OPINION LEADERS Invest, Don’t Cut

Several recent surveys have predicted slowdown in the economy over the next year or so with the growth rate likely to fall from little over four percent to around two percent. And last month Treasury suggested that even these predictions might be “too optimistic”.
The general consensus, however, is that the economic downturn won’t be too tough and that the economy is in for “soft landing”. Nevertheless, business traditionally reacts to such movements in economic fortune by looking to cut costs. And, as people generally account for the greatest “cost” on the ledger of most organisations, so they are often the first casualties of any “savings” plans. Some are disposed of altogether. Those that retain their jobs often suffer cutbacks in their professional development, ostensibly because proprietors and managers see reducing or eliminating management and personnel education and training as an easy cutback option.
But, and particularly in today’s world in which people contribute most to organisational success, this is short term management thinking at its worst. Organisations that cut “people development” expenditure on the premise that it will help them weather any economic storm are fooling themselves. It is, at best, short-term pain for only short-term gain.
In my opinion, by adopting this first and “easy” option employers effectively and quickly strip themselves of all the development gains made from the pre-downturn investment in their people. Once the economy improves, they need to invest considerably more in education and training to bring people, many of whom will be new recruits, to point where they can take full advantage of the turnaround and the prevailing new economic conditions. Companies that try to remain at the cutting edge of innovation, particularly by continuously improving the skills of their people even through economically difficult times, are making sound investment in the speedy renewal of the business immediately the economy improves, as it will.
If enhanced performance can’t be delivered by being more innovative or finding new revenue streams and growth, employers should look first at other expenditure items to trim, items that don’t strip the organisation of its greatest asset – its people. Look, for instance, at delaying expenditure on supplies, new plant and equipment, or even the installation of more theoretically efficient and effective operations systems.
Even after just two years’ service, individual employees store wealth of knowledge about business and gain skills unique to that organisation. All this, in addition to the knowledge and expertise they bring to the company in the first place. While cash flow and profits may be negatively influenced by economic forces, any prudent business will not only see the benefits of retaining and developing as many loyal and well-trained staff as possible, but will also set aside contingency funding to ensure that relevant training opportunities remain intact through the bad times.
Having moved from senior management career in the health and social services sector in Auckland to lead and manage the Young Men’s Christian Association (YMCA) in Tauranga, I see clearly how important sustained investment in people is. The YMCA in this country is now 150 years old. It was built to last. True, some local YMCA associations have at times struggled but, overall the movement has remained strong, relevant and demonstrated an ability to adapt to changing societal needs and remain true to an holistic learning philosophy based on “body, mind and spirit”.
What does this have to do with economic downturn, business and management education and training? Simple. YMCA has survived because it has continued to invest in its people – children, youth, adults, older adults, volunteers and staff. This “upskilling” philosophy is carried through to staff and volunteers, with many YMCAs ring-fencing staff education and training funds in their annual bud-gets. These funds are sacrosanct and during rationalisation are never considered as first budget cut. Investment in people is crucial element in the success of the organisation.
It does not really matter whether organisations are profit or not-for-profit driven, situated in major cities or in provincial centres like Tauranga, investment in people delivers the best return in both good times and bad. I may, of course, be warning of an eventuality that doesn’t this time happen. It may be that an increasing number of New Zealand enterprises have latched on to the changing realities of organisational life and will not immediately apply the brake to education and training budgets if, as predicted, the economy cools. Somehow I doubt it. Cutbacks rather than creativity, are always the easy option and organisations, in my experience, all too often choose the easy way.
Think about it for moment. Consider the high cost of the current shortage of good people in just about any sector or region you like to name. Then consider what keeps and attracts good people. Research shows that people respond to coaching, training and mentoring – in other words, an investment in them. Think again about your priorities when the prospects don’t look quite as rosy next year.

Lloyd Davies FNZIM, DipMgt, MNZTA is executive director of YMCA Tauranga.

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