An empty cycling studio and an even emptier bank account. Things were looking bleak for Amelia Hua since closing her studio earlier this March when the government shut down fitness centres in Dubai.
The founder of Motion is just one of many small business owners around the world who have been heavily affected by the pandemic.
Instead of calling it quits, Hua reinvented her business model by offering her clients weekly bike rentals with unlimited online classes led by her and her fitness instructors. All the bikes were rented out within an hour of their online debut, keeping the business alive.
The coronavirus pandemic has affected us in ways we never imagined. We are holed up in our homes, making less trips and spending less money in our temporary virtual reality. Businesses hit hard by drastic changes our consumer spending have had to rethink their workforce strategies in order to survive the downturn.
“The pandemic has hit health systems and economies globally as an unexpected external force. Global governments had to set up restrictions and take actions to prevent the worst wherever possible. Since no one wants to see unemployment rates rising and economics falling apart long term, we have to create alternatives to the well-known actions in HR to handle ambiguity in regards to tightening our belts as well as reinventing our businesses,” says Elizabeth Tafelmeyer, Piktochart’s organizational developer and HR coach.
We are “in the world of VUCA” or Volatility, Uncertainty, Complexity and Ambiguity, Tafelmeyer says, “And this world requires new ways of thinking, with or without coronavirus.”
“What we can do with this crisis in HR is to rethink and start to create today what we will need in the future. I personally think we all can learn from software companies and the tech scene where continuous reinvention is unnegotiable to accelerate and survive long term in competitive markets. Creating with courage instead of just cutting costs. A run rate keeps us innovative by nature. And on the other side: the pandemic situation has a run rate, too. There will be an end,” Tafelmeyer says.
The HR expert says the coronavirus crisis has left many companies in a “tough position where they are looking at managing costs on one hand, and on another hand, deciding whether to let go of people that they know they may need afterwards”.
“But we have to say clearly: An economy wants to rebuild afterwards. And companies have to be prepared for it to recover from their scars as soon as possible. Even if in some fields companies do not have enough work now due to the lockdown, we will need strong and experienced teams in other areas to build the future afterwards. There is so much that we can do right now, together,” Tafelmeyer says.
Why job cuts are ineffective
During the 2008 financial crisis, then-telecom giant Nokia learned the hard way after it ended up losing hundreds of millions in sales and profits following layoffs at its Bochum factory in Germany.
The shutdown led to job losses for 2,300 angry employees, resulting in street protests and calls for a boycott that hurt Nokia’s image exponentially. “It was a totally hostile situation,” recalls Juha Äkräs, Nokia’s senior HR vice president at the time.The shutdown ultimately cost Nokia $220 million, or more than $88,000 per laid-off employee.
Fast forward to the economic slowdown amid the coronavirus pandemic of 2020, “it is clear that the companies that will come out of this pandemic stronger than ever are those that are able to manage it in a compassionate way, looking at all business and human resource angles before making drastic moves,” HR strategist and coach Claire Donnelly tells Piktochart.
“As an HR strategist, I was in exactly the same position in 2008 when a lot of businesses were forced to restructure or close down because of the financial crisis. The difference is there was a lot of uncertainty on how long the 2008 crisis would linger, so larger businesses then could afford to lose head count because they had deeper pockets to manage payouts,” Donnelly says.
“The reason this coronavirus crisis is so traumatic now is because companies might not be able to afford to lose their staff. What is different about this crisis is we know there is an end. Every company head I spoke to said they want to survive this. But you have many SMEs that have tighter margins and no cash flow. Unlike big businesses that are just trying to save costs today until this crisis passes,” she adds.
Donnelly says layoffs as a short-term solution to cut down costs could actually create more problems than they solve.
Studies have also shown that after a layoff, “survivors” experienced a decline in job performance. “Survivor guilt can close a business down if not addressed immediately after redundancies are announced,” Donnelly says.
Finding a new approach
Throughout this pandemic, many businesses have realized that while they may need to consider taking action about their largest expense and most important asset—their team members—they also need a new approach to managing company profitability while keeping their employees engaged.
Banks like HSBC, Morgan Stanley and Citigroup Inc. have pledged to preserve jobs. In the worst-hit travel industry, airlines like Emirates and Etihad Airways also said they are not trimming their workforce.
Sheikh Ahmed bin Saeed Al Maktoum, chairman and chief executive of Emirates Group, said: “Rather than ask employees to leave the business, we chose to implement a temporary basic salary cut as we want to protect our workforce and keep our talented and skilled people, as much as possible. We want to avoid cutting jobs. When demand picks up again, we also want to be able to quickly ramp up and resume services for our customers.”
Global food company Nestle, which has 291,000 employees around the world, announced that it would continue to pay all its workers full salaries for up to three months. Unilever also announced similar measures.
Others, like cycling studio Motion, have adapted a new online business model that they say will remain even when they reopen their physical stores. Others have seen new business opportunities. Dubai-based startup Yanzo, a virtual shopper and assistant, experienced a boom in business since the outbreak, according to co-founder Tarek Osman.
“The financial crisis of 2008 was the time when online companies like WhatsApp, Uber and Airbnb started to exist. The challenge from HR today is to recognize that there are opportunities from each crisis,” says HR strategist Tafelmeyer.
“In the long term, we can think about sustainability with new products and new services that can match a global workforce,” she says.
Alternative cost-cutting strategies
When cutting cost is unavoidable, companies must be transparent and timely in communicating their next move to the staff and carry out procedures that employees will feel are fair and satisfactory.
“For example, what they should be doing today is to tell employees that there is no holiday in the cards this year because we need everybody in this business to get us back to being profitable again,” suggests HR strategist Donnelly. “Be open and honest to your team and explain to everyone what you are doing and why,” she adds.
Piktochart’s Tafelmeyer agrees, adding that any cost-cutting move must have a long-term goal. “The coronavirus crisis has left many companies in a tough position where they are looking at managing costs on one hand, and on another hand, deciding whether to let go of people that they know they may need afterwards,” she says.
Tafelmeyer and Donnelly outline alternative cost-cutting strategies that businesses can consider before announcing layoffs:
Reduce salaries, benefits or work hours
Look at the option for employees to work part-time or on a reduced salary or fringe benefits. These are going to help you control your cash flow and lower your costs. This would have a softer impact on employee morale if led by company leaders. For example, Gravity Payment’s Dan Price made headlines in 2015 when he slashed his CEO pay from $1.1 million to $70,000 so he could raise the minimum wage at his credit card processing company to the same amount.
5 years ago I cut my CEO pay from $1.1M to $70k so I could pay all my employees at least $70k.— Dan Price (@DanPriceSeattle) March 28, 2020
That’s not good enough anymore.
Today I cut my pay to $0. I’m committed to laying off 0 of our employees.
It’s not much but it’s what I can do. We’ll get through this together.
Today, the company is doing well, with reports of 80 percent more customers. His decision has inspired other business leaders to consider how generous salaries make more engaged employees who are willing to deliver the best customer service.
If you are looking at implementing one or all of these measures, always have an open communication with your employees about why these are necessary at this time and always pledge to review the decision periodically, with a clear time frame.
Get cost-cutting ideas from employees
Let your employees feel that they are part of the solution by asking them for ideas on cost reductions. You may be surprised at the innovative solutions they come up with. Be clear, however, that you intend to prioritize low capital initiatives that will have a positive impact on cash flow and saving jobs. If you have a highly motivated and committed team, they will want to ensure the company remains afloat throughout the crisis and will be willing to contribute in some form with ideas for cost cutting.
Ask employees to take leave
Ask employees to clear their leave entitlement. This saves companies money as they are not accruing the costs on their profit and loss, which also means companies can quickly increase productivity if the situation suddenly improves. Employees may also be asked to take unpaid leave, which reduces service length and saves the company money when it comes to paying gratuity.
Ask for office rental payment holiday
If you cannot pay your rent, ask your landlord if you can delay paying bills until the crisis has passed. Get the issue out in the open as soon as possible so you can take steps to help you avoid an eviction. When you speak to your landlord, explain why you are going to be late with the rent and ask for extra time, but be clear about what you will be doing to address the issue.
Look into workloads and ask people to jump on new challenges
Like in every crisis, some departments get buried under work by planning and implementing all adjustments, reporting and researching for new ways to keep the business running. Invite your people to switch to new job roles and support new challenges like business development. Find people who are willing to share their knowledge and want to invest time into research for new fields to generate revenue. When people can participate in the future of their company, you will experience talents and strengths that maybe didn’t have the chance to come out.
Start innovation teams, offer revenue shares afterwards
Every crisis has branches that are exploding because of increased needs. Healthcare, pharmacies, delivery services–these are just some examples. First of all, they can be new fields in business development activities, which urgently need additional suppliers or partners. Ask your team members if they can be a part of a new business innovation, with the advantage to work as entrepreneurs within the business. Propose revenue shares as an incentive.
Look for state subsidiaries
Everyone having a bit less is better than cutting jobs for people. In Germany, for example, it is possible to ask for state subsidiaries like “Kurzarbei”. This cuts down the work hours per person and the salary costs. But employees get back a part from the public social system to afford their living costs. Take actions soon enough to keep cost cutting low and steer strategically. Inform yourself about possible subsidiaries.
Talk to people and network
Sometimes, you can‘t avoid closing down an office or fields of business for the company to survive. This might involve job cuts, at least temporary. But remember: The crisis has a run rate, too. Other companies might have already prepared for options for when the crisis ends, and will be proactively searching for new people. Reaching out to your network to rebuild your post-crisis team is worth a try. If you have to take layoff decisions, think about who you can ask in other companies and within your network who might start or take over projects, short-term. The working world is already changing independently from the coronavirus situation. Also, remember to keep in touch with your team. You might be able to bring them back on board more quickly than expected.
Steer strategically in regards to ambidextry
You will have to look at both costs and reinventions. This phenomenon is called ambidextry, which is also a skill required for the future. Wherever you can, upskill your people now by sharing initiatives, researching for cost-cutting projects and investigating new revenue models. The time is now to learn one of the most important leadership skills in HR for the future.