Senior Client Partner
Finding Solutions for Troubled Times
At the beginning of 2020, right before the pandemic forced the US into lockdown mode, one retailer drew up plans to roll out online ordering and pick-up curbside service. They expected to roll out the services over 12 months. After the pandemic hit, the company launched the fully functional services across its stores in just 12 days.
No one in business wants the kind of economic downturn which has dominated the headlines in 2022. But along with slashing budgets and sending out pink slips, some firms are also pushing for innovation and accelerating cultural change. When companies are in belt-tightening mode, they have little choice but to look for new ways to operate, engage with suppliers, and collaborate with customers, says Nathan Blain, global lead for optimizing people costs at Korn Ferry. “Competitive differentiation happens faster in a recession,” he says.
To be sure, the economy could shift without notice. Job growth may be far exceeding analysts’ expectations—employers added 528,000 jobs in July—but nearly everything else is trending downward. Gross domestic product fell less than one percent in the second quarter, following a 1.6% decline in the first three months of the year, for instance. Inflation is still running above 8%, and consumer confidence is still low. When we asked experts what may come of all this, we found change is likely in several interesting areas.
The rise of digital wealth management firms like Betterment, and alternative payment providers such as Square and Venmo, can be traced to customer mistrust, engendered by the subprime mortgage crisis of 2007-08, in traditional financial institutions. More recently, tech companies have poured money into virtual reality and augmented reality to get ahead of the next trends in how people connect and work together, notes Jamen Graves, global co-leader of Korn Ferry’s CEO and Enterprise Leadership Development practice. These firms have been emboldened by the rapid adoption of digital tools during the pandemic. “Companies and consumers are likely to need to lean on technology even more in a recession, to keep costs down and optimize efficiencies,” says Graves.
Well-capitalized companies with strong cash flow often use economic downturns to strengthen their strategic position or add new capabilities through mergers and acquisitions. “Acquisition pricing is much better in a downturn,” Blain says. One such example would be semiconductor manufacturer Broadcom’s $61 billion purchase of cloud computing company VMware in May. In fact, though deal activity overall slipped in the first half of this year from 2021, it remained strong across several sectors, among them tech, health care, and financial services.
Leslie Gordon, global sector leader for investment banking and capital markets at Korn Ferry, says the dramatic downturn in the economy is prompting leaders to look for efficiencies wherever they can find them. “When business conditions change like this, leaders have to look hard at costs and operations,” he says.
During prolonged market downturns, leaders don’t spend lots of money going after new or different clients, says Michael Givner, global co-head of consumer and commercial financial services at Korn Ferry. Instead, he says, they tend to repurpose employees and refocus energies on better servicing their top clients, For example, in the mortgage industry—which soared to all-time peaks during COVID but has since plummeted precipitously—leaders of the larger and more diversified firms are seeking to avoid layoffs by moving talent from the origination side to the customer-service side, where both demand and the need for talent remain high. “The last thing leaders want right now is for top clients to leave,” says Givner.
Leaders have also learned from past recessions that cutting too deep too soon could end up costing more than it saves in the long run—it's more expensive to hire and train a new employee than it is to retain a current one. Deepali Vyas, global head of the fintech, payments, and crypto practice at Korn Ferry, says economic downturns provide an opportunity for leaders to shore up a company’s culture and purpose and reinforce the idea of the team over the individual. “Recessionary environments are when leaders can draw on the themes of loyalty and partnership to pull employees together,” she says.
In fact, Vyas says, employees are more trepidatious than they have been over the last two years. During downturns, she notes, workers are more likely to prioritize stability and security and stick with their current companies. With the specter of layoffs omnipresent, they are also more likely to perform at higher levels and focus on where they can have the most impact. “It’s actually a great time for leaders to create continuity and increase productivity and retention,” says Vyas.