Cut the Payroll
Not the Culture
Even though we have never experienced a viral contagion on the scale of this pandemic before, we have, in fact, recently experienced a similar business interruption called the Great Recession of 2008. We know about suddenly shrinking construction markets and have research data concerning how long this current “pandemic recession” could last. Most contractors have already experienced a shrinkage in top line revenues or are predicting one in the near future. Dr Tom Schleifer, an expert in the causes of construction business failure, has been asking readers to consider reducing their cost of doing business in order to preserve much needed capital for eight weeks now. Reasonable, if not obvious, advice. But if the advice is not only reasonable but obvious, why are so many contractors hesitating to take action? That is the question we have been pondering for the last six weeks.
Not the Culture
While talking with small to medium sized contractors over the last six weeks, we finally figured out why they were not taking our advice. They were not being stubborn or overly optimistic or hiding in denial. Quite to the contrary. They all seemed almost depressingly aware of the immediate suspension of contracting activity in some locales and wary of the long-term economic implications of a prolonged suspension of business activity while the nation fights the pandemic.
But, at the same time, it gradually became clear that they see an immediate dramatic payroll cutting as a dismantling of the corporate culture that they had worked so hard to erect. Even the smallest of them understood that the team of professionals they had assembled over the years was, in effect, their company. If they abruptly let them go, they feel there would be no company to come back to when the pandemic subsided.
Lessons from The Great Recession
The housing market fell apart in 2008 followed by public construction that is now commonly referred to as the “Great Recession”. The current crisis may have an altogether differed cause, but the impact on the construction market is the same. There are critical lessons to be learned here. Just about every construction enterprise struggled and some failed confirming our research that when available work declines, profits quickly evaporate. Putting work in place for modest or no profit may be advisable for some firms as long as the decline is short-term (my research indicates six month or less). Anyone who thinks the US economy or construction market will even begin to improve in six months should read our Ninth Weekly Crisis-era Message to Contractors on this site.
Purpose, Vision, and Values
The employees who share your purpose, vision, and valuescollectively make up your corporate culture. Every contractor we talked to intuitively understood this, and that’s why they were hesitating to take decisive action. One said, “it took me years to put my guys together and now, the fact is, they run the company. They understand what I want without having to be told, and they know how I like to do things. The left hand always knows what the right hand is doing. They automatically fill in for one another. Where one is a little weak another is strong. After all these years they’re one for all and all for one. That’s what makes this company run. Who would I let go to save money? If it comes to that maybe we’ll all have to go home, but I’m not going to send some away and keep others. I may as well close up. Yes, it’s going to cost me money, but I’m going to wait and see where this all goes. No one seems to know where it’s going anyway. I’m going to make an investment in my team and try to wait this thing out.”
I am hugely proud to be part of an industry made up of such caring people, but at the same time I have little choice but to point out that the key word in the last sentence is “try”.
Tactics That Preserve Culture While Cutting Overhead
What then can be done to immediately respond to this sudden shrinkage of top line revenues and the almost certain economic recession to follow? How do construction CEOs avoid certain pitfalls and still be true to their principals?
Here are some tactical maneuvers that you can use to shrink overhead without dismantling your corporate culture.
- Everyone in the corporate headquarters takes a proportionate cut in pay.
- If possible, the CEO should suspend his own pay.
- Move up retirement dates for those already planning to retire in the near future.
- Religiously follow a last in/ first out policy when implementing unavoidable lay- offs.
- Identify any employees willing to self-furlough and take them up on it.
- Redefine “furlough”. For people who have to be furloughed during the crisis, communicate with them weekly while they are furloughed, and welcome them back when the crisis passes.
- Where possible, subsidize government unemployment benefits for those who need extra help. They will know you have not forgotten them.
- Develop talent within the remaining organization including cross training.
- Actively nurture client relationships.
- Do not opt for risky, short-term solutions in pursuing new projects, clients, or markets, rather protect your equity base critical to your success in the future.
Strategy Informs Tactics
If your long-term strategy is to preserve your corporate culture, your short-term tactics should help you preserve precious capital while protecting that culture. Simplar research into organizational transformation always starts with a well-defined strategy informing effective change tactics.
Read More: Organizational Transformation