Managing the workforce in a cost constrained environment

The talent/costs tightrope

These are turbulent times for organisations in trying to manage the workforce. Having moved quickly from ‘the great resignation’ to the cost of living crisis and now a slowing down of the economic cycle, there are a number of moving elements that mean the pathway for decision-making around people is not straightforward. In this context it is crucial for organisations to engage their people and put longer term talent strategy at the heart of any necessary restructuring.

When we surveyed organisations during the summer 79% were planning cost reduction measures such as automation and location strategy, alongside productivity uplifts. But this downturn feels different to others. While high inflation is impacting people's spending, critically, we are entering this predicted recession in 2023 with very high employment levels and a backdrop of skills shortages.

In previous downturns, restructuring has been dominated by an urgent cost reduction agenda, disregarding the importance of managing and engaging the workforce that stay, and also not considering the future skills agenda and the other levers that raise productivity and costs.

The analysis from the Bank of England, IMF and PwC suggests that the UK’s GDP will face a recession during 2023 and the first half of 2024 - but the consensus from these sources is that this will be relatively shallow with overall GDP falling by 0.3% overall next year. So while cost-cutting and restructuring in different forms will inevitably take place, it will not be a sharp contraction and there is a recovery beyond this. So any restructuring should be undertaken in a way that manages the workforce better and reduces reputational consequences that responsible employers are quick to address.

This provides an opportunity to put talent strategy at the forefront of any restructuring during this downturn, instigating a more agile talent mobility programme as demand shifts as well as longer-term upskilling.

There are 6 key steps to achieve this balance:

Start with understanding what you spend. There will be many areas of workforce costs that can be reviewed - some of which for quick opportunities (contractor spend, expense). The location of activity, incentives, the spend on certain benefits that are not valued by the workforce, and areas that can unlock productivity and engagement.

Consider headcount in the context of your workforce strategy. Look at future demand and scenarios for 5-10 years. Organisations should be asking where the growth will be - in terms of skills, jobs and locations.

Current supply vs future demand. Map the current supply - permanent and contractors, by gender, across grades and location - and work out how this will meet future demand based on attrition and other exits.

Build vs buy. To what extent can existing roles that are in decline be equipped for future roles? We talk a lot about skills corridors and this requires investment and a longer-term mindset, but it will save costs.

Restructuring. Removing duplication of activity, implementing automation and simplifying processes will all form part of the cost agenda but this is now done with a clearer view of the future organisation - and through the early diagnostic, through the lenses of fairness and diversity.

Agility. The ability for short-term redeployment to areas of need is an important tool that we know many companies are trying to get better at. The labour mapping at the outset can help shine a light on these opportunities.

Running through any kind of workforce restructuring programme will be the need to engage people and help them feel part of the future. Listening helps and our Hopes and Fears survey shone a light on the importance of skills and career pathways. Engaging the workforce on the journey is crucial.