Editor’s note: Dr. John Sullivan will present “Strategic Recruiting During an Economic Downturn” at ERE Expo at 10:30 am on Thursday, October 30. This article is based on his upcoming presentation.
A key question in every recruiting manager’s mind these days is “how will recruiting and talent management be impacted by the economic downturn?”
In fact, it will also be a major topic at next week’s ERE Expo in Hollywood Beach, Florida. If you can’t wait till then, this article will highlight some issues to anticipate and action steps you can take that will increase the probability of your survival and perhaps even prosperity during these tough economic times.
If you are a regular reader of my articles, you know that I warned of the upcoming downturn as early as August 2007. However, if you missed that “heads up” and have been in recruiting for more than a few years, you already realize that there are periodic economic downturns. These downturns quite often negatively impact the recruiting function through hiring freezes and dramatic budget cuts in recruiting as organizations seek to “contain costs.”
However, this economic downturn is different. Traditionally, when the economic cycle peaks and starts its cycle downwards, everything related to business and recruiting declines; events are consistent and relatively predictable.
Instead of recruiting heading straight down, it will be volatile. The demand for talent management services will go radically down, then back up again in short spurts, and then down again. This volatility will require more planning than ever before from the recruiting function.
Instead of planning for one consistent, long, downward spiral with associated layoffs and hiring freezes, organizations will need to prepare for spurts of growth and continuous hiring in some areas while layoffs occur in others. Some might call these actions “right-sizing” the workforce, but that would imply that organizations are much better at forecasting and workforce planning than most actually are.
There are several reasons why hiring will continue:
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- The volatility in credit markets
- The need by organizations to continually innovate
The first and perhaps most important cause of volatility will be the chaotic availability of credit and capital. The continued uncertainty related to financial markets will cause oscillations or “spurts” during which capital will be easier and then harder to get. This volatility will cause firms to grow and to hire in spurts.
A second cause of volatility is globalization. In a truly global business world, there will almost always be some degree of economic growth in emerging economies scattered around the world. Because many major US companies now book a majority of their revenues abroad, pressure to keep corporate functions fully staffed will continue despite possible layoffs in production and client service groups.
A third reason volatility will plague the recruiting function is relentless consumer demand for new innovative products. Despite the downturn, consumer demand remains high. When negative news erupts, those in Western societies go shopping!
Because the rate of innovation among competitive firms is unlikely to slow down, firms will still need to rapidly innovate in their products and business processes.
The demand for relentless innovation will continuously alter the skills needed by a firm at any particular point in time. Firms will need to learn how to continuously hire workers with new skills, while simultaneously releasing workers with obsolete skills with surgical precision. Truly strategic firms see economic downturns as an opportunity, in part because it’s now faster and cheaper to “buy” talent rather than to “develop” existing talent.
The Top 10 Advantages of Recruiting During Tough Times
It’s quite common during periods of economic turmoil for CFOs to assume and declare that robust recruiting functions will not be necessary due to a surplus of talent becoming available as more and more firms engage in layoffs, consolidations, and the ceasing of operations.
Well-known and respected firms like Deloitte have already partially downsized recruiting using this failed logic. Despite this negative perspective, there are some positive things that routinely happen during bad economic times:
- Less competition from other firms. If your firm isn’t well known or doesn’t have a strong employment brand, you will face less head-to-head competition for talent during this time. As other firms reduce recruiting budgets, the recruiting effectiveness of your competitors will decrease dramatically also, giving your firm a competitive advantage. Candidates will be easier to sell because they will have fewer options and counter offers to choose from.
- More high quality candidates will be available. Not only are more candidates available during times of high unemployment, but higher-quality candidates are also available. Not only will laid off individuals be on the market but you should also target individuals that “survived” the layoffs and mergers because they will have reduced company loyalty as a result of all of the trauma. Taken together this means that innovators and top-performing individuals that could never be “drawn away” from their current jobs are now available and interested in lesser known firms. This surplus along with little competition makes “counter cycle” recruiting a great strategy for “loading up” with great talent, especially in the college market.
- Weakened employment brands. As competitor firms make the mistake of conducting large-scale “public” layoffs, their employment brand and external image will be dramatically weakened. Thus providing increased opportunities for firms that have maintained or intelligently strengthened their employment brand during this period.
- Turnover and retirement rates will decrease. As the downturn increases your employees desire for job security, fewer will even consider leaving their current jobs for firms where their lack of tenure will mean little security. This means that it’ll be easier to retain your top talent (and recruiting won’t have to work so hard to find replacements). Conversely, it will be more difficult to draw away top talent working at other firms. The downturn in the stock market and the dramatic reduction in the value of their 401(k)’s will also mean that fewer of your employees will opt to retire as soon as they are eligible, easing any baby boom retirement concerns.
- Higher quality recruiters will be available. Tough times means that some excellent recruiters will be available for those firms planning for the long-term.
- The dollar is stronger. The newly strengthened U.S. dollar makes recruiting international candidates much easier.
- New recruiting technology is available. The availability of social networking and other web-based technologies now makes effective recruiting possible with little or no budget.
- Capability to explode out of the box. If you successfully defend your recruiting budget, your firm will have the capability of “exploding out of the box” immediately after the downturn is over. This capability will put you far ahead of other firms that have decimated their recruiting capabilities during this time. In order to have that advantage, you will need to calculate and then report the negative impacts of “disassembling the recruiting function” to your executives. That includes costs related to the delays in being able to resume hiring, the increased risk of losing top applicants, the lower quality of hires and the increased startup costs related to reassembling the recruiting function.
- Tight times make you stronger. A tight budget forces you to focus more on metrics and a strong business case. Both of these should allow you to better identify the most effective recruiting tools and approaches. By eliminating the deadwood, streamlining processes and focusing on the best approaches, you will eventually strengthen the function over-all.
- Workforce planning will be encouraged. While it’s often a “fight” to convince executives to invest in workforce planning, economic volatility and the pain of laying off talent they fought so hard to acquire almost always convinces senior managers of the need for a strong workforce planning function. Use this “lull” to develop an effective forecasting capability and a “flexible” recruiting strategy that “shifts” during the different economic cycles. Both can help you prepare your firm for the next imminent up or down cycle.
Even if you successfully defend your recruiting budget during these volatile times, it’s critical that you focus your resources on talent-management approaches that are both low-cost and effective:
Using Other People’s Resources
- Employee referrals. The key practice for recruiting during economic volatility should be “recruit using other people’s money.” As a result, employee referrals need to be your number-one focus, because they shift a great deal of the recruiting “work” away from recruiters and on to your firm’s employees. Referrals produce high volume and high quality but during tight budget times, the cost of referral bonuses needs to be reduced. Shift to a drawing approach; instead of giving individual cash bonuses, employees get an opportunity to win trips, vacation time, lunch with the CEO, or other non-cash yet compelling prizes. Some firms like Edward Jones have produced over 50% of their hires from referrals without offering any cash incentives; granted, they have a great brand. You can also make customers, employees’ families, suppliers, and consultants who work with your firm eligible for the referral program. Finally, proactively approaching your firm’s top performers individually and asking them for “names” is another effective referral approach to re-emphasize.
- Recruiting at professional events. Recruiting at local and national professional events again “utilizes other people’s money” because the travel and expenses of the attending employee are covered by their business unit. Develop the expectation that each employee attending these events will bring back “three names” of individuals that would be outstanding recruits. Encourage your executives and superstars to speak at these events, because that exposure might result in some immediate candidates, as well as improving your overall employment brand.
- Social networks. There is a high probability that your employees currently utilize one or more social networks (i.e., Facebook, LinkedIn, MySpace) both on and off the job. So why not take advantage of that fact and use it to supplement your recruiting. Start by encouraging your employees to include in their profiles compelling facts and stories about the firm. Next, encourage them to proactively make group connections and to provide you with names of potential recruits.
- Blogs. Many of your top employees probably already write blogs in their technical field. If so, encourage them to talk about the positive aspects of your firm and to actively recruit on their blogs. Encourage other employees that read blogs to use them to also identify top talent.
- Videos. Videos are powerful recruiting tools because they allow you to more effectively “show the passion” at your firm. Consider holding a video contest where employees compete to put together short compelling videos about why your firm is a great place to work. Post the best ones on your own corporate website or on YouTube.
Low-Cost Approaches to Consider
- Boomerangs. The best way to ensure a high-quality hire that perfectly “fits” your culture is to focus on recruiting boomerangs (individuals that previously worked at your firm). During tough economic times, many of these individuals might regret their decision to leave. A simple phone call reassuring them that they would be welcomed back might be all it would take to land proven talent.
- Cut back on full service agency fees and utilize names research firms. It’s always wise to increase the percentage of contingent or contract workers during volatile times. Unfortunately, the agencies that generally provide contingent workers are expensive and their fees are certainly noticeable within a reduced budget. By bringing these services in-house, you can both keep your recruiters busy and maybe even generate a profit by externally “renting out” surplus talent to other firms. Incidentally, if your firm excels at “selling” candidates but needs help in identifying them, now is an excellent time to utilize “research firms” to provide you with the “names” of top talent at competitors. “Names research” firms (i.e., RW Stearns, Technames etc.) provide a relatively inexpensive service when compared to full-service third-party recruiting.
- Utilize interns. College interns are not counted as headcount and are easy to land and many will work for free during tough economic times. They excel at metrics, Internet research, research on best practices, assessing software, and beginning projects that few others are interested in. Focus on HR and management students from local business schools.
- Conduct Google searches. It’s almost impossible for anyone with any professional status to “hide” these days. Key people always have high visibility on the Internet, so utilize low-cost recruiters or interns to identify well-known individuals by running their “Google score.” Names can be found by searching using major technical terms or job titles, along with a firm name.
- Develop a flex plan. Research previous downturns in order to identify whether there are “precursors” within your firm which occur immediately before a growth or cut in recruiting. Also examine the broad industry to see if there are firms which routinely “lead the way” in recruiting related actions. By identifying and tracking these “early mover firms” in recruiting, managers can get a good idea of what will likely happen to you (because your firm has historically been a lagging or follower firm in the industry). Your recruiting plan should also include “labor arbitrage” options that might include geographically shifting the work to where labor is cheaper, outsourcing the work, or replacing work done by people with machines and technology.
10 Recruiting Problems You Might Face During Tough Economic Times
During volatile economic times, some things that used to be easy in recruiting and Talent Management become much more difficult. As a result, it’s important to identify and then focus on these new problem areas:
- Hiring freezes. One of the first knee-jerk reactions during tough times are company-wide freezes. Although salary, promotion, and budget freezes negatively impact retention, hiring freezes can decimate a recruiting function. Some tips on fighting hiring freezes can be found in my recent article.
- Stock options are no longer a major motivator. With the stock market constantly going up and down, stock options become less valuable as a motivator both for current employees and for candidates. As a result, you need to shift your sales approach to candidates to emphasize exciting work, flexible work, better benefits, more security, or to focus on cash performance bonuses.
- Job security is king. Economic volatility makes both employees and candidates nervous about their future. This fear among potential candidates causes them to increase their emphasis on security, which will definitely make “drawing away” the currently employed top performer from their current firm much harder. Recruiting needs to re-examine the information that it provides on job security on its website, in position descriptions and in its offers in order to make it more compelling.
- An increased volume of traffic. Normally, all great recruiters focus on the employed candidate (the so-called passive candidates). However, layoffs and high unemployment may mean that some high-quality people are now available among the ranks of the unemployed. Unfortunately, if you actively recruit during tough times, the volume of mediocre but enthusiastic unemployed people who will apply for your jobs will also increase dramatically. This high-volume, low-quality flow means that your screeners will be strained and that your selection process has to be more precise to ensure that you don’t mistakenly hire highly enthusiastic people who turn out to be low performers.
- Relocation issues. Moving people between regions becomes nearly impossible when individuals can’t get new mortgages or sell their existing homes. This problem affects both internal transfers and new hires. Alternatives to consider include focusing on recent college grads who generally rent or consider “narrowing” your recruiting area to a reasonable commuting distance.
- A loss of trust and confidence. Although your firm might not have been involved, the general mistrust of business that has resulted from the economic turmoil means that both your employees and your candidates will likely now have less trust and confidence in anything that you say. In recruiting, this means that your website must be more objective and believable, your interviews need to be more credible and your offers will need to be stronger, if you expect to convince the cynical.
- Managers will focus less on recruiting. Few managers have ever really enjoyed recruiting. But their interest in it will likely even decrease further during tough times as the stress from their business workload increases, while their available staff decreases. Their interest in recruiting will decrease because they certainly won’t be doing it as often but also because of the increased frustration that invariably occurs when many of their “active searches” are never be completed because of frequent “surprise” hiring or budget freezes. Their lack of interest in reading resumes and interviews will invariably mean a dramatically slower average “time to fill” at your firm.
- Layoffs. Although you probably can’t stop layoffs from happening, you should certainly fight to minimize their impact on your employment brand image. Work with PR to ensure that layoffs by your firm don’t become front-page news for potential applicants to see and worry over.
- Technology budgets. Almost invariably during tight economic times, any budget resources available for buying new technology (ATS systems or new software) are likely to disappear. So either make your purchases immediately or be prepared to live with what you have for a while.
- Recruiting budget cuts. Almost everyone gets their budget cut during business downturns but there’s no reason for recruiting’s budget to be cut any deeper than others. The key to maintaining your budget is to build a strong business case demonstrating that cutting recruiting has more negative business impacts than the limited cost savings that these cuts generate. Also utilize split samples to demonstrate your impact. When possible, work with powerful executives in growth businesses to get them to “champion” your cause or to directly fund recruiting initiatives that impact their business unit. Also, work with the CFO’s office to quantify the dollar impact of low quality and bad hires, as well as the revenues lost as a result of position vacancies in revenue-generating and revenue impact positions. In finally, focus on winning external recruiting and “Best Place To Work” awards to increase your visibility and credibility among executives.
Rather than letting “fear” rule the day, now is the time to anticipate problems and to prioritize your activities in order to maximize your impact.
Volatility in the business also means that recruiting must be flexible and expand its capabilities into areas that increase in importance during tough times. This might mean that recruiters now need to aid in the internal redeployment of employees, in retention, in employment branding, or even helping with layoffs and outplacements. Now is the time to plan ahead and to begin turning “lemons into lemonade.”