During a recession, companies need to focus on their employees, not just finances
Ian Cook, general manager, Human Intelligence Alliancebuilds business success by connecting people data to business results.
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According to the US Bureau of Labor Statistics, from: July 2022, there were two job openings for every unemployed person in the US. In a perfect scenario, if all those unemployed people found a job, it would still mean that half of the job demand is not being met. One can only guess how much lost revenue that represents. While the last two months of interest rate changes and inflation reduced demand for new jobs to some extent, it is not enough to return the labor market to pre-pandemic stability – and it never will.
In addition to an absolute scarcity of talent, there have been fundamental changes in the way people look at work. According to a recent study by McKinsey, 48% of people moved to another industry. This is supported by another report that found 35% have the ability to work remotely full-time, creating a market where more people have more access to opportunities than ever before.
As someone who has spent the past 15 years researching, designing and implementing the people insight technologies that CEOs and CHROs rely on, my experience has given me the unique ability to connect the human side of business with the key drivers of operations and finances. Obviously we are in a market where organizations are more dependent than ever on their people, but there are fewer people available and those who are have more choices. While this may sound like a terrible scenario, there are clear, actionable steps organizations can take to prepare for this new world of work.
Identifying the Organization’s Critical Blind Spot
Every business leader knows the importance of cash flow to their company. The flow of money in and out of the business will determine whether or not it grows or fails. Countless hours of work and analysis are put into understanding how healthy an organization is based on its finances. However, it has become apparent that there is a second, equally important, kind of flow that has the same ability to make or break a business: the flow of people. For the first time in decades, companies are in a negative position toward the people they need to deliver their products and services effectively.
Most organizations have been caught unprepared for this new dynamic of work, which leaves them with a disrupted flow of people. Lacking concrete analytics or investment in understanding their respective labor pools, many organizations have responded by asking their recruiting teams to simply work harder. This has led to recruitment teams feeling burned out or looking for new roles yourself.
Between all the panic, effort and guesswork about how to respond to the changing dynamics of the workforce, there is a fundamental gap. Data is being created hourly on how current – and future – employees are behaving, but I find it’s not being used in a way that can help companies inform. There are limitless insights into skills, the ability to transition between roles, the ability to adjust role boundaries, or even eliminate work that doesn’t add value or can be automated.
Powered by data, business leaders can better understand their business through questions about their people. Questions like: Do I have enough sellers to meet this year’s quota? Do I keep the most valuable employees or do we lose them to our competitors? Are we competitive in our compensation planning?
To answer these questions, there must be a dedicated, focused and collaborative effort from HR, management and the C-suite in solving the people flow issue, just as they would address revenue issues or customer retention issues. . In fact, customer retention strategies can be the key to solving this problem.
Using data to inform your people flow
Organizations that pay attention to their people’s throughput can achieve significant business returns by looking at their employees’ exit data. This is a rich source of insight that can be used to protect revenue streams or create cost savings across the organization.
For example, an organization can use data to identify high exit rates of key sales people. They can use historical exit data and a machine learning algorithm to develop exit opportunities for the people in the sales role. Each sales leader, supported by HR, could view the list of potential leavers on their team and implement a “stay” strategy for each. As a result, they can lower their exit rates and increase sales revenue.
Similarly, you can use the same process to forecast key roles that would be vacant each quarter. Instead of hiring people to fill these positions only when they become vacant, the hiring team can use the forecast to prepare replacements for demand, reducing hiring costs and overtime costs associated with vacancies and improving the effectiveness delivery of their services is guaranteed.
We’ve built a wealth of employee data that has been largely dormant, but has the transformational potential to deliver business-changing insights. What is currently lacking is both the appeal of business leaders and the investment in building the capacity that will unlock this immense source of value.
Some of this will have to come from the HR team, who will have to showcase the rich diversity of their data and how it has real strategic impact on the business. But C-suite leaders will also have to demand that this data be integrated into their business as a whole. Just as rich marketing data has now become an integral part of sales conversations, so too does the need for human resources demand to be integrated into forecasting, modeling, and planning. In fact, the SEC is well on its way to regulating disclosure of this exact type of people data in annual company reports.
Whether we like it or not, the accelerated change in the labor market is indispensable. According to research by Lightcast, labor force will decrease in 9 out of 10 developed economies until 2040. Cash has always been seen as a scarce and precious input in business. People now have the same status. Just as cash flow can bring down your business, people flow can have the same result. The organizations that apply focus, investment and smart people to analyze and apply their people insights will outperform their peers. Those who ignore the precious insights locked into their employees’ data footprints, relying on old assumptions and guesswork, are a thing of the past.
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