Coping with the downturn

Change / 01 February 2010

Recovering from the worst downturn for more than a generation, British companies are bracing themselves for a new age of austerity. Sue Weekes reports on how the current economic climate is affecting management styles and puts the spotlight on three organisations dealing with transition

It’s a brave pundit who can predict with any confidence when the country will emerge from the current economic downturn. History teaches us that the full effect of a recession continues to be felt months and years after recovery. According to a report published by the Economic and Social Research Council (ESRC), the impact of a recession may not feed through to job losses until several quarters after it began. In both the 1980s and 1990s recessions, it was five years before employment returned to pre-recession levels.

Of course, the optimists eyeing up the green shoots don’t have to search too hard for figures that highlight signs of a slow-burning recovery. The latest Labour Force Survey showed that unemployment registered the smallest quarterly increase for almost 18 months in the last quarter of 2009 and house prices are beginning to creep upwards once again. But there is concern that cuts in public spending in 2010 could offset any growth stemming from a recovery, while a degree of uncertainty in the run up to the general election is inevitable.

For those at the top of British business, the conditions require a careful balancing act: maximising opportunities as certain sectors recover and, at the same time, continuing to manage uncertainty. Alwyn Welch, chief executive officer of IT firm Parity believes that when the cycle changes, businesses will need to change the way they run their organisations. “We’ve all got to start thinking about a bit more investment, taking risks and hiring people, and also changing the behaviour exhibited in the office. Managers have got to recognise when it’s right to help shift the mood,” he says.

This mood shift is unlikely to happen, however, unless employers can rebuild levels of trust and confidence with employees and customers. For many, this will be an uphill task: even if they’ve acquitted themselves well as employers throughout the recession, others in positions of power haven’t and it will be some time before the current level of mistrust evaporates. But the importance of building confidence with more transparency, better communication and decisive action cannot be underestimated.

Root and branch review

Few sectors have escaped the effects of the recession, but the worst could be yet to come in the public sector. Gillian Hibberd, corporate director of people, policy and communication at Buckinghamshire County Council believes every public sector body will have to face “root and branch reviews” of all functions in the months ahead. Public sector leaders and managers will need to be much more commercially aware. “Their roles will focus far more on people management and performance management of their teams,” says Hibberd. “The pressure will definitely hot up as we expect people to step up to the plate and deliver better services with fewer resources.”

Many lessons have already been learned this time around. A recession often brings out a ruthless survival instinct in some people but there is strength in numbers, working together rather than in isolation. There will always be people who believe that they alone are responsible for success, but this mindset has to change. “Managers must learn that to reach their own goals sustainably, they need to rely on the organisation or the bigger universe,” says Vogel. “It’s like the age-old sales force question. When they say ‘what we do pays all of the internal staff’, if that’s the case, why don’t they go off and form their own company? They know they can’t survive without the rest of the organisation.”

Case study: Parity Group

Parity Group, an IT recruitment services and systems specialist, employs 250 people and has five offices located around the country. As much of what the company delivers is dependent on discretionary spend its revenue can be volatile and it has not been immune to the recession. 

With revenues of £62.8m for the year ended June 2009, operating profit halved to £336,000, and Parity had to make changes to keep the business competitive.

CEO Alwyn Welch says the company saw the downturn coming two years ago and started to put measures in place to protect revenue and reduce costs. These included adapting services to clients’ needs, tightening up on spending and cash flow, a recruitment freeze and increased use of temporary staff. It also closed two regional offices in Leeds and Hemel Hempstead, and transferred some staff into short-term premises. Around 30 staff were made redundant, some through office closures when they couldn't relocate. 

“As a people business, we tried to keep our people informed so they could understand why we were taking tough decisions,” he says. “We got really good feedback when we offered unpaid holiday because people thought it was better than others losing their jobs.”

Welch has experienced past recessions but this was the first time he was in the position of CEO during a downturn. “You feel exposed and really understand what ‘the buck stops here’ means,” he says. “What I learned was that I had to act fast and tough, retain the confidence and trust in people, and minimise the damage. I also learned that you have to balance today and tomorrow. You can’t just go into slash and burn mode. You’ve got to lay the ground for when the market picks up.”

Managers also had to learn to make decisions faster as the market was changing rapidly. “Sadly, this is a good time to test up and coming managers,” he says.

The big challenges will be holding on to top talent when career opportunities start to appear again, says Welch, and making sure opportunities aren’t missed. “We've had a couple of years of being cautious and not expecting stuff to go well, so it’s all about judging the upturn. We expect conditions to remain difficult during the first half of 2010.”

Case study: Informa

One of the challenges for a global organisation during a recession is that industry sectors and countries are affected at different times and in differing degrees.

As a specialist information and services provider, Informa has a global operation with 150 offices in 43 countries employing 8,500 staff.

Keith Brownlie, group HR and corporate responsibility director, says there are opportunities to move people into India but other areas, such as Dubai, are starting to struggle. “We try to redeploy people but no part of the globe is immune. We are seeing Australia and the East coming back soonest though,” says Brownlie.

The overall strategic focus of the organisation has been to “de-clutch the more vulnerable businesses”, he adds. The group’s conference and performance improvement businesses have suffered most because they rely on discretionary spend, so Informa has tried to “recession-proof” these divisions, launching new events and attracting top quality speakers.

Although there have been redundancies in the UK, the company has tried to go for the voluntary and job-share route where possible, and in some cases, pay cuts. It has also launched an alumni website so that “we can re-engage” when the market picks up, says Brownlie.

The book publishing division is run by Jeremy North (pictured), who is managing director of Informa’s humanities and social science book publishers Taylor & Francis. He says it’s too early to tell whether the downturn will impact academic publishing. It has already put measures in place to prepare for any downturn in business and has made some job cuts although it has tried to focus on areas where it can make process changes. “So we’re not losing a key ability to compete and go forward,” says North. He adds that the uncertainty of a recession has forced the business to rethink its strategy and it has accelerated its move to e-marketing.

“It made us realise we can do much more effective things outside of Europe, US and the UK, which are our biggest markets,” he says. “There are lots of developing countries pouring money into education and we think we can reach key people like professors and librarians in those countries effectively through email, so it’s opened up our ambitions.”

Case study: Buckinghamshire Council

In the public sector, the impact of the downturn may not have been as immediate in terms of job losses and retrenchment, but the state of public finances means that local authorities are coming under increasing pressure.

Gillian Hibberd, corporate director of people, policy and communication at Buckinghamshire County Council, says the expected “Armageddon-level” cuts in pay and resources will make it one of the deepest recessions the public sector has experienced. “The extent [is] such that we have to dramatically change the format and structure of our organisation,” she says.

The council made 400 redundancies in early 2009 and is in the middle of a major transformation programme with projected savings of £22m by 2012. If it hadn’t had the vision to plan in advance, Hibberd believes “the council would have faced a slash and burn situation, which is always the most destructive approach in the long term.”

The programme has a number of strands and includes an organisational overhaul, which will see it become a much smaller strategic commissioning organisation, essentially outsourcing more work, rather than a provider or deliverer of key services.

It is also introducing more flexible ways of working and moving towards a centrally controlled model of administrative support, removing support teams at departmental level and using more shared services. Hibberd says that one of the keys to the success of such a major transformation programme is creating a sense of urgency.
 
“It is important to have a vision of what the future will look like. The senior management team had a vision but some people couldn’t grasp it so we had to work hard to explain it in a way that was understandable for all employees and they could see how it would affect their role. You have to communicate that this is serious and we need to act quickly. You should also stay firm to the vision and never waver.”

The change is creating a new leadership approach in the organisation, with employees focused on what they want from their leadership – they expect honesty, integrity and a sense of confidence.

“They want us to be confident about how the organisation can survive this difficult time, and for us to paint a compelling picture of how it would look in the future.”