Weathering the Storm: Is Your Organizational “Soil” Healthy Enough to Weather Both Floods and Droughts?
During these unprecedented times with businesses having been shut down due to an outside order by the government in response to COVID-19, many sectors of the economy, labeled as “non-essential,” were ordered to close business for a period. Organizations that are highly leveraged (a significant portion of the revenue is used to pay debt) or in lower margin businesses face an even greater challenge. Organizations need to figure out how to weather the storm. These options may include reduction in force to rolling furloughs, and potentially reorganizing through bankruptcy. What is the right decision for your organization?
If we think about an organization like the soil, the employees like plants growing in the organization, and the fruit they bear as the value or profit of the organization, then horticulture can provide a good analogy from which to view options for addressing the current situation. From a horticultural perspective, the current “storm” is like a drought. The first thing a horticulturist might do, for example, when faced with a drought is add mulch and preserve soil moisture, not jerk plants out of the garden. As another example, during an unexpected late freeze, it may become necessary to cover plants to enable them to maintain their heat.
“It is not nice to garden anywhere. Everywhere there are violent winds, startling once-per-five-centuries floods, unprecedented droughts, record-setting freezes, abusive and blasting heats never known before. There is no place, no garden, where these terrible things do not drive gardeners mad.” Henry Mitchell, author of the Essential Earthman
When weighing options to reduce costs and capacity such as layoffs, furloughs, rolling unpaid time off, treatment of unused PTO, leadership needs to weigh several considerations. For example,
Culture – One of the most important considerations may be how the organization wants to come out of this trying time. The approach may vary depending on the type of culture currently in place. For example:
- Strong, Productive Culture and Balance Sheet – If an organization has a strong, productive culture, with good talent and is financially strong enough to weather the current challenges (e.g., well prepared, fertile soil, that is more resilient), layoffs can be one of the most detrimental actions an organization can take to the long-term health of the organization and its people. There will be a drain on talent that may later be needed to support a strong recovery for the business, and that talent may wind up joining, or starting, competitors and taking a certain portion of knowledge with them. Layoffs made too hastily, where the remaining jobs aren’t redesigned to accommodate the reduction in staff and pick up the essential tasks of those leaving, may result in the need to rehire many of those positions. Then the organization assumes the cost of the layoff, and training of the new hires for the same positions, without any long-term value gain. In addition to considering the impact of the loss of talent from layoffs, the organization should budget for an increase in health, absence, and disability costs. We have seen 5% to 10% unanticipated increase in these costs depending upon the size and nature of the restructuring. The implications of a layoff may have long term impact that may make the long-term cost not worth the short-term gain. Other considerations may achieve the same goal while preserving the culture and health of the organization and its people.
- Culture is In Need of a Refresh – On the other hand, if there has been a need to rethink the culture and business structure (remove plants not well-suited for the garden, transplant some to different soil, and prune existing plants to shape them to be more productive), then it may make sense to consider some form of restructuring of the leadership and/or workforce. This can present a great opportunity to accomplish the organizational change that has been desperately needed but deferred. The type and nature of the restructuring may depend upon the suitability of the employees to achieve the business strategy. Organizational leaders should consider aspects of both cultural alignment and cultural health. A few examples (certainly not comprehensive) to consider may include:
- Working Retired – If there is a segment of the workforce at normal retirement age that may still be employed, but lack the energy and commitment necessary to take the organization where it needs to go. Then the organization may get more energy and innovation from a younger, less costly resource. In this case, an early retirement window may make sense. One client has a location where 70% of the workforce is retirement eligible and has the highest labor costs, but the employees are unprepared and afraid to retire. An early retirement window may be beneficial to those eligible for retirement and the organization.
- Strategically Misaligned – If there are certain businesses or shared service segments that may not be a good strategic fit (not directly driving the strategic priorities of the organization), then the organization may consider selling off, outsourcing, or co-sourcing those functions. For example, if your business is higher education, an outsourced food services contract affords greater flexibility during periods where the campus is shut down.
- Re-alignment – If there are opportunities to automate, streamline, or eliminate positions, then the organization may need to restructure. If the organization chooses this route, it is important that jobs are redesigned to ensure important functions don’t fall through the cracks, that you have the right talent in those positions, which may involve “transplanting” employees to other areas of the organization, and retraining or hiring different talent. Some of our clients have worked with a management consulting firm to evaluate staffing ratios to determine how many people should be appropriate. Following those recommendations, the client reduces staffing levels as indicated, but without redesigning the remaining jobs, they must often rehire those positions because critical work isn’t getting done.
Temporary Nature – Organizations will also need to consider if, and to what extent, this challenge will be a short term. If this will only be a temporary set-back and demand is simply deferred (e.g., delayed purchases such as iPhones, or elective procedures), or even if business will rebound to similar levels of activity from prior to the current downturn, then the organization may want to consider more of a shared responsibility approach with rolling unpaid time off or even furloughs. With the right messaging, the organization may be able to enhance its relationship with employees, letting them know the organization doesn’t want to let any of its teammates go during these challenging times, so we all need to consider ways to save money and share in the sacrifice. However, with 40% of the workforce living paycheck to paycheck, they may need to consider the potential impact on the financial well-being of the workforce if they are asked to work less (for example, 20% reduction in hours, and a corresponding 20% pay cut).
“My heightened awareness of stewardship to those within my span of care gave me a clear sense of purpose and clarity through which to view the situation. I thought to myself: We’re a family at Barry-Wehmiller so we need to act like one. What would a responsible family do in this crisis? A loving family would share the burden. Rather than watching a few of our colleagues face devastation, we decided that our reaction would be one of shared sacrifice.” Bob Chapman, CEO of Barry-Wehmiller
Other Cost Saving Opportunities – There are a number of dials in the various reward programs that can be considered. For example, time off programs can be leveraged to save cost and moderate the capacity of the workforce. The time off policies, and other state and local regulations, often drive a number of cost considerations, such as:
- Do you pay out unused PTO upon termination or at the end of the year?
- How does time accrue (e.g., front-load, weekly accruals)?
- To what level and extent should time accrue, or temporarily stop accruing during an economic downturn?
- What is the right level and balance between scheduled time off (PTO/vacation/holidays) vs. unscheduled time off (sick leave, disability, emergency)?
While there may be pressure to make rash decisions to lay people off for quick cost savings to preserve the profitability of the organization, take a step back and consider alternatives that may be similarly impactful, but preserve the “tilth” of the organization for the future.
Steve Cyboran, ASA, MAAA, FCA, CEBS, Chief Behavioral Officer, Consulting Actuary for Humaculture, Inc. Over the past 30 years, Steve has worked extensively with leading corporations, higher education institutions, and health systems across the country to articulate a vision for a healthy and effective workplace culture, develop a total rewards strategy to support that vision and brings deep benefits expertise with a behavioral approach and sound analytics to achieve and measure the desired outcomes. Contact Steve at Steve.Cyboran@humaculture.com.
Wes Rogers, Chief Guidance Officer for Humaculture, Inc. Wes has almost 35 years’ experience in consulting and senior management positions with a variety of organizations, facilitating groups of people with diverse perspectives and objectives to coalesce around a singular vision and marshal resources to achieve the vision. This experience provides exceptional insights into how organizations operate and succeed. Contact Wes at Wes.Rogers@humaculture.com.
About Humaculture, Inc.
Humaculture, Inc. transforms organizations, the relationship with their people, and how they think about their people. Humaculture® is a philosophy of, and systematic approach to, creating profitable, aligned, and healthy organizations conceptualized as “soil” in which people can thrive. By creating the right culture, the organization naturally attracts, retains, sustains, grows, and transitions people who enable the business to thrive. More information can be found at: Humaculture.com.
Research from the Federal Reserve found that 4 in 10 Americans couldn’t afford a $400 emergency, and 22% say they expect to forgo payments on some of their bills (https://www.marketwatch.com/story/half-of-americans-are-just-one-paycheck-away-from-financial-disaster-2019-05-16).