Staff reductions in times of skills shortages

The war for talent is over – the talents have won

Quantitative simulations of demographically induced departures and unwanted turnover show a homogeneous picture across all financial services providers, which can be summarized quite bluntly: by 2030, banks and insurance companies will lose an average of 30% of their current workforce.

New HR Strategies are mandatory

The problem has been recognized and everyone is working hard to find a solution. HR strategies are revised across the board, as the established HR departments’ previous outline of the core functions is no longer sufficient when it comes to defining a future-proof course of action. For the first time, HR strategies are systematically derived from the business strategy and underpinned with specific KPIs and measures. More sophisticated projects also take into account a reverse channel from the HR strategy to the business strategy.

Initiatives are being launched to increase employer attractiveness. Applicants and employees are given the same status as customers, and application processes are often optimized end-to-end. Staff retention is geared towards the needs of different employee groups (including age groups) and finally extends beyond fruit baskets, employee discounts and cheerful corporate events.

Excessive focus on quantitative staffing levels

But the impetus for action among many companies is currently partly exaggerated or misguided, because: when it comes to employee recruitment, development and retention, there is often too strong a focus on the company’s quantitative staffing level. Driven by concerns about staff shortages, some companies lose sight of the qualitative aspect of staffing. For instance, “type 2 errors” in recruitment, i.e. wrongly rejected applicants, are minimized, but “type 1 errors”, i.e. wrongly hired applicants, are increasingly being overlooked.

Even in times of skills shortages, reorganization is indispensible

At the same time, strategic realignment and even restructuring are still part of normal business activities. The news is full of reports about major downsizing programs at large companies such as SAP, RTL, Bosch, Liebherr, ZF, Continental, Unilever, Bayer, Deutsche Bank, etc. Obviously – and this has not yet been fully recognized by many decision-makers in banks and insurance companies – there can be a need for staff reductions even in times of skills shortages.

If you look at the development of staffing levels at several companies that have regularly had waves of downsizing in the past, you can see that staffing levels have always shown a long-term trend of growth despite short-term slumps following downsizing programs,

What does this mean for HR management?

Staff reduction programs are a thing of the past, present and future – even in times when the market is short of skilled workers. Companies still require the necessary know-how and tools to carry out staff reductions professionally and successfully.

At the same time, however, they need to radically rethink the concept and design of staff reduction programs. When skilled workers are scarce, staff reductions have to be managed much more intelligently than before. Tools that were formerly used across the board must be sharpened considerably to enable staff reductions without falling into the traps of skills shortage.

New work concepts need new cutbacks

The downsizing programs of the past already took social responsibility into account. Companies have also learned that it’s not only important to focus on employees who leave the company, but that appropriate measures are also needed to support the large group of employees who stay.

Efforts to achieve socially responsible layoff processes, often combined with negotiations with employee representatives, have led to the quantitative reduction targets being achieved through a high proportion of employees who leave the company by their own choice. Assuming an appropriate age structure, partial and early retirement programs are popular socially responsible downsizing options. Yet they regularly produce the effect that companies pay employees for leaving and then have to fill the same positions again. Voluntary separation programs are also often characterized by a great deal of vagueness, and so employees who are in demand on the job market and quickly find a subsequent job leave in exchange for a severance package.

This has a negative effect on costs, but above all an unwanted damaging impact on quality, which against the background of the skills shortage is significantly more important.

Financial services providers are ethical companies

To make one thing clear: socially responsible aspects are and remain a key principle in staff reduction programs. Especially in times of a shortage of skilled workers, it’s essential for employers to act ethically. And there is a much higher demand for professionalism.

The challenge, both for employers and employees, is to ensure that staffing levels are sustainable in terms of quantity and quality. As skilled workers are scarce and costs and effort involved in recruitment are increasing considerably, employers should not lay off employees who perform well in roles that then have to be filled again. Qualitative aspects must be considered with a much stronger focus than in the past, both in recruitment and, inversely, in separation. No mistakes should be made here!

The precise identification of employees to be laid off is therefore a key element in staff reduction programs. Unfortunately, the performance management tools used are often not informative, let alone future-proof. In addition to strategically identifying the functions to be reduced and individually identifying employees who are not the best fit, the next challenge is to reach an agreement with employee representatives, who often shy away from considering the issue from a qualitative perspective.

Respectful dissolution of employment relationships no longer a taboo

This is where the final aspect of modern downsizing programs comes into play: a professional approach that employees perceive as comprehensible and fair. In this case, traditional approaches meet modern ones. Open, bidirectional communication has always been a basic prerequisite for successful change.

At the same time, modern working relationships need to be freed from the antiquated notion of having to last for a lifetime. Nobody owes their employer lifelong loyalty. Changing employers is not a taboo, nor is there anything shameful about an employer realizing that the working relationship has gone out of sync.

The paradigm of treating employees like customers also applies here. Just as banks and insurance companies manage to part with customers professionally without causing unnecessary damage, the mutual separation in the employment relationship must also be handled professionally. One aspect should not be underestimated: the chances of new employment for laid-off employees on the labor market are currently increasing significantly. This makes the dissolution of employment relationships considerably less dramatic. In fact, such changes often offer clear advantages for employers and employees alike.