It’s no surprise that employment levels follow the business cycle with a lag as companies wait for the supply and demand crisis to understand and meet business needs. As such, the companies that are ahead on this age-old question of forecasting demand and supply to maintain efficiency are the ones that stand out from the rest.
With the majority of countries around the world showing a declining GDP trend, it is now more relevant than ever for companies to re-evaluate how workforce planning is done. For example, the recent US jobs report showed a degree of resilience in the market due to increased hiring across various sectors. At first glance, this seems counter-intuitive, but employment data often lags behind economic data. Companies that pay attention to changes in economic cycles are better positioned to develop a workforce strategy that is consistent with business goals while being sustainable.
Although not exhaustive, this map is a pictorial representation of what is happening in the world. Technology has been hit hard as it has been the worst performing sector for the past two years.
Of course, no one has a crystal ball and predicting economic cycles can be daunting. Could this have been avoided? We provide perspective and a framework for moving forward while maintaining the business and economic context.
From an economic perspective, the initial phase of recovery highlights an overall improvement in economic conditions as business confidence has picked up. Production remains in deficit, characterized by low levels of employment, and unemployment is beginning to decline. An indicator of recovery comes in the form of spending on housing and an increase in spending on durable consumer goods. According to the sector, employees at this stage have confidence in the labor market as employment and incomes increase. During this phase, companies can position themselves to find invaluable talent. Companies that went bankrupt or decided to restructure due to the previous economic phase (recession) would have laid off their employees. However, the broader market remains wary and during this phase hiring will remain frozen or low until a strong business case for hiring begins to emerge. Wise employers can position themselves to take advantage of this situation.
An improving economy characterizes the first phase of expansion and all indicators are beginning to show a positive outlook. This further boosts consumer and investor confidence, allowing businesses to explore investment opportunities. Although employment levels are improving at this point, the output gap (i.e. the gap between consumption and demand) is likely still negative but declining. Risky sectors such as technology are taking risks beyond their intended capacity, while many start-ups lack foresight. During the first phase of expansion, employment levels begin to improve. The labor market at this stage is not too hot and companies have started to accelerate the execution of their strategy. At this point, employees have confidence in the labor market and begin to accept offers to settle. During this phase, companies can often find it difficult to find talent within the specified budget as the market begins to become competitive. Overall, unemployment levels are still high. However, high-quality talent in the market is hard to find or would have already settled into a new role.
In this phase, the economy is approaching full strength and output gaps should close. Managers began to notice a slight shortfall in their commitment to customers. This causes an increase in wages and a warming of the market. Typical of the late expansion phase, inflation is high and there are looming strains to ensure employees are operating at their peak. However, businesses generally continue to grow due to demand, often with significant leverage. During this phase, smart companies spread out sufficiently on offers and globalization while mobilizing resources without exhausting them too much. Companies are hiring at a slower rate, as hires during this phase typically struggle to find talent at the right budget or find talent at all, as most employees are adequately compensated.
To slow down:
During the slowdown phase, capacity is high as productivity begins to slow down. Companies are beginning to notice that opportunities for expansion are relatively limited as fears of a slowdown mount. Risky sectors react loudly during this phase due to impending fears of recession and excess capacity. Those of us wondering where we are right now, we’re probably in that phase of the business cycle. Companies have likely frozen hiring across their operations during this phase as the market begins to cool. Unemployment rates are low during this phase of the cycle. During this phase, the skills gap begins to emerge as most organizations are fully staffed, but they may not be ready for the future. The resilience of the workforce needed to achieve business strategy manifests itself in tangible ways when organizations revise their forecasts. Organizations ahead of the curve may begin to position themselves to restructure while other organizations begin to consider layoffs.
Major bankruptcies, incidents of fraud, exposure of aggressive accounting practices or, even worse, a global financial crisis are all consistent results of a recession characterized by a decline in overall economic activity. Thus, land, labor, capital and technology are all in danger of declining. So naturally, unemployment is high during this phase of the business cycle. Companies that mishandle this phase can potentially see long-term negative effects through layoffs, poor planning, and execution. Conversely, companies that manage this phase well will see lasting positive results that will sustain the business for generations while gaining employee trust. In addition, unemployment as an indicator is closely watched during recessions as layoffs dampen spending, further contributing to overall weakness in the economy. Going through these downturns, companies often freeze salaries and hiring and limit bonus payments.
Workforce planning is an often overlooked profession, which contributes to the kind of jitters and layoffs in markets we’ve recently seen. However, it is also essential to recognize that economic indicators are only external factors – other factors that advance workforce planning efforts include keeping a close eye on benchmarks, internal indicators, people management indicators, etc. Additionally, incentive plans often stabilize labor-related costs during economic turmoil. With the right workforce levels and the right compensation mix, employers can find creative ways to ensure they weather the effects of the business cycle. Additionally, the dollar cost associated with employee incentives is often offset by much of the growth through the achievement of appropriate goals.
Aligning with economic cycles, employers need to be mindful of the future of work and its impact on business strategy. The combined health and economic shocks brought about by the pandemic have caused companies to reassess the future of work – not just in its form but in its employment architecture. The way forward includes developing a strategy that answers some critical questions. These include who should work from the office, how leaders can save money while improving workforce agility, and how receptive the workforce is to change and change. ambiguity.
University data often reveals the trajectory of work and which courses are in high demand act as an indicator of how the future workforce is likely to be positioned. With almost every top university offering training in blockchain technology, artificial intelligence, machine learning, and more, change doesn’t have to be daunting, but it does need to be nimble and in step with the times. With a wave of universities offering engineering and PhD programs. blockchain level courses, artificial intelligence, machine learning, etc., it is natural for us to expect innovation and productivity from the best and the brightest who will continue to change the course of humanity with the likes of the founding companies which we now know to be giants and market leaders.
In an article written by Pete Bentley and Ray Everett, the future of work and its relationship to workforce strategy planning is more relevant than ever. As we consider the post-pandemic workplace, companies that focus on the safety, well-being and agility of their employees will be well positioned. And in a time of ongoing uncertainty, we can recognize one truth: the status quo is no longer an option. Will businesses continue to take shelter or stand firm?