As we delve into the past, seeking lessons from significant global events like The Great Depression, it becomes clear how economic resilience can profoundly affect businesses and their workforces. These lessons have a direct bearing on talent acquisition, providing vital guidance to recruiters navigating volatile economic landscapes. Based on the diary of Mr. Roth, a lawyer from Youngstown, Ohio, during the Depression, we glean several strategies that can position talent acquisition for success even amidst economic downturns.
- The first lesson is diversification. From a talent acquisition perspective, this suggests that companies should strive for a diversified talent pool, comprising individuals with varied skill sets and industry experiences. According to a McKinsey & Company report, companies in the top quartile for racial and ethnic diversity are 35% more likely to have financial returns above their respective national industry medians. Similarly, those in the top quartile for gender diversity are 15% more likely to outperform. These statistics underscore the value of a diverse workforce.
A diversified talent pool can bring fresh perspectives, foster innovation, and increase a company’s adaptability during downturns. Research by the Boston Consulting Group has shown that diverse companies produce 19% more revenue due to innovation. In a depressed economy, versatility becomes a survival strategy – companies with a diverse talent base are more likely to find innovative solutions to new challenges. In fact, a study published in the Harvard Business Review found that during the 2008 recession, companies that were ‘preparation-minded’—those that had developed a diverse range of strategic options—outperformed their peers by over 20%.
- Taking a page from diversification, the notion of having some ‘cash’ in talent acquisition implies building a robust pipeline of candidates. Having a strong talent pipeline is akin to maintaining liquidity during a financial crisis, as it provides companies with a pool of potential candidates to tap into as required.
A report from LinkedIn indicates that 82% of talent acquisition leaders believe that a key trend impacting their hiring strategy is the need for their business to have an adaptable talent pipeline to prepare for economic uncertainties. Companies with a solid talent pipeline can swiftly hire or pivot as the situation demands, providing a critical advantage in a volatile economy.
This ‘cash’ concept also extends to maintaining healthy relationships with potential candidates, even if there are no immediate vacancies. According to a study by IBM, nurturing relationships with prospective employees can result in a 48% increase in the quality of candidates when there is a vacancy, leading to more successful and effective hiring.
However, a talent pipeline should not merely be a static database of potential candidates. It needs to be continually updated, nurtured, and diversified to reflect changing business needs and market realities. In this way, companies can ensure they have the ‘cash’ in the form of a readily available and adaptable talent pool to navigate successfully through an economic downturn.
- The third lesson from the Depression era involves understanding market unpredictability. It highlights the risk in attempting to time the market, which can also apply to talent acquisition. Rather than trying to time hiring cycles perfectly, companies should focus on continuous talent attraction and retention strategies. To this end, establishing strategic partnerships with universities, trade schools, and professional associations can offer a proactive approach to bridging the talent gap on an as-needed basis. According to a study by the Society for Human Resource Management (SHRM), 79% of employers surveyed had hired someone with a credential earned from an upskilling program, reflecting the value of such partnerships in enhancing the talent pool.
Furthermore, research conducted by the Brookings Institution has shown that companies collaborating with educational institutions on curriculum development can directly influence the job readiness of future graduates. Adopting a long-term, strategic approach to talent acquisition, such as fostering educational partnerships and focusing on reskilling, can help firms weather economic storms more effectively than if they react impulsively to market fluctuations. According to the National Association of Colleges and Employers, about 70% of internships turn into full-time jobs, illustrating the long-term value of such partnerships in establishing a pipeline of job-ready talent.
- Similarly, the concept of ‘herd mentality’ in the financial context translates to avoiding common pitfalls in talent acquisition. During economic depressions, companies may rush to make layoffs or freeze hiring, following a ‘herd mentality.’ A study conducted by the Stanford Graduate School of Business found that firms that conduct substantial layoffs were twice as likely to file for bankruptcy than firms that cut fewer jobs, highlighting the potential risks associated with such actions.
Knee-jerk reactions like mass layoffs can also inflict severe damage on a company’s reputation and relationship with potential talent. According to a survey by the Corporate Executive Board, 31% of employees who kept their jobs after a large layoff saw productivity decline, while a report by Challenger, Gray & Christmas found that 88% of employees who remained said morale was negatively impacted.
Research by the Society for Human Resource Management found that 77% of human resource professionals have found it difficult to attract suitable candidates after layoffs, which may further delay recovery efforts. Therefore, firms should consider all factors, weigh the benefits and consequences, and make independent decisions that align with their long-term talent strategy to avoid regrettable decisions like unnecessary layoffs.
- From a talent acquisition perspective, we can draw parallels from the “Enron Effect”, cautioning against the overinvestment in a single business function or job family. The risk lies in creating a significant dependency that can turn precarious during economic downturns, leading to potential disruptions in the talent acquisition process.
For instance, if a company heavily concentrates its recruitment efforts on a specific function like tech roles and neglects other critical roles, changes in the tech sector or an abrupt shift in business strategy could result in talent gaps in other areas. To mitigate this risk, talent acquisition professionals need to ensure a balanced focus across all business functions and job families.
However, it’s also crucial to understand that shifting focus quickly can come with challenges and potential costs. According to a study by McKinsey, it takes an average of 20 weeks for an organization to execute a strategic pivot successfully, which can be costly in terms of time, resources, and potential lost opportunities.
Effective and efficient refocusing requires impeccable organizational skills, strategic foresight, and dynamic resource allocation. It’s essential for businesses to maintain flexibility in their talent acquisition strategy and maintains clear “line of sight” with TA orgs, allowing them to adjust as per the changing business needs on “as needed” basis.
- The diary’s emphasis on the importance of being debt-free underscores the value of a lean and efficient recruitment process. The principles of Lean Six Sigma, a methodology that combines lean manufacturing processes and six sigma’s focus on reducing defects, can be applied to talent acquisition to create a streamlined, cost-effective process.
Lean Six Sigma encourages efficiency and continuous process improvements. Applied to talent acquisition, it can lead to faster hiring cycles, improved quality of hire, and reduced costs. According to a study by the Aberdeen Group, organizations using talent acquisition technology, such as Applicant Tracking Systems (ATS) in conjunction with Lean Six Sigma principles, decreased their cost-per-hire by 26%.
Unnecessary recruitment expenditures can become a significant burden during economic recessions. According to the Society for Human Resource Management, the average cost-per-hire in the U.S. is $4,129. By optimizing the hiring process using Lean Six Sigma, companies can significantly reduce these costs. Streamlining the recruitment process, adopting cost-effective recruitment technologies, and maximizing internal resources can help companies maintain their talent acquisition activities even during financial strain.
- Finally, the diary emphasizes the value of self-reliance, a principle that, when applied to talent acquisition, promotes a culture of continuous learning and upskilling within the organization. Encouraging employees to constantly evolve and upgrade their skills enables companies to depend less on the volatile external market for specific talent, leading to greater resilience during downturns.
According to LinkedIn’s 2020 Workplace Learning Report, 94% of employees say they would stay at a company longer if it invested in their learning and development. This underscores the importance of upskilling not only for building a versatile talent base, but also for improving retention rates.
The recent pandemic has only amplified the importance of this strategy. According to a McKinsey survey, 87% of executives said they were experiencing skill gaps in the workforce or expected them within a few years, but less than half had a clear strategy to address the problem. Companies with a robust learning and development program have a clear advantage in this scenario.
Since you read all these and hopefully reflected on these take-aways, I will leave you with this prophetic quote by Mr. Roth:
“As I re-read some of the predictions made by outstanding economists in past few years, I must laugh. They were all wrong. None of them foresaw the 1937-1939 collapse and many predicted inflation before this.” Mr. Roth comes to the conclusion that relying on experts is a waste of time.
Economic downturns are daunting, but they also present opportunities for introspection, creativity, and change. By incorporating these lessons from the Great Depression, companies can weather the storm and emerge stronger, with a more diverse, adaptable, and resilient workforce. The essence lies not just in surviving the economic downturn, but in leveraging it as a catalyst for innovation and growth in talent acquisition strategies.
