Is it possible to develop a business model whereby an economic dip can be used to a market advantage? One client uses a sports analogy to describe this opportunity: "We are between seasons, and we have an opportunity to recruit and retool our team for the future." This just might be the right time to retool your human resources processes to avoid past hiring mistakes and adopt new hiring practices that will maximize the life-cycle value of your company’s human capital.
The abrupt and unexpected global economic downturn has forced many industrial companies to make gut-wrenching decisions about how to manage their labor costs. In almost every business sector, companies have been forced to curtail production, close plants, and reduce staff just to survive. Such decisions obviously affect plant personnel, but the effects ripple throughout the community where the plant is located.
After making the decision to reduce staff, a company faces additional financial consequences: perhaps hundreds of millions of dollars in cash payments for severance packages and voluntary early retirement program pools for key management positions.
Loss of key employees further reduces the organization’s overall performance because severance packages usually target the most senior and experienced personnel. The spiral continues because loss of these key employees substantially handicaps a company’s ability to respond to the inevitable upturn in business.
Turn a Negative into a Positive
When companies hire employees, it often is simply to get work done. Little thought is given to the life-cycle cost of that decision. Many companies hire employees on the basis of the hourly wage plus some benefit cost multiplier. However, the total life-cycle cost of a position should be evaluated prior to making hiring decisions. For example, the actual cost of hiring and outfitting a new mid-level manager for one company was 50% higher than the employee’s $60,000 annual salary. At a 4% inflation rate, the average total fixed cost of hiring and keeping this employee for 30 years could easily exceed $5,000,000.
So how can companies optimize the life-cycle cost of human capital? These nine steps outline a process with proven results:
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Identify your company’s true core competencies.
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Evaluate all jobs against the core competency criteria.
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Analyze the company’s noncore job performance excellence.
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Benchmark current noncore jobs for performance.
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Develop a business case for outsourced job function candidates.
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Select a contracting strategy that will deliver continuously improved performance and results.
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Select a qualified contractor.
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Develop contractor key performance indicators (KPIs) that will allow you to objectively measure results and performance.
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Implement the performance-based contract.
To minimize the fixed labor cost, companies should evaluate where they need to invest in labor to create and maintain a competitive advantage for their business and then determine what activities can be performed more efficiently by someone outside of the company.
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