This much, at least, is clear: The global economy is wavering. A predicted U.S. recession and widespread inflation spell possible trouble worldwide. However, any agreement among top economists stops right there. Divided expert opinion sees today’s situation as anything from a blip on the screen to the beginning of a doomsday scenario.

So what’s the smart HR response? Preparing for a long-term recession could mean eroding the talent investments, mechanisms and networks the company has worked hard to put in place. Then again, sitting tight and crossing one’s fingers clearly isn’t prudent.

The answer for most companies rests somewhere in between: Prepare for a short-term downturn while focusing on the larger emerging issue — a multiyear battle against wage and commodity inflation. The critical solution is productivity.

Don’t panic — you’ll destroy capability
It has been widely predicted that the United States is heading into recession, although more recent data may be pointing instead to slow growth with a recovery later in 2008. We see companies across many industries bracing themselves — and yet, so far, most are just waiting and watching. The labor market remains tight, especially for skilled professionals, with no decrease in attrition.

The message for HR executives: Take no dramatic action. Responding to predictions of a “gloom and doom” scenario means dismantling the structure and systems you’ve spent many years and a great deal of money establishing. We believe an overzealous response would be a mistake for three reasons:

• First, after rounds of dramatic layoffs and reorganizations during previous economic downturns, most global companies today are leaner than ever. There is virtually nothing — and no one — left to cut without serious organizational impact.


• Second, letting go of the careful hires your company has worked diligently to engage would mean the write-off of a substantial multiyear effort in recruiting and retention. As witnessed during previous cycles, employees have excellent memories. During better times, they remember the actions their companies took back when the going got tough.


• Finally, when business turns around, you’ll need the talent capabilities you’ve built more than ever. Casting off your talent investments could leave your organization crippled in the face of a rapid rebound.

At the same time, we recommend three steps companies should be taking to prepare:

1. Don’t overhire. While we don’t necessarily advocate broad-scale layoffs, we do suggest being more careful (and taking more time) in the hiring process. All new hires should be subject to a disciplined review of their business cases, taking into account current economic conditions.


2. Review your severance policy and plans. Understand the true costs of separating with employees, and develop a staff reduction plan for use if conditions worsen.


3. Most important, begin to view everything you do through the lens of productivity. The concept of productivity is hardly new, but we believe it represents the best hedge against economic downturns and inflation.

Productivity protects against recession and inflation
In the 1970s, Japanese-style “lean” manufacturing drove productivity gains. In the ’80s, access to capital encouraged expansion. In the ’90s, the technology boom spurred productivity and growth. Today, we see the type of productivity driven by human capital as the success factor most likely to lead companies out of the economic trouble ahead.

What does an emphasis on productivity mean beyond business as usual at most companies? For HR professionals, it means taking a business analytics perspective toward human capital and relating business drivers to productivity. Getting back to basics, remembering what your economic model is and then making sure your employees are specifically set up to support that model will be critical. If your employees are not driving metrics related to your business strategy on a daily basis, something needs to change.