How to exit the COVID crisis on a stronger footing


Sherlock works with a number of small to medium-sized companies, many that were scaling rapidly and will use our services to increase site staff on a project basis.  The COVID crisis has hit them the hardest. Steve Bowcott CEO of John Sisk & Son recently expressed his concern about how the Irish Construction Industry has changed irreversibly and is predicted to slow down by as much as 30%  in the upcoming year.  A large number of our clients will have limited resources to buffer the cash flow and expense issues that are on the horizon, many of them are having sleepless nights wondering how they are going to be able to cut costs at work while still maintaining productivityWhat happens if we are thrown into lockdown again?   Increasing profit margins doesn’t come cheap. There are financial and non-financial costs of doing so. So how can finance, operations and business managers afford them as the healthcare crisis gives way to a rapidly approaching economic one? 

The hard truth is that the majority of businesses in Ireland have had to let go of staff since COVID-19 reached our shores. Cutting labour costs is always one way of maintaining profit margins in a crisis. Of course, other factors such as redundancy costs (particularly now that the 60% government rebate is gone), inventory, logistics, rent and lower revenue all impact profit margins. 

Letting staff go, cutting wages, renegotiating rent and new credit terms for inventory can only continue for so long before we need to get a little bit more creative in order to stay ahead of competitors.  

Interestingly there study done by American giant Costco that was published in the  Harvard Business Review revealing that the foundation of their success, year after year, crisis after crisis, was due to low staff turnover rates. Harvard found that Costco’s staff turnover rates (of first-year employees) were less than 10% compared to the industry average of 65%. 

An often-overlooked risk in a downturn comes when employers least expect it – the recovery stage. Why? Because our best staff, those we strategically kept during the crisis, tend to leave quickly for another company during the recovery period. 

This churn has been attributed to several root causes: 

  • Natural risks of a bad hire. 
  • Those highly skilled people that bought into the “start-up dream” tend to retreat back to the multinationals.
  • Your employees haven’t been exposed to other companies’ management responses to the crisis and therefore ‘the grass is (somewhat) greener’ 
  • They are unsure of their current employers’ sustainability either because they have been continuously exposed to recurring bad news or because of lack of hope, due to the lack of communication from leaders expressing their own hope, future strategies and sustainability plans. 
  • The wage cuts that were imposed during the crises were higher than industry and/or competitor averages. 
  • Economically, there are more jobs available in a recovering economy. ‘New climate, new job’. 
  • Naturally, burnout is higher in businesses during a crisis.  
  • Many of their critical teammates could have been made redundant and they are expected to pick up the slack. 

There are so many reasons why employee churn can increase in the recovery phase and employers should expect some great staff to leave.  As construction planners, of course, you must consider the liquidity risks when the wage subsidy scheme comes to an end and future revenue. But as business people, you must consider the blindside risk of higher staff turnover post lockdown on top of potentially further short-term redundancy decisions which also bring redundancy costs and lost opportunities.  

Many SMEs are under a lot of stress right now, but it’s important not to be too focused on the short term –  Warned Mary Connaughton of the CIPD, a professional body for HR professionals (The Sunday Times, June 7, 2020). 

In order to avoid these costs and more, you need to communicate your company’s plans for the future including its financial and operational sustainability in order to keep your existing team tight and staff turnover low. But more importantly, it’s time to look at your numbers and consider alternative ways to improve profit margins in ways your competitors are not. 

The Harvard report noted Costco’s low staff turnover rates was due, in part, to the higher wages and company benefits they offer their staff compared to Walmart – their biggest competitor. Despite this, Forbes also found that Costco offers the smallest markups on their products at 15% or less, compared with 25% for supermarkets and 50% for department stores.  

So, how does retaining high labour costs and lower markups translate into higher profit margins? By spending less on hiring and recruiting. 

According to a recent HR Barometer report, the average cost of recruiting a replacement employee in Ireland is 37% of their salary. With an average salary in Ireland sitting at €39,000, that’s roughly €14,430 to replace an employee, on average. 

Taking a hypothetical example, if the average cost to replace an employee in your business today is €14,430 but only €10,000 for a competitor (because they continued to cut wages further), it looks like your competitors win. Based on a company size of 100 people, if you keep your staff turnover rate at 11% (Ireland’s average) and 11 employees hand in their notice in the weeks/months following a crisis but your competitors have double the number that leaves (22% – for reasons outlined earlier), your cost of turnover will be €158,730 compared to your competitors, €220,000.  

The most impactful point made in the Harvard Business Review study is the amount of revenue Costco made per employee compared to Walmart though. Costco earned $43 billion in 2005 compared with $37 billion for Walmart and with 38% less hiring. That translates to “$21,805 in U.S. operating profit per hourly employee, compared with $11,615 at Walmart”.  

Therefore, Costco generated almost twice the revenue per employee than its closest competitor. Perhaps you risk liquidity issues and can’t offer the high wages that Costco does, but you can improve your hiring, communicate and plan more effectively to ensure your team is the best to begin with. Adding to this you can reduce your risk to hire further by Utilising a service such a Sherlock’s for long term projects, temporary to permanent hires or simple to gain access to highly-skilled, qualified trades and labour who are very happy working on projects and remain working for Sherlock as they are moved to their next assignment or project and they stick together through good times and bad. This will improve your operations and increase your operating profit in a way that is often overlooked.  

Similar to COVID-19, staff attrition is a silent killer. It pushes your costs up, pushes your margins down and throws your ability to capture opportunities in a changed market out the window. 

You need to hire a strong team and you need that team to deliver quickly and effectively and to reduce your risk of hire because you want them to stay in good times and bad. When it comes to significantly reducing your staff turnover, cutting your hiring costs and improving your profit margins, a trusted staffing solutions provider like Sherlock can help you do this in ways your competitors are overlooking.  

Don’t have the time to plan? Well at Sherlock we work closely with our clients in a consultative manner, with in-depth industry knowledge and site management procedures we can project manage and plan your project as you need it. Walso provide no-obligation consultations for non-clients as well who need to understand the playing field better, providing you with a roadmap to keep your business on track.  You can contact our account manager anytime in relation to your people strategy. 

Where you can, hold on to your existing team by offsetting some of the common reasons people leave a company post-crisis that I mentioned earlier. Remind them of their value, acknowledge their contributions and don’t just assume that they are grateful for not being fired. Communicate your future strategy and sustainability. 

Instead of planning for your next round of redundancies, you should start speaking to Sherlock to start contingency planning for when key people leave in a recovery. Make sure you have teams of people who are ready to step in. You don’t want to be faced with redundancy costs and staff turnover costs in recovery. Avoid the herd mentality of further redundancies in the short term as you may be hit with staff turnover costs soon. Rather keep the staff you have, and bring on extra staff risk-free through Sherlock while developing your pipeline of project workers.  When your competitors keep cutting wages and make redundancies, be the industry outlier by spotting the financial opportunities that exist with a good hiring and people strategy.  

Spend less on hiring and recruiting. Fast efficient hiring with a trusted recruitment partner with a long history of success and in-depth industry knowledge will result in better hires, lower staff turnover and an improved employer brand, as well as higher productivity. Taken together, or independently, these inputs will ultimately improve your profit margins significantly and put more time in your busy schedule. 

Working with Sherlock, whether it’s for your contract / temporary recruitment or your permanent recruitment will become a new competitive advantage for your business when it comes to increasing your profit margins in ways you might not have considered before as we return to work post the COVID-19 lockdown.