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Double-Dip Recession Scenarios for Your Organization

Like most people, I hate to consider the prospect of a double-dip recession. There’s been a lot of pain and suffering over the last several years and I shudder to think things are going to get worse again.

It’s as if we’re all part of a large tribe that wandered into an economic bog. Some people disappeared entirely, some came through it just fine, but a majority emerged in various stages of trepidation, exhaustion, or even injury.

Now it appears the tribe may not have crawled out after all. Perhaps we only scampered up onto some more solid ground for a short while and are approaching another quagmire.

If that’s true, then what’s next?  Profits at large corporations have risen, partly because they’ve figured out how to do more with less. But that doesn’t mean there are a lot more cuts to make. Many if not most workforces are already lean because employers have been reluctant to hire. As a result, many employees are working long, stressful hours. And small businesses are suffering narrower profit margins.

Unemployment is still at 9.1% in the U.S. As for employees themselves, here’s how the New York Times put it:

Employees have always received more than half the total national income, until now. In 2010, the percentage of national income devoted to wages and salaries fell to 49.9 percent, and it slipped a little more to 49.6 percent in the first quarter of this year. That continued decline may help explain the economic worries of many Americans who have jobs but still fear they are falling behind.

Whether another recession hits or we simply limp along at slow rates of economic growth, employers are going to have some hard choices to make. Below are four scenarios showing how this could play out at individual organizations over the next year or more:


Scenario One: Burnout City

In this scenario, a company that suffers through a double-dip recession makes an explicit or tacit strategic decision to focus solely on costs and revenues. As a consequence, it pushes existing employees harder and looks for other efficiencies while instituting stress-inducing events such as restructurings and layoffs. The result can be an extended period of employee burnout that, ironically, affects loyal and conscientious employees most. They are the ones who put forward 110% for years on end, but this extended work effort can ultimately place a strain on everything from team relationships to overall engagement. In this situation, trust in leadership is eroded and political infighting occurs. This creates morale problems that feed on themselves.

Scenario Two: The Performance Priority

In this scenario, an organization decides it can’t focus solely on revenues because it must maintain a positive corporate culture in very difficult circumstances. What this requires above all else is a prioritization of performance management and planning.  That is, the organization needs a clear picture of how well individuals and teams are performing. To achieve this, it creates or maintains a performance management system that is accurate and trusted by employees as well as managers. When performance data is in, the organization identifies areas where, if performance were boosted, it would have the maximum positive impact on revenues. Once this is accomplished, leadership creates development, management and incentive plans that focus on these areas, but it does so in such a way as to create excitement about new opportunities for learning, career growth, and potential rewards.

Scenario Three: Soliciting Salespeople

In this scenario, there is no double-dip recession but the recovery continues to be slow as Europe continues to work through its debt problem and unemployment remains high in the U.S. The executive team of the single-minded organization knows it needs to boost revenues and that ROI is best served by hiring seasoned sales and member-services employees, the latter focusing on upselling.

This strategy can, in fact, help improve the financial status of the organization over the short-term but it can also create stress on other parts of the organization as product demand rises but the ability to meet that demand remains the same. This puts pressure on the organization to prioritize or increase efficiencies. Service organizations may be especially hard hit because it is not easy to generate the same economies of scale prevalent in manufacturing organizations. The result is added work stress on service- or product-delivery employees, which results in divisiveness among different functions. Combined with salary freezes and a lack of rewards for people who are working longer hours to meet demand, this can lead to a fractured corporate culture.

Scenario Four: Capacity Planning and New Hiring

In this scenario, there is also slow growth but the managerial approach is different. Rather than focusing only on sales-related hires, management engages in capacity planning in order to learn more about:

  1. current hours worked and productivity per exempt employee,
  2. stresses and bottlenecks in the current organization,
  3. the capacity for meeting customer needs in other areas if more sales personnel are added
  4. the expected ROI associated with each new hire

By studying capacity, the organization will be better able to make good hires without sacrificing quality or creating a resentful and divided culture.

Conclusion

Now is the time to consider these issues. The next few months will tell if we are in the grip of a double-dip recession or if we will continue our slow-growth trajectory. Companies should be prepared either way. I prefer the “mixed emphasis” scenarios because I think they will lead to more sustainable success over a period of years, but I expect there will be plenty of cases of “single-minded focus” occurring, especially if another recession hits.

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