Coping With a Recession

Originally published April 20, 2008

Nationwide, business news has been pretty depressing lately. Gas and oil prices are at all-time highs. The record-breaking foreclosure rate means that people are losing their homes and mortgage lenders are going bankrupt. Food prices are rising faster than they have in twenty years and the stock market’s daily fluctuations make the scariest roller coaster look like a Kansas highway.

It’s looking more and more like the country is in a recession – just in time for the election.

So how should people and organizations cope with turbulent economic times?

This may sound trite, but the answer is to think about the future.

This recession won’t be the first. We’ve had many of them in the last hundred years. The interesting thing about recessions is that we’ve recovered from every single one of them.

The average recession lasts about one year. By the time we realize we’re in one, it’s about halfway over.

So how do people and organizations respond in these situations? Individuals often decide to cash out their investments. Unfortunately, by the time they make this move, the market has reached its low point. So they sell low and buy high when the market recovers.

If the stock market recovers like it has following every other recession, now would seem to be a great time to buy. Since the 2001 recession, over 800 stocks have tripled in value.

Organizational reactions are even more interesting. During recessions, organizations often lay off employees and cut back on “unnecessary” expenses like employee training and other human resource functions. These actions cut costs in the short term. But their long-term effects can be devastating.

Home Depot, for example, recently announced that they were eliminating 1200 store-level human resource management positions. Their plan is to add more sales people to deal with the slowing economy.

Just 10 years ago, however, Home Depot spent $100 million to settle a class action discrimination lawsuit. The judge blamed the discrimination on the lack of competent human resource leadership throughout the organization. So Home Depot is now firing the professionals who were hired to help the organization make better decisions.

Good companies take advantage of these mistakes. During the recession of 2001, companies like Southwest Airlines and SAS went on hiring sprees because they knew that talented people were being laid off by other companies.

These good companies also realize that a recession is a great time to increase training. During slower times, employees are not as busy and have more time to learn new things. They also have more time for brainstorming and coming up with ways for the company to run more efficiently.

When the inevitable economic recovery comes, good companies will have talented well-trained employees ready to respond.

The companies that cut employees and training will be understaffed and behind the curve when demand picks up.

These suggestions probably make sense, but they require something that is hard to find during a recession – money! Companies like Southwest and SAS were able to make the moves they made because they had set aside cash for a rainy day. When the hard times came, they were able to spend (wisely) while their competitors made rash mistakes.

The current recession means that spending will be tight around the Timmerman household this summer. But I’m not planning on laying off the kids to cut costs.