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Why This One Is Different

Why This One Is Different

April 2009

Contributed by PJ Ferguson

Traditionally, the staffing industry is a leading indicator of change in the economic situation.  In previous recessions, temporary staff numbers are the first to drop going into slower times.  According to latest figures by Stats Can, this hasn’t been the case in this economic downturn.  December 2008’s figures indicate that temporary numbers increased in relation to full time positions in Canadian companies.

Why the change?

There are several reasons why this has not been the case in 2008/2009 and they all revolve around the differences within the business psyche during the times leading up to this part of the business cycle. 

The increasing prevalence of the “Just In Time” business model.

In order to be competitive in an ever changing world, companies have simply changed the way they do business in the last 15 years.

Gone are the days of making a year’s worth of product by equally dividing the orders (which were given well in advance) over a 12 month period and storing it in a warehouse until needed.

The lead time on orders is shorter, consumer needs are more fickle and the need to decrease the high cost of warehousing have led to peaks and valleys in staffing requirements in all types of companies. 

Temporary staffing has been imbedded into the business models of most companies that have responded to the need to be more competitive and cost effective. 

Temporary staffing numbers were higher in the last quarter simply due to the fact that this is the time of year when many companies implement this part of their business model.  In good times and bad, there are still seasonal fluctuations.

Lessons learned in previous Recessions.

Each recession in recent memory has highlighted the high cost of long term staff and  the devastating effect of high severance on cash flow and the financial viability of the company. 

As much as it is a painful realization, the fact is that companies have had to lay off large numbers of long term staff in each of the previous downturns and when the turnaround came, they did not rehire those people.  Even when times boomed again, the average tenure of full time employees never returned to previous levels. 

Thus, at the beginning of this current slowdown, length of employment and the associated cost of layoffs of long term people was less of a factor when companies determined a strategy.

Commitment to Lean as a mindset.

In the last 5 years in particular, there have been aggressively increasing pressure to be globally competitive.  Companies have responded by embracing the concepts of “Lean Manufacturing” and applying it to all industries. Waste is eliminated, improvement (and thus change) is continuous and inventory is less likely to be higher than expected demand.  The effect of this is that companies have tighter, more efficient staffing models and are continually examining that model.  When demand dropped, the least productive employees were let go without a qualm.  It is part of the commitment to the Lean mindset.  The core fulltime staff was reduced and staffing model still kept the cost efficient temporary component in place.

The fact is that way we do business has changed in the past two decades. Utilizing temporary help is an integral part of the way that business is done. The growth in the Temporary help industry has been exponential during these years.  Certainly we will see a slow down in this industry’s growth in 2009 as declining demand takes a huge toll on employment opportunities of all types.

One trend that will probably repeat itself is that the temporary industry picks up first coming out of a recession. When consumer demand increases, it can be sporadic. Hence, companies will be cautious in their staffing decisions.   They will not hire back the individuals to whom they have taken the pain of paying severance.  Temporary staff will be brought in to meet initial orders and, as the increase becomes more consistent, those employees are the ones that will be retained.  Temporary associates will be ones to get jobs first coming out of a recession.

Let’s look to that happening…the sign heralding the end of the recession and the beginning of better business times.