Preparing for the possibility of a recession

An economic downturn might be coming our way in 2023 – so what can culture-first companies do to prepare for a recession?

Experts disagree on whether a recession is likely to occur. While economists at Ned Davis Research forecast a 98.1% chance of a global recession, Reuters predicts that the global economy will likely avoid a recession in 2023. Regardless of whether or not a global downturn actually happens, it’s clear that a fundamental shift is taking place in the world of work.

Many now expect that the Great Resignation – a period in which millions of employees voluntarily left their jobs – is turning into a Great Apprehension, in which fears about job security drive employees to buckle down and lay low. At the same time, mass layoffs are taking place across companies, including some of the world’s most well-known ones (i.e., Meta, Amazon, Stripe, and more).

Leaders are being asked to make difficult decisions now in light of the vast uncertainty ahead of us. But is it possible to do so in a culture-first way that benefits both the organization and its people?

In this article, which draws from Culture Amp’s report, Putting culture first to overcome organizational uncertainty, we’ll explain why putting culture first is the right choice – especially in times of unprecedented change. We’ll also share data-backed tips on strengthening your culture even with a possible economic downturn on the horizon.

The importance of putting culture first during an economic downturn

During a recession, organizations and their teams stretch themselves to work with limited resources while coping with elevated levels of stress, anxiety, and ambiguity. Employee morale, motivation, and well-being often take a nosedive as companies tighten their purse strings and deprioritize company culture and the employee experience. But this approach isn’t the only option. Culture-first alternatives exist – and they work better.

At Culture Amp, we’ve always believed that company culture and business outcomes go hand-in-hand. This is particularly true when dealing with an uncertain future. With all the factors and variables that are inherently outside of your control, one powerful lever is always within your grasp: your culture and – by extension – your people. In our work with over 5,700 global companies, we’ve found time and time again that investing in and maintaining culture lays a strong foundation for navigating the unexpected.

This is because your culture determines the following:

• How quickly you’re able to pivot.
  Sudden changes are inevitable. To agilely respond to the coming year's changes, you need to foster a culture of employee trust, transparency, and effective communication. Without these pillars firmly in place, your people may feel taken aback or distrustful when priorities suddenly shift and major decisions are made without their knowledge.
• How much time employees spend on productive work.
  Your culture influences whether your employees work efficiently to meet their goals, or “spin their wheels” to fulfill their 40-hour a week time commitment. If a recession happens, you will want a culture that prioritizes clear alignment on goals and strong collaboration across teams, as a greater volume of work will need to be done in the same amount of time. Cultivate this culture now.
• How committed and willing employees are to go above and beyond.
  How hard will your employees work to help the company and their colleagues during good times and not-so-good times? The answer is strongly influenced by how positively they feel about the organization, its culture, and its future prospects.

Tips for taking a culture-first approach during an economic downturn

In our report, Putting culture first to overcome organizational uncertainty, we identified four types of companies based on their retention and hiring rates.

During a recession, most companies become either a Decreasing or Holding company, depending on if a company goes through a hiring freeze or a layoff. Below, we’ll share tips on what you can do to strengthen or maintain your culture, based on people science data.

How to take action as a Decreasing company

During a recession, Decreasing companies often comprise organizations that are undergoing layoffs. As a result, morale is often low before, during, and after people are let go. Despite the challenges that come with layoffs, there are some small yet significant things you can do to make this time of transition a bit easier for everyone involved, such as communicating news of layoffs transparently and authentically.

Know that it will take time for your organization and the remaining employees to process the news, especially if multiple terminations are involved. Make space for your workforce to process the event, as survivor’s guilt can often persist.

A recession, of course, is a prolonged event. Letting go of employees with compassion is integral, but so is finding ways to keep your remaining workforce engaged and motivated.

In our research, we found that employees at Decreasing companies are most engaged by the opportunity to play a part in their organization’s (hopeful) comeback story. They want to see that the company is making sound decisions and directing resources effectively toward a brighter future. This finding is especially valuable during an economic recession when employees are expected to work harder than ever for less of the usual rewards (i.e., compensation increases, bonuses, etc.).

As a Decreasing company, your employees will want to know that their hard work will likely pay off in the future and that the company has been making the right choices (including layoffs) to weather the economic downturn.

How to take action:

• Approach layoffs with compassion. This is both for the sake of the employees who are let go and those who remain. The layoff itself, the decision-making process behind layoffs, and the termination process (including the severance package) should be shared transparently and communicated authentically.
• Create a compelling vision for the future. Ensure that employees have a framework for aligning their individual goals to team and company ones.
• Establish accountability for achieving goals. Don’t just set goals – make sure there are processes to measure them.
• Prioritize the reallocation of tasks and roles. A wave of turnover follows many layoffs. Mitigate the worst of it by dividing the remaining work based on your employees’ personal development aspirations.

How to take action as a Holding company

During a recession, a Holding company is usually a company that has decided to freeze hiring and growth while retaining the current workforce.

Since a Holding company can become a Decreasing company depending on how the economy changes month-to-month, employees at Holding companies could feel insecure about their job security. This is where open and honest communication comes in.

As much as possible, leaders at Holding companies should strive to give frequent updates on the state of the business, and honestly answer employee questions. Without clear communication, anxiety and fear will spread, leading to decreased employee engagement, wellbeing, and productivity – which are critical to maintaining momentum during an economic downturn.

Beyond open and honest communication, our research suggests that Holding companies should focus on ensuring employees feel respected and valued. The two questions “I feel respected at [Company]” and “I feel valued for the unique contribution I can make to [Company]” were uniquely engaging for employees at these companies.

By focusing on the parts of the employee experience that most affect how valued and respected an employee feels, leaders at Holding companies will be better positioned to retain and engage current employees while mitigating the need for future layoffs.

How to take action:

• Communicate openly, honestly, and authentically. The future is almost impossible to predict, and difficult decisions will inevitably need to be made – especially if a recession does happen. That’s why it’s so critical that leaders are open and honest if they are unsure about the future.
• Cultivate psychological safety and respect among your workforce. You can reduce the risk of voluntary turnover by ensuring that your employees feel like they – as individuals – are recognized. They want to know that their humanity will not only be acknowledged, but respected and factored into major business decisions.
• Focus on the unique contributions each employee can make. Encourage managers to consider how they hone their employees’ strengths to maximize each individual’s value. Doing so will not only boost engagement but also help improve business performance by bringing out the best of each person. If done well, you may be able to decrease the need for layoffs.

Recession or not – focus on your people and culture

A recession brings with it significant and unprecedented challenges. Although we still aren’t sure if a recession will happen in 2023, the truth of the matter is that leaders are tasked with making decisions about the future using the information they have now. By continuing to prioritize company culture and your people through this period of uncertainty, you’ll be prepared whether or not a recession occurs. Putting culture first will set a solid foundation for navigating future change.

Navigate organizational uncertainty

Learn about the four company types, and how each can lay a culture-first foundation that helps them overcome the unexpected.

Access the report