Companies 'could be repeating mistake of last recession'

Companies are putting their long-term future at risk by repeating short-term cost-cutting measures in the last recession that were subsequently regretted, according to a report.

The report by the Boston Consulting Group (BCG) and the European Association for People Management (EAPM) says that employers cutting experienced staff and new trainees risked creating skill shortages in five to 10 years – as happened as a result of the last recession. A third (34 per cent) of companies are planning to cut full-time roles, having already cut back on recruitment (69 per cent) and shed temporary workers (43 per cent), according to the survey of 883 executives across Europe.

Britain is bearing the brunt of the recession, with 57 per cent of firms planning cuts, compared with 32 per cent in Germany and 37 per cent in France.

Executives were also asked which cost-cutting measures worked during the last recession. Despite admitting that cutting back on training, bonus payments and company events had hampered employee commitment, respondents continued to take these actions now. Hiring high-performing employees from competitors, which had the most positive impact on employee engagement last time round, was one of the least popular moves.

Philip Krinks, partner and managing director in BCG’s London office, said that, while HR leaders were under “colossal pressures”, long-term workforce planning remained important. He said sectors which already had skills shortages, such as nuclear energy, “would be ill-advised to cut back on recruiting across the board and on training and development activities”.

Krinks said the prevalence of training cuts was surprising, given it its impact last time round. But the latest CIPD learning and development survey indicates more optimistic findings, with seven out of 10 employers saying training remained a high priority.

Linda Holbeche, CIPD director of research and policy and an EAPM board member, urged companies to review the people strategies used during the last recession to avoid repeating mistakes. CIPD chief economist John Philpott had previously urged that leaders at the G20 summit should co-ordinate action to avoid a “global skills crunch”.

Catherine Pusey, director of the Employers Forum on Age, also warned employers that, because of demographic changes in the UK, they should not expect a ready stream of younger workers when they want to increase their workforce numbers again. She urged employers to “find ways of flexing the organisation without actually losing staff” so that experienced skills were not lost.

The report, Creating people advantage in times of crisis: how to address HR challenges in the recession, also says that HR departments need to be highly efficient or else they will lose credibility.

“A business downturn presents an opportunity to eliminate redundant tasks, bundle activities into shared-service centres, cut service levels and create common HR processes,” it says.


What executives are planning to do in this recession
Cutting back on recruitment – 69 per cent
Cutting back on company events – 54 per cent
Cutting back on company performance-based bonuses – 45 per cent
Laying off full-time employees – 34 per cent
Cutting back on individual training – 33 per cent
Cutting back on individual performance-based bonuses – 27 per cent
Hiring high-performing employees from competitors – 9 per cent