Stagflation is upon us:
what does this mean for you, your business and your employees?
by Natalie Grogan, CEO of The Outstanding Company
51% of American business are planning layoffs.
This is a different kind of recession than you’ve experienced in your leadership lifetime.
Businesses have had a challenging couple of years when it comes to many things, including human capital. 2020 brought major changes to how people work, along with significant layoffs. 2021 was a rebound year for many however, employers have struggled to fill open positions. Now in 2022, we’re facing two new problems–growing inflation and sustained shrinking of GDP, aka recession.
Inflation and recession are unique economic conditions that need different approaches to mitigate their negative effects, but what happens when both occur at the same time? It’s called stagflation and it hasn’t happened since the 1970s, when most of you reading this were teenagers, children, or not yet born. If you’ve never experienced it, then how will you deal with it? How will you protect yourself, your business, and your employees?
Let’s discuss.
What is Stagflation?
Stagflation occurs when inflation and recession are happening at the same time. Inflation and recession are two of the most significant challenges that business owners and leaders face. Each of these economic conditions are unique from one another and require complex solutions. “Common sense” solutions often cause more harm than good, especially when dealing with business and human capital.
State of Affairs
Two quarters of GDP decline plus inflation averaging near 9% tell a challenging story. Bridgewater Associates, one of the top investment management companies in the world, published an update from their Chief Investment Officers on July 25th titled, “Transitioning to Stagflation”. Ray Dalio, billionaire, genius economist, and former CEO of Bridgewater has been predicting this for quite some time.
Back in June, the World Bank published their prediction of years of upcoming stagflation. This should not be taken lightly by anyone—for both business and personal decision-making.
The July 2022 jobs report indicated that 528,000 jobs were added. Unfortunately, over 80% of those jobs were recovered from the pandemic and not truly ‘new’.
Inflating numbers through semantics and spin is grossly unhelpful. To effectively prepare, leaders need to acknowledge the reality. A surge in hiring does not indicate a lack of recession. The New York Times even published an article last week called, “Good News on Jobs May Mean Bad News Later”.
Unemployment is currently reported to be about 3.5%. This is misleading because it’s based on the number of people participating in the workforce, which has dropped significantly in the last 18 months. According to the Society for Industrial Organizational Psychologists (SIOP), the “Great Resignation” continues and a 56 million job opening gap will be upon us before Q1 2023. Dependent on industry, 32-47% of people are still ‘somewhat likely’ to voluntarily leave their jobs in the next 3-6 months. I highly advise these people not to quit due to the upcoming economic challenges. However, many organizations don’t understand what people want or treat them poorly, and then some people simply have a distorted view of what their employer should provide.
Major layoffs have already begun. Nearly every industry will be impacted by this, with tech currently experiencing the most widespread layoffs, dubbed by the VC world as a #SaaSsacre – Software as a Service (Saas) and massacre. Unfortunately, this is only the beginning.
The 528k jobs added in July will shortly be considered an overshot of epic proportions. The investment app Robinhood recently laid of 23% of their workforce after slashing 9% earlier this year, for lack of user investments. Peloton laid off another 2,000 employees in July, after laying off 2,800 in February. Wells Fargo, Netflix, Tesla, JP Morgan, Coinbase, Microsoft, Groupon, iRobot, Oracle, Shopify, Microsoft, Carvana, Better.com, and dozens of other well-known tech companies have laid off significant numbers of employees so far this summer.
What leaders need to do
Stop. Evaluate. Strategize. Plan.
The number one way to survive stagflation is to improve your organization’s productivity. How do you do that when the life if squeeze out of your budget?
- Review your business strategy and meet with your leadership team to realign on strategic goals – we offer an incredible workshop to work through leadership alignment to business strategy.
- Take stock of existing talent. Rank essential roles and define what success looks like for each. Objectively identify top performers and what makes them such, now.
- Develop top performers. If you do have to lay people off, your remaining team will have to pick up a lot of slack to keep the business going. What are these top performers good at? What motivates them? Where else can they bring value? Are critical teams balanced with generalists and specialists? Find out what you don’t know.
- Define a succession plan. People are leaving the workforce in droves, and you’ll need to have a backup plan to swiftly act when the time comes. No need to act on it immediately and I hope you never have to…but you will.
- Discuss owner/executive sacrifices that may be necessary. How can the business continue to operate profitably through a relatively short-term crisis? Who is willing to make sacrifices to keep it going?
Prepare your employees
Odds are that you and/or the majority of your employees have never experienced stagflation, at least as an adult in the workforce. If you want to keep employees engaged and productive, while doing the best you can to support them, you need to be honest. You have a unique opportunity to educate and prepare them for what is likely a challenging road ahead. Building resilience in employees is critical, and it’s a teachable trait. Sharing also gives employees an opportunity to step up and help curb the impact, instilling feelings of being in it together and strengthening their sense of purpose and importance.
Here are the four ways that you can prepare your employees, while improving overall engagement and productivity.
- Education: what recession, inflation, and stagflation mean and the impact from the perspective of the individual, the family, the consumer, the employee, the organization, etc. For example, most don’t realize they’ve been a victim of ‘shrinkflation’ already—the decrease in size or quality of consumer products while keeping them the same price.
- Planning: define critical roles, ensure the right people are in them to lead during change and pick up slack, while developing levels of succession and right-sizing plans. Hopefully you never have to use them but many of you will.
- Retention: the Great Resignation is still in full effect (although foolishly). Identify needs and create development opportunities for top performers to ensure they stay with you, are prepared for different scenarios, and can step into critical roles in the case of downsizing.
- Leadership: stabilize your leaders (and yourself) to ensure resiliency in managing both work and personal stress. Remember, it’s important to be relatable, practical, and meet people where they are. It’s possible you’ve worked hard on resilience and self-awareness in yourself but others may not.
Share this 5 minute assessment with your team to start working on self-awareness.
What to do next...
You have an opportunity to be an outstanding leader of your outstanding company. People are uncertain of what is coming and leading them through it, with honesty and integrity, will go a long way to ensure your and your company’s reputation, regardless of what the future holds.
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