Last year's market instability isn’t likely to go away any time soon. Economists have been predicting a downturn for 2023 since last August, and CEOs across sectors are preparing for the worst, as the Federal Reserve continues to raise interest rates in an effort to combat inflation. That translates to less purchasing power for consumers, decreased demands for goods and services and, ultimately, tough times for businesses.
What does this mean for staffing? According to a recent report from the National Association for Business Economics, most leaders are predicting falling employment numbers in the next few months. One thing is for sure: It’s the nimble, resilient operations that will struggle the least in the face of market instability.
There’s a way to prepare for employment fluctuations that many businesses might not be taking advantage of: switching to an output-based staffing partner. Traditional staffing models charge based on headcount, but in a recession those numbers can change at any given time. On the other hand, an output-based model guarantees cost and results through changes in personnel, labor costs and revenue. Following are some ways in which an output strategy can help companies to gain budget certainty, reduce costs and enhance productivity.
Gain budget certainty. Reducing headcount during a recession means uncertain workforce costs, and that’s the last thing an operation needs when trying to make ends meet. Output-based staffing models offer companies a fixed price to achieve a certain level of performance, so changes in staffing numbers don’t impact budget and productivity is guaranteed.
Business objectives can change week to week in a recession, and an output strategy is designed to be flexible in response to these changes. Regardless of how the market affects their client’s business, an output-based staffing team sources the number of workers needed each day to meet key performance indicators.
It all comes down to gaining confidence in uncertain times. Companies that choose an output-based approach have more certainty in hitting milestones during peak periods and crises, because the staffing partner’s pay depends on the team’s ultimate productivity, not headcount. Instead, staffing teams utilize workforce management, ongoing production feedback and accountability to efficiency numbers to ensure productivity.
Increase flexibility and reduce turnover costs. For businesses following a traditional staffing model, headcount swings during economic uncertainty come with a plethora of costs — namely, the time and energy it takes to redistribute shifts, reassign responsibilities and generally compensate for lost workers.
With an output-based strategy, the staffing team oversees day-to-day labor execution, so it’s easier to ramp associate numbers up or down as the market changes. Instead of focusing on the number of people in a building, operations are staffed based on the number of packages that need to ship, or pallets that must be loaded onto trucks. The staffing partner crews and schedules the workplace, and the client only pays based on meeting KPIs.
Traditional staffing models often require excessive costs associated with nonproductive labor, turnover and subsequent training and retraining. These costs are more likely to increase during a recession as companies downsize their workforce. The reality is that businesses don’t need to be contending with these issues. An output-based staffing team handles the hiring, onboarding and training of new associates at no additional cost to the client. This consolidation of processes results in streamlined operations, time back for managers to focus on production, and clearer accountability as the responsibility is taken off the client business.
Enhance productivity. However limited their headcount, operations still need to meet KPIs during a recession or risk losing out on vital revenue. How can businesses maintain productivity despite a decline in labor resources?
One solution is incentive-based compensation programs, which reward employees without raising salaries. Instead, associates are compensated based on productivity metrics such as items processed, earned hours and attendance. These systems not only encourage peak performance, they also motivate the team, mitigating turnover by keeping employees engaged with the company. And, to increase productivity in the long term, an output-based model looks at each step in an operation’s process to identify inefficiencies and eliminate waste from work processes.
While many economists agree that a recession is in the books for 2023, there’s still debate over the projected severity and length of the downturn. The reality is that, businesses can’t predict exactly how they’ll be impacted by the market. Instead, they need to be ready to adapt to whatever happens. Consider 2020’s COVID-19-driven recession, which lasted only two months and was followed by a sudden, short-term rebound. If this year’s downturn is equally short-lived, companies will need to revisit their production levels by Q4.
Output-based staffing partners are ready to adapt to whatever changes the market may bring. Adopting this staffing strategy does more than create predictability for workforce costs and production output. By focusing on process optimization and turnover cost reduction, the model sets up clients for more agile and resilient business operations, no matter what economic hurdles or changes the future brings.
Carl Schweihs is president and chief operating officer of PeopleManagement, TrueBlue’s workforce-management division.
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