In times like these, when the COVID-19 pandemic is testing many businesses, cash is king. So it’s not surprising that many of our clients are aggressively trying to lower operating costs and stabilize their businesses with tactics that include suspending services, stopping non-essential expenses, renegotiating loans, and pushing for vendor payments and price reductions.
Using lessons learned during the Great Recession, which lasted from late 2007 to mid-2009, businesses can look beyond cutting costs to help address the current challenges in a few ways.
Beyond reducing costs, many tactics that proved valuable during the last recession might help you combat problems created by COVID-19, including:
Build a forward-looking cash flow model. Many companies have cash flow models that track key metrics, but they tend to be static. It’s important to build forward-looking cash flow models that allow you to test different business scenarios. This will help you pre-determine actions and align leadership even before change happens.
Create a supply and demand contingency plan. When COVID-19 was initially thought to be isolated to China, businesses worried about supply, but now there are issues on the demand side for small- and medium-sized businesses with limited cash reserves. It’s hard to replace this lost demand and important to proactively and aggressively confirm that your customer base is resilient, and to build contingency plans.
Retain your talent. After the 2007-2008 financial crisis, business leaders learned that if you don’t preserve your talent in a way that lets you capture near-term variable demand or demand as the market returns, your financial performance may suffer. For example, a large family-owned producer of medical machines laid off employees in 2008 to help keep the business alive and generate cash flow for the family. As late as 2017, parts of that business were still underperforming when compared to pre-2008 levels because the laid-off employees had highly specialized skills gained through on-the-job training. This talent had not been replaced. But the problem was not that the business had laid off employees—it was the way it did that created very little loyalty or desire for employees to rejoin after the financial crisis.
We understand you are likely making tough decisions about employees. You may have already done so. That’s why it’s even more important to communicate openly and honestly about what you’re doing and why you’re doing it. For instance, what are your organizational leaders and owners giving up? That should be communicated across the business because trusted loyalty is built when people feel they’re in it together. Consider these important ways to help rally your workforce and retain talent through this troubling time:
Get creative with compensation models, such as trading a reduction in compensation for something employees may want, like additional time off. If your employees have to give up something, they will likely feel better about it if they get something in return. You’ll still have to manage expectations and explain that when the business environment rebounds, compensation and vacation time should return to previous levels.
Sometimes you can shift salary personnel to part-time and layer in various compensation components. This provides a little income for your employees, as well as gives you flexibility to increase hours as the market rebounds.
Employees with important capabilities you want later make great candidates for sabbaticals. Consider asking them to “leave” for a predefined period, but pay them a small percentage of their compensation and potentially allow them to retain healthcare benefits. If they don’t come back to their guaranteed spot, they would be required to pay back that compensation. This works well for people without a lot of financial obligations.
Shift employee roles to aggressively attack the needs of the business. Many people have flexible skill sets that can be reallocated to serve the immediate needs of the organization. For example, hospitals are asking their in-house event planners to help with vendor management of medical supplies, as well as internal and external communications. While event planners may not have direct experience with this role, they have experience sourcing products from vendors and bringing those materials to events, and they’re comfortable with internal and external communications.
Business perspectives on what it will take to shift from crisis mode are solidifying, according to PwC’s most recent CFO Pulse Survey. As US businesses head into a period of even more operational complexity while they orchestrate a safe return to the workplace, 49% of respondents say remote work is here to stay for some roles. In addition, the time required to return to “business as usual” the moment that COVID-19 ends continues to lengthen. Currently, 48% believe it will take at least three months to return to normal, up from 39% two weeks ago.
There are many unknowns, but you can manage concerns by helping people understand where they stand and where you’re going. Communicate often with forward-looking messages about how people can help each other navigate the current crisis. The companies that rallied their employees by owning their narrative fared far better during and after the Great Recession than those that didn’t. Remember, just as important as the action itself is the manner in which it is taken and communicated.
PwC is continuing to monitor the latest information about the impacts from COVID-19 and helping privately held businesses, including individuals, understand how they are specifically being impacted.