater to pent up demand, and collaborating with manufacturing and supply chain leaders to get products into the hands of the end consumers.
To facilitate these conversations, HR will need to lean on workforce analytics to understand what their people costs are going to be in the short and long-term, how they relate to the business’ needs, and where they should invest in talent. The cost-containment efforts discussed above — from hiring freezes to compensation adjustments — are going to force companies to prioritize the roles and skills that will enable them to still meet business objectives during this volatile time.
Here are the actions companies can take as they look toward recovery:
Pivotal role modeling. Organizations will need to become leaner out of necessity. In doing so, they need to ensure they are cutting from their fat and not muscle. This requires identifying the pivotal roles in your organizations and answering key questions regarding your workforce such as:
- Which roles are most critical to the success of the business?
- How do different roles contribute to profitability?
- Which roles and skills are the most vital to current vs. future success?
Before you can get accurate answers to these questions, you need the right employee data, including (but not limited to) business drivers, business volume, employee headcount by roles, and corresponding skills required to meet business objectives.
Let’s take a very simple example to illustrate this model. In a typical calendar year, a manufacturing company requires 100 engineers to produce 100,000 equipment production units. A 50% decrease in production could negatively impact half of the headcount. To avoid layoffs, the company will want to consider how the skills of its engineers can be leveraged and redeployed to meet other business objectives. Once the company has a better idea of how existing skills can be resourced, it can effectively compare the relative impact of critical roles on key business outcomes and the full-time employee (FTE) per role or skill required to meet short and long-term demands.
Manage the balance sheet. In addition to modeling pivotal roles in the business, organizations can help manage costs through workforce benchmarking. When comparing your workforce to industry benchmarks, certain business functions or job levels may have a higher cost per FTE ratio or a lower revenue per FTE ratio. This can help reveal inefficiencies across organizational spans (the number of direct reports per supervisor) and layers (the number of reporting levels from the bottom of the organization all the way up to the CEO), which can be quickly corrected by reallocating work in pockets of the business.
Deploy “quick-wins” to ease the workforce cost pressure. HR leaders will have to deploy a series of voluntary and involuntary measures to manage through the crisis. While voluntary measures like attrition, hiring freezes, retirement and separation tactics will be useful, they may not be enough to manage costs in the long run. Involuntary measures can include a combination of tactics, such as asking senior executives to take a temporary pay cut, which not only provides more cash flow but also demonstrates commitment and loyalty to your staff. A more drastic, but sometimes necessary, step would be to terminate low-performing and/or the least tenured employees. While laying off employees is never ideal, these demographics are often less productive compared to more tenured, experienced employees. Finally, due to the steep drop in consumer demand, many employers will need to consider furloughs to reduce costs while also positioning themselves for an ensuing recovery. Consider how the change in demand is going to impact your operational needs to determine if an employee furlough will be an effective cost-saving measure.
If you still don’t won’t meet your budget after considering those involuntary actions, then more stringent decisions will need to be taken based on criticality of functions and roles. Developing a critical role framework could help you develop scenarios and make objective decisions.
Redeploy the workforce based on needs and skills availability. HR and business leaders will need to identify areas where the demand for workforce is critical and find a way to redeploy the current workforce to support demanding business processes. For instance, if research laboratories are shut down temporary, can the skills of those workers be redeployed to support supply chain or logistics where some of the work can be conducted virtually? The ability to retrain and redeploy quickly will be critical to managing through the stabilization period. Having a strong understanding of internal workforce skills and capabilities — and how they translate to other functions — will help organizations determine how quickly they can redeploy talent from one area to another and how much training will be required.
Reshape the Future
When the economy starts to pick up again, organizations are going to want to ensure they are in a place to meet increasing customer demand. The legwork done to respond and stabilize the business will position your organization to more effectively meet upcoming business objectives as we begin to come out of the crisis. But the work is not done yet.
Here are the necessary steps to take as you reshape the future of your workforce.
Future proof your workforce. HR leaders are always faced with the challenge to ensure they have right talent to meet the demands of the business. However, when the world is changing by the day, organizations need to be as nimble as possible to ensure they can meet the needs of their stakeholders. The COVID-19 pandemic has underscored that organizations are not as agile and flexible as they need to be. Businesses need to prioritize key areas as they future proof their organization to handle inevitable future crises. HR leaders have an important role to play; specifically, they need to focus on:
- Building a stronger link between cost and productivity measures: As HR has evolved to play a more strategic role within organizations over the years, the ability to link people outcomes with business outcomes has begun to differentiate high-performing HR functions from the pack. While this is an important HR capability to have during any economic environment, the ability to exercise this muscle in a cost-containment setting is that much more valuable. HR functions will be relying on their workforce analytics to be able to establish a strong link between their people costs, skills availability, and business productivity measures. Being able to quickly and accurately connect these dots will enable the organization to optimize their workforce and proactively respond to the economic environment. This is not just a one-time exercise — people costs and business objectives evolve over time.
- Identify your organizational skills: We discussed the importance of knowing where skills lie across people, jobs and locations. Combining pivotal role modeling and workforce benchmarking with robust performance and assessment data will help organizations get a head start when they need to redeploy talent or prioritize areas for cost optimization. At any point in time, HR leaders need to have a full understanding of the skills strength of their talent to accurately determine which levers to pull – redeployment, workforce reduction or hiring decisions – to fill people gaps in any part of the business.
- Cross-train talent: The ability to utilize your human capital talent across roles needs to be more heavily considered during periods of economic recovery. Organizations should focus on identifying successors not only for senior-level positions, but for critical roles in the organization as well. Getting to the point where discussing redeploying talent is routine and not exceptional will empower organizations to weather through any difficult time more effectively. As we mentioned previously, the ability to quickly access workforce analytics to understand how fungible your talent is will be a crucial factor in determining how successful your redeployment is. This is not only a strategy for times of crisis but should be incorporated into the annual talent process.
- Leverage the ability to adopt a fungible workforce model: Building the capabilities to enable an agile workforce is vital to the success of the organization—and that is no truer than in the current environment. Workforce analytics can help to evaluate what type of work needs to be done on premises vs. remotely and what capabilities are required for the different functions within an organization. This information will allow organizations to flexibly deploy alternative work models as needed. These insights, coupled with the ability to proactively implement new work arrangements, will help organizations better manage their costs and accurately assess the cost of FTE per square foot. Having a precise picture of the type of work activities that can be done virtually will enable organizations to determine how much real estate is really needed and bring much needed flexibility during austere times.
During ordinary times, organizations face challenges in preparing for the future of work — from automation to an aging workforce to skill shortages. Each of these trends requires HR leaders to respond quickly and ensure that they have the right talent in the appropriate roles to remain competitive. As the COVID-19 pandemic continues to impact our lives for the foreseeable future, organizations have an opportunity to accelerate their plans for the future. Deploying workforce analytics models during each phase of the response (i.e., reacting and responding to the crisis, recovering from the initial shockwaves and bringing your people back to work, and reshaping the future of your work in a “new normal” environment) will give your organization a competitive edge.
Our new self-service tools help organizations make critical workforce decisions during times of crisis. The Talent Impact Modeler enables business and HR leaders to analyze their workforce and compare multiple scenarios to determine the impact of several voluntary and involuntary measures on the people costs within their organization. Our Return to Work tool gives clients access to a dashboard tool that leverages U.S. Department of Labor data along with our proprietary epidemiological models to determine return-to-work strategies based on factors like susceptibility to disease transmission, impact of public health and safety, and labor force impacts. To learn more about both tools, click here.
For more insights on how businesses can respond to the current pandemic, including stakeholder communication, health and benefits impacts and business continuity planning, please see Aon’s COVID-19 Response Site here. To read more articles on how rewards professionals can respond to the COVID-19 pandemic, please click here.
COVID-19 Disclaimer: This document has been provided as an informational resource for Aon clients and business partners. It is intended to provide general guidance on potential exposures, and is not intended to provide medical advice or address medical concerns or specific risk circumstances. Due to the dynamic nature of infectious diseases, Aon cannot be held liable for the guidance provided. We strongly encourage visitors to seek additional safety, medical and epidemiologic information from credible sources such as the Centers for Disease Control and Prevention and World Health Organization. As regards insurance coverage questions, whether coverage applies or a policy will respond to any risk or circumstance is subject to the specific terms and conditions of the insurance policies and contracts at issue and underwriter determinations.
General Disclaimer: The information contained in this article and the statements expressed herein are of a general nature and not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without the appropriate professional advice after a thorough examination of the particular situation.
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