HR’s Strategic Role in a Time of Inflation/Contraction

November 30, 2022 – Despite election year gloom and doom assertions, gross domestic product in the second quarter of 2022 was revised higher and consumer sentiment moved up a bit as well. Q2 corporate profits rebounded (rising 6.1 percent in the quarter, after falling 2.2 percent in Q1), headline and core inflation moderated slightly, and two new regulations (the Inflation Reduction Act, and an executive order to forgive student loans) were signed, aimed at helping companies and households.

Notwithstanding this, 81 percent of company leaders expect a recession, while the labor market remains very strong. While more people are rejoining the workforce, more workers could ease labor shortages but also create more demand, stoking inflation, says a new report from BrainWorks. “This mixed picture, combined with the Fed’s stated intention to get the inflation rate down to two percent, which is likely to take several years, the private sector seems to be entering a new era of ‘higher for longer’ interest rates and cost of capital,” said the study.

Companies will need to draw on a long-term strategy for success in a world of slower growth, higher inflation, and more expensive capital. “That’s a big switch from the activities of the past several months, when many management teams have been putting out fires, so to speak—finding fixes for problems like rapidly rising costs for raw materials and labor,” said the BrainWorks report. “Companies should also be thinking about more structural solutions that not only manage costs but also build resilience and can drive long-term value creation.”

On the revenue side, Brainworks cited a McKinsey report that found that the median analyst expects the trend (materials and commodities up, consumer companies down) to persist and EBITDA margins to decline in all but a handful of industries. “Not only do analysts expect that consumer-facing industries will face pain, but they also expect that this pain will ripple through most other industries as well,” said BrainWorks.

Prioritizing Growth

The same McKinsey report recommended a four-part strategy that will require leaders to build new strengths, two of which directly impact and provide opportunities for HR: sustainability: staying the course; supply chain: rebuilding for resilience and efficiency; and growth as a priority

“Outperforming executives break the powerful force of inertia by prioritizing growth, a choice that shapes behavior, mindset, risk appetite, and investment decisions across the organization,” said BrainWorks. “In the past in times of recession cost-cutting often meant personnel cuts. If a company is serious about finding and developing smart growth opportunities, it is likely that staff will need to be expanded and redeployed. As a strategic partner it will fall to human resources to locate the best and most needed talent as well as looking internally for opportune talent changes. Training and development, often unnoticed as a prime HR function will come into new prominence.”

Related: BrainWorks Assists The Jobe’s Company in CEO Search

Leading companies are taking several approaches to strengthen their workforces. Many have sought to motivate workers with more meaningful assignments and better opportunities for career advancement. “Often, these approaches go hand in hand with training in skills that are hard for companies to find,” said the BrainWorks report. “Human resources, again as a strategic partner, should look for longstanding policies that need to be discarded or changed.”

Meaningful Purpose

Evidence also suggests that improving workers’ emotional experience on the job can do more for retention than employers might expect. “McKinsey surveys of managers and employees found that employers often fail to understand just why workers leave their jobs,” said BrainWorks. “In particular, employers tend to overrate ‘transactional’ factors such as pay and development and underrate the ‘relational’ elements—a feeling of being valued by managers and the organization, the companionship of trusting teammates, a sense of belonging, a flexible work schedule—that employees say matter most. Companies that successfully create this kind of meaningful purpose can benefit from greater organizational cohesion and resilience.”

How the Chief People Officer is Reinventing HR
According to new research and insight from BrainWorks, human resource leaders – from chief people officer and CHRO to HR directors and VPs – are gaining in popularity and influence. Taking center stage in the pandemic era are chief people officers.

BrainWorks says that the key is for HR to move from an ancillary process to claiming a place at the table in the C-suite. HR leaders should also participate actively in creating a long-term strategy for recruiting, retention, and training/development, said the report. This will allow their company to create opportunities for growth and expansion rather than contracting and waiting for the storm to pass. “The current combination of long-term inflation, the possibility of recession, and changing demands of the workforce can be an unprecedented opportunity for those bold enough to seize it,” said BrainWorks.

Attracting and retaining top talent in this new environment as well as sorting out great candidates from the merely adequate can be a difficult process, particularly for companies with an outdated relationship with their human resources program. “A relationship with a recruiting firm that understands and stands for the company’s purpose and its support of employees’ personal purpose is likely to produce the best results,” said the BrainWorks report.

Since 1991, BrainWorks has been providing executive recruiting services in the practice areas of private equity, consumer products, decision sciences and analytics, market research and relationship marketing. The firm focuses on the recruiting needs of C-level and sub C-level management specifically within private equity and Fortune companies.

Related: BrainWorks Recruits CFO for MackeyRMS

Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor  – Hunt Scanlon Media

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