3 pitfalls to avoid during recession

It’s easy to make rash decisions as the economy starts to slump, Giora Morein urges organisations make measured choices when faced with difficult economic conditions

As a recession looms large on the global radar, markets are jittery, employees are anxious, and forecasts for 2023 are on the gloomy side as tech layoffs have begun. Market leading companies like Meta and Salesforce have already announced workforce reductions and are likely early indicators of more to come.

On the chopping board are jobs, projects, and upcoming products. Hiring freezes and an overall contraction in investments are also on the cards.

There are three common trends that you shouldn’t be following – in fact, bearing in mind that most recessions last a couple of months according to The Motley Fool,  you should be thinking and investing strategically for when this short-term challenge ends. 

Before making cuts, it’s critical to identify your long-term strategic investments versus your short-term operational costs

1. Don’t cut learning and development – increase it

When companies decide to cut costs, one of the first things to go is learning and training. This is often seen as an easy budget-cut because it quickly eliminates an operational expense without typically impacting headcount.  However, this short-term solution will have a significant impact further down the line because investing in developing your people is a long-term investment.

Investing in people is about engaging them, helping them meet their learning goals and become better workers, and increasing their skills so they can help the company be more successful. Investing in a two-day training course today isn’t about getting an immediate return on investment but enjoying the long-term benefits.

That’s why, instead of cutting down on training and learning to adjust to a short-term issue, you should be doubling it.

2. Don’t put your long-term strategic investments on ice

Most companies, especially public companies, are driven by short-term earnings. If you’re making less profit because people are buying less products, it affects your P&L. Obviously, if you’re not making enough revenue, then you’re going to have to cut your costs.

Before making cuts, it’s critical to identify your long-term strategic investments versus your short-term operational costs. Keeping the lights on or making small product enhancements are short-term investments. However, if you’re making strategic bets on long-term products and market opportunities then the value of these opportunities are likely not impacted by short-term recessions and so their investment levels should not decrease due to short-term market effects.

Strategic long-term investments shouldn’t be line items on the budget, because budgets can and should be adjusted based on current needs and conditions. But future opportunities should be treated independently.  For example: if you have a family budget allocated to eating out each month; you may choose to cut this budget if other needs arise, but you probably shouldn’t stop saving for retirement.

If your long-term goals haven’t changed, changing future investments should be viewed as a critical last resort.

Companies should identify protected investment classes that they will not touch in a recession and lock them down from any budget cuts without board-level approval. 

 3. Eliminate mass layoffs

Often, companies will opt to cut 10-20% of their workforce across the board, which means every team shrinks. It impacts every department.

A far better (and less popular) idea is to cut down on teams in areas that are less important to you. Instead of thinking of your organisation as a spreadsheet and headcount, think of your organization as a collection of teams. 

You assign teams to a project and not individuals. When you’re deciding how to cut down on personnel, you need to assess which projects are working, and which aren’t and then cut down specific teams.  Some team members can be reassigned to other teams. Taking a team-centric approach means that only targeted areas are affected by a layoff versus negatively impacting the performance across all teams.

Making these decisions requires organisational agility – the ability to focus and prioritise. When hard decisions need to be made, courageous managers will go against the trend. They’ll think strategically beyond the short-term challenges to their companies’ long-term goals. The choices they make today will define their companies tomorrow.

Read more from this author: Agile – an antidote to quiet quitting

Giora Morein is CEO and founder of ThinkLouder

Giora Morein

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