Shaping up to the recession

Reasons not to be cheerful. The number of people out of work in the UK in the three months to September jumped by 140,000 to 1.82 million - the highest in 11 years. Economists are predicting the figure will top two million within months. According to the CBI, after more than a year of steady growth, 33% of SMEs are now reporting falling order rates and 29% have already cut their workforce. It expects unemployment to reach the two million mark by the end of 2008 with the jobless rate rising to 6.5% and peaking at around 2.9 million (9%) by mid-2010. It's a pretty bleak world at the moment for manufacturers. Those of us who have weathered previous recessions are dreading the re-emergence of large-scale layoffs. Handing out compulsory redundancy notices is one of the toughest tasks any manager ever faces. This time round, however, it could be even worse. In the regular downturns of the 80s and 90s many industries were frankly over-manned. Few own up to it now, but many seized the opportunity to tighten up their labour supply with both hands. Today, things are different. Today's manufacturing company has little, if any, fat to lose. It's ironic that, in recent years, it has been a dearth of skilled people that threatened our manufacturing future. Now the recession is well and truly here, many of the people whose abilities will be fundamental to powering a recovery are in danger of losing their jobs. Initially, workers past retirement age and unskilled manual workers bore the brunt, but now the cuts are reaching further into the skills base. It's bad news on two counts. "With the average cost of redundancy to employers now running at more than £10,000 pounds for each person losing their job, there is a financial incentive for organisations to hold on to staff where they can," says Dr John Philpott, chief economist at the Chartered Institute of Personnel and Development. "This is obviously easier said than done in such tough times, but the business performance of organisations will be strengthened if they have the right people and skills in place to prepare them for the upturn in the economy, whenever it comes." Companies are obviously squaring up to this. With new car sales down 23% in a year, according to the Society of Motor Manufacturers and Traders, the automotive industry is being clobbered. Jaguar Land Rover cut shifts, extended Christmas shutdowns and even offered some production workers three months leave at 80% of their normal pay to cope with the downturn. Eventually, however, it was forced to ask for voluntary redundancies, looking to lose between 300 and 400 jobs by the end of January. Reportedly, those taking up the offer will get nine months' pay and the over-60s will receive their full pension. It may be a one-off cost but it will still hurt. Others are adopting different strategies to hang on to their workforce. BMW's Mini factories will close for four weeks over Christmas. Honda has been brave enough to publicly state that it is "fully committed to safeguarding all current jobs". Instead, it is scaling back production at its Swindon factory by cutting one of two shifts. Fairline Boats, one of the leanest producers in the UK, is trying to keep its highly skilled workforce by sharing out the pain. Four production lines will start a two-day week until Christmas and the fifth will work just three. Those affected will still receive 60% of their wages on non-working days. More unusual is the route adopted by Nissan in Sunderland. It is bringing something called a volume flexibility agreement into play - basically a form of time-banking agreement with its workforce. It will cut production volumes by a series of short-term working days plus close production entirely for two weeks. For that fortnight, however, employees will be paid and training in workshops rather than sitting at home. If you've got to axe jobs, there's little more to be said. EEF is even offering a series of seminars on planning and managing the process (www.eef.org.uk/redundancy). But Nissan's approach shows it's worth exploring the options when times are tough. It is ironic that, for years, people have been advocating more flexible work patterns to attract and keep good people by relieving the pressure on their home lives. Now it is just possible that new employment models, terms and conditions might offer a way of reducing overall costs while keeping them in work. Tom Flanagan, employment partner at law firm Pinsent Mason, believes businesses often overlook the potential of a wage freeze, possibly running alongside more flexible working practices. During the 90s recession he advised an international company which avoided redundancies by this route. After consultation, the union agreed not to object. Importantly: "The senior management team forwent their salary increases and bonuses to lead by example and staff were informed that, subject to business improving the following year, they would be fully remunerated with back-pay as far as possible." Managers carefully explained that the measures were to avoid redundancies and - although they did not ask for the workforce's consent - made it clear that a significant objection would have led to the scheme being abandoned. With job losses as a clear alternative, it was accepted. Wage freezes may stop costs rising but they don't actually bring them down. Dr Clare Kelliher at Cranfield School of Management, a specialist in flexible working, believes there could be two-way benefits in a wider approach: "You could argue that if you have more committed employees - one of the prime benefits of flexible working - you are better positioned to compete in a difficult market. But in a recession there may also be scope for creativity in working patterns - like people opting to work reduced hours, different hours or sharing jobs. Day-to-day flexibility or even different set hours may mean companies can spread their resources. Depending on the nature of the business, it may reduce the need for overtime or the use of agency staff to supplement periods of peak demand." She points out that some people may actually welcome a career break: "It is more likely to be agreed in the current climate, rather than when it is difficult to replace people. I appreciate however that employees may be nervous their job may not be there when they return." She says many of the business schools have noticed a recent increase in people taking career breaks for MBAs. "Businesses may be happier for people to take those kinds of breaks now - it's an investment in their skills." Manufacturers tend to shy away from flexible working for production employees. Kelliher's research, however, shows that there is more flexible working happening on an informal basis than most organisations realise. "Often it was a one-to-one arrangement with the line manager and it hadn't gone through the HR department so essentially no-one had any record of it." She found considerable evidence that supervisors had found ways of capturing the hours worked and handling the pay implications without a formal policy. "Where there was resistance from managers, it was usually not about 'my employees in my department' but rather a fear that 'other' people could take advantage of it." Organisations clearly did not suffer through this; most were surprised even to find it was happening. It negates many of the objections to including it in normal employment policy, especially if it reduces the overall wages bill. Martin Gee, director of consulting at flexible working specialist Working Time Solutions (WTS) goes one stage further: "If you are spending the money on controlled and uncontrolled overtime and agency staff, there is scope to get rid of those costs first and keep your headcount. Lots of companies don't ask the questions because they don't want to open a can of worms. If you need to turn down production levels, there may be employees who have paid off the mortgage and might welcome a reduced hours contract. It may not appeal to the 'overtime barons' but they may act as a reserve to get through unexpected peaks in these uncertain times. It still allows you to do it in a controlled and budgeted fashion." Last year he worked with the 160-strong shopfloor of a paint company. With inflexible shift systems, it simply couldn't cope with demand fluctuations. Rates of pay were low and both the company and the workforce were totally reliant on overtime. The solution was a scheme that reduced the working week from 45 to an average 38 hours but counteracted it with a slight increase in hourly rates and a productivity bonus. He admits to initial problems with the union and the loss of some employees but, a year on, both employees and union really like the new contracts. Productivity is up 5%, labour costs are down 5%, overtime is practically non-existent and absenteeism has gone from a massive 30% to virtually zero. And the headcount is the same. "So many companies are not utilising their staff in quiet periods but are incurring huge overtime in the busy ones," explains Gee. "Bizarrely, there are even ones paying overtime in quiet periods - largely because overtime is driven by the troops. There are lots of costs that companies can pull out of the system without getting rid of people." Yes, but does anyone want a major upheaval at a time like this? Yes, they do - Gee maintains that WTS is seeing an increased level of enquiries and both project take-up and software sales are up. "We are not enjoying the recession but we are definitely benefiting from it." He says payback is typically between two and four months. "There are massive gains to be had in reducing costs and not through headcount. Some do but the majority is about getting people better aligned with demand. You have spent all that money recruiting and training them; you want to use them." Nor is the process as painful as many companies anticipate. GlaxoSmithKline's Ware plant took eight weeks to agree new contracts and successfully implemented the new model in under four months. Will workforces accept smaller paypackets for shorter shifts rather than face redundancy? "There is a realisation among some that it is going to happen," says Gee. "Faced with redundancy or taking a knock in the paypacket, people will move that way." Dr Kelliher insists that all research shows positive gains in employee performance as a result of flexible working. It is therefore puzzling that both CBI and EEF were lobbying for the abandonment of proposals to allow parents of children up to age 16 to request it. Lord Mandelson, however, clearly decided to stick to his guns as this has just been announced in the Queen's Speech. "Proactive companies haven't waited to be told and there are benefits through promoting flexibility," insists Gee. "Employees become super-employees when you can meet their personal needs." One final point. Alan McLenaghan, MD of Saint-Gobain Glass UK - winner of Best Process Plant at this year's Best Factory Awards (see p12) - has actually told his employees their jobs are secure. "I want them to focus on efficiency and safety and getting products out the door. It's impossible to recover from layoffs and you should never let that fear creep into your company if you can possibly avoid it. As soon as you lay one person off, everyone feels insecure and you lose the loyalty. We want to come out of this with our workforce knowing we are good to work for because we will do everything we can to safeguard them from the recession." He was recently asked by a researcher at the Bank of England what his headcount would be over certain timescales: " I replied the same as today, and possibly one or two more assuming other companies insist on showing the door to exceptional people that we would welcome at SGGUK." He cites a friend who firmly believes in the virtues of recruiting in a recession: "The best time to fish is when no-one else is fishing and the fish are hungry. Not when the lake is full of boats."