Through a company’s human resources department run many signals of how an industry is trending. For example, logistics and distribution of goods, workforce levels and compensation rates are all predictors of how an industry is trending relative to the economy.
Looking back before the onset of the Great Recession, Sequent CEO William F. Hutter says there were signs that problems were coming.
“We learned through hindsight that there were trends that occurred nine months earlier than any of the other major indicators — losses on the stock market, for instance — that were predictors of what was coming,” Hutter says. “Knowing what we know now, it may be possible for businesses to use their HR departments as a bellwether indicating possible turbulence in their industries.”
Smart Business spoke with Hutter about how companies can use their HR departments to get ahead of trends affecting their business.
What are the signals that run through HR that can indicate larger trends?
In late 2007, HR departments noticed a change in the logistics industry. Transportation businesses are linked to supply chain businesses, and trends in consumer products offer a strong indication of the health of an economy.
At the same time there was a slow down in janitorial businesses. Companies were discontinuing their commercial cleaning relationships — an important service, but not a core business function.
Occurring simultaneously were pullbacks at the two ends of the cycle: supply chain and clean up. The declines were happening in late 2007, and by mid-2008 those companies had shrunk their staff by 50 percent. It wasn’t apparent at the time, but there was a deeper message. It escalated to an unprecedented decline localized to a few industries.
Today, logistics and janitorial are experiencing growth through hiring and investments in facilities. This is a welcome trend as the concerns around federal regulation ebb.
How can CEOs and business owners find these signals?
Every industry has a class of businesses or group of clients that are the barometer of their business. The responsiveness of the business cycle has compressed so rapidly that CEOs and business owners must now watch a number of indicators to get the true picture of the changing climate.
A good first step for business leaders is to determine which companies are the bellwether predictors for their business that can indicate when things are headed in a good or bad direction. Activity in consumer goods, for example, is a strong indicator of the general health of the economy, which is why it’s wise to watch the movement, growth or retraction of companies in that industry — Amazon Prime, for instance. But there are unique industry indicators worthy of monitoring. These are likely well-known clients that are a critical component of the revenue stream. If they struggle or grow, it can have consequences that ripple through the industry. Keep an eye on the health of these businesses to stay ahead of larger economic trends.
Once the signals have been identified, how can they be used to protect a business or generate opportunities that come from economic changes?
The agility of business is more important than it ever has been. It’s up to the leadership of today’s businesses to identify the early bellwether indicators and monitor their behavior.
It’s also critical for companies to diversify their revenue streams to protect themselves from being overleveraged in a particular market.
Organizations have a responsibility help protect their assets and employees are a company’s most important. A business is only sustainable when its leader is not the central component of its revenue generation capabilities. Companies that have hired and trained people to make an impact on the revenue stream are more likely to succeed than one that relies too heavily on one person to bring in money.
Though it may sometimes seem as if changes occur rapidly, there are typically indicators that precede it. Identifying those indicators and acting before a macro change occurs is critical to business success.
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