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Groups ‘risk repeating recession errors’

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By Richard Milne in London

Published: March 24 2009 02:00 | Last updated: March 24 2009 02:00

Companies risk making the same mistakes as in the previous recession by cutting too many jobs and by taking ineffective short-term measures that could harm them in the long run, a new report has said.

Up to now, European companies have mostly got rid of temporary workers or cut working hours, but a third of all groups are planning to cut full-time staff, says a report by Boston Consulting Group published yesterday. Many businesses cut too many jobs, particularly skilled ones, in the previous recession – and then found that they were exposed when demand returned.

“What we did suffer from is, when the upturn came, we were desperately short of people in some areas,” said John Griffith-Jones, head of KPMG in the UK and joint-chairman in Europe.

Rainer Strack, a partner at BCG and one of the report’s authors, said focus would soon shift to companies’ human resources strategy. He said: “The next scarce capital will be human capital. The mistakes you make now will have a certain impact for a very long time . . . It could get worse, because if I cut jobs like a lawnmower now, then I could have a massive shortfall in three or four years.”

The report found the three most popular likely courses of action were to cut back on recruiting, reduce company events and tone down bonuses linked to company performance. The last two proved ineffective in the previous recession and caused employee commitment to drop. Mr Strack warned: “Laying off people just to meet your costs targets and not thinking what kind of knowledge you will need in two or three years is not a clever strategy.”

Business leaders have tried to strike an optimistic note that they had learnt their lessons from the previous recession. Jorma Ollila, chairman of Nokia and Royal Dutch Shell, said: “Let’s not cut human capital so it hurts us when we get out of this in two or three years. What I see and what I hear is a clear conscientiousness on this issue. But there is a danger that this recession could distract people from the reality.”

But some disagreed, saying that, particularly with the speed and depth of this recession, companies were in survival mode.

“These are really easy things for consultants to write but actually your people like to see you do something,” said Mr Griffith-Jones. “Are there things where you can make real mistakes? Yes. But if your turnover is off by 30 per cent you will probably cut anything just to survive.”

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