What keeps CEOs up at night? If I were to hazard a guess, I’d say these days it’s all the warnings from economic forecasters that conditions are ripe for a financial crisis that will be followed by a global recession.
The clouds on the horizon have been collecting for some time. In 2018, the German economy – the largest in Europe – grew by just 1.5 per cent, marking its weakest rate of expansion in half a decade and there have also been signs that the Chinese economy is slowing. At the end of 2018, in a survey of US chief finance officers, nearly half said they believed the nation’s economy would enter a recession by the end of 2019. In Britain, the Bank of England recently warned that there is a one in three chance the UK economy will fall into recession at the start of 2020, and several financial commentators have shared a similar outlook.
In preparation for the global economic slowdown, organisations would be wise to investigate how they could realistically reduce their fixed overheads. One way to do that is to review the cost of in-house recruitment. Over the past few years, many organisations have been hiring for their HR functions with a view to bringing it all in-house. However, it has been my experience that when the economy struggles, organisations don’t act quickly enough to review how their requirements during lean years might affect what they need from their recruitment teams. Often, the team is maintained but has a reduced workload, making it expensive and inefficient. Sometimes the team is asked to take on roles that are outside its area of expertise, which can negatively impact the quality of work while the organisation still carries the burden of the fixed cost.
On the other hand, I’ve seen organisations act far too hastily and remove their recruitment teams entirely before considering what hiring needs they might potentially have going forward. It’s important to remember that a company is likely to still have recruitment needs during a recession – they just won’t be hiring at the same rate making each hire even more critical. So, organisations need to get the balance right.
If you reduce your recruitment team to a level where it’s unable to support the company, you’ll end up with poor results. A reduced in-house team often becomes overly reliant on recruitment agencies, which can be expensive and doesn’t deliver sustainable client-owned talent pipelines.
When planning its recruitment needs, there are three approaches an organisation can adopt:
1. Keep everything in-house
This model enables you to grow and invest in a team that services all the organisation’s recruitment needs using a list of preferred suppliers of technology and recruitment. The team becomes experts in the organisation and builds a high level of internal knowledge. For some companies, this is the best model.
2. Outsource everything
Under this scenario, the whole recruitment function from junior-level administrators through to Head of Resourcing is outsourced to a partner organisation that brings expertise and infrastructure into the company. For small or medium- to large-sized companies, this is often the best model. It enables them to bring in an expert to advise and support organisations for whom recruitment is not a core function. This solution also removes the ongoing overhead of in-house recruitment and reduces fixed costs. It’s important to note, however, that not all Recruitment Process Outsourcing (RPO) companies are the same. A good RPO should be able to do far more than recruit candidates and fill open positions. It should really understand your organisation and act as a strategic, consultative partner, looking at long-term factors that may affect your business.
3. A hybrid model
The third solution is a hybrid between an in-house team and working with an outsourcing partner. Under this model, the outsource partner can be assigned end-to-end responsibility for meeting the hiring needs of specific parts of the business, specific job grades or locations. This model can also consist of Source & Screen support, administrative support, and the provision of pre-employment vetting for a retained inhouse recruitment team. The RPO brings subject matter expertise and commercial rigour. This model is often used by companies who want to maximise efficiency whilst also maintaining organisational knowledge internally.
Over the last five years, the low unemployment rates in the U.K. have strengthened the recruitment market. Organisations have grown their workforce significantly and, until now, this was a great period for them to build and develop an in-house recruitment team. Hiring volumes have been consistent, making it easier to identify what’s required from the recruitment team and ensure it’s able to efficiently support the organisation.
However, as companies plan their recruitment for 2020, 2021 and beyond, and they consider which model to employ for their hiring teams, it’s vital that they do not simply look in their rear-view mirror. Given the increasingly likely forthcoming recession, it’s expected that any workforce trends and patterns of the past few years will not continue. The positive hiring environment will probably end in the next six to 18 months and companies should be scenario planning to consider what will happen whenever the economic slowdown starts to affect them later. Companies should act quickly to ensure they do not maintain the financial burden of reducible fixed costs – they should consider the benefits of working with an outsource partner.
We live in politically and financially uncertain times, and although the UK’s plans to leave the EU are having a negative impact on the economy, Brexit is not the only factor at play. Across Europe, and indeed the world, there are signs of an economic dip. Recently, I’ve been talking to leaders at several investment banks, and they’re planning to reduce their headcount over the next six months. I know of at least one European investment bank that has already reduced 10 per cent of its workforce.
The investment banks tend to be ahead of the curve when it comes to workforce planning at times like this, so it’s vital that other companies heed the warnings. There may be tough times ahead, but early planning will put firms in a stronger position to withstand the storm if, or more likely, when the global recession hits.