Effects of prolonged hiring freezes on organisations
In recruitment terms, the financial services industry is well known for taking two steps forward, only to take more steps back. The pattern is evident: frenzied hiring during economic prosperity followed by redundancies or hiring freezes when the market gets tough. This cycle not only incurs unnecessary cost, but can also hamper long-term growth and stability.
2023 provides a sharp illustration of this trend. Many financial organisations have imposed hiring freezes - some lasting throughout the year - to curtail costs, while the uncertain global economy and slowing revenue growth have brought many companies to the cost-cutting crossroads.
At the start of 2023, some organisations opted to manage their costs through attrition, naturally losing employees without rehiring all vacated positions. While this might seem a more palatable solution than large-scale redundancies, the results can be just as detrimental.
5 negative effects of hiring freezes
Hiring freezes, though often seen as an immediate remedy, can have far-reaching implications:
1. Stagnation through low attrition
Ideally, businesses hope natural attrition will help manage headcount. However, in a job-scarce market, people cling to their roles, leading to a lower attrition rate. This means businesses are forced into a corner and must resort to redundancies.
2. Missed talent cycle
A year-long freeze translates to a missed cycle of fresh talent. Finance firms are missing out on innovative ideas, diverse skill sets and the energy that new recruits bring.
3. Poor workforce morale
Conversations I’ve had recently with HR directors and Chief People Officers have reiterated the latent damage of hiring freezes within their organisations. Unable to meet revenue targets due to talent shortages, leaders are in the hard spot of not being able to manage the quality of talent in their teams.
Added to that existing, potentially demotivated employees who feel trapped with no other jobs available to go to, and this drastically affects productivity and innovation.
4. Brand perception
Extended hiring freezes can damage your brand reputation. Potential hires might perceive your company as unstable or not growth-oriented - and this perception lasts.
No matter how good your company’s reputation is, a cycle of mass hiring followed by a freeze or redundancies makes future talent wary. What if they join your firm during a hiring period, only to be either let go in the next downturn, or unable to leave?
5. Inefficiency and loss
The cyclical nature of hiring and freezing/firing, dictated by market whims, is expensive and time-consuming. It creates a ripple effect of inefficiencies, from talent management to financial planning, ultimately eroding shareholder value.
These issues highlight the need for a measured and strategic approach to recruitment. So, how do you go about putting this kind of strategy in place?
Advice for finance firms experiencing a hiring freeze
Before reaching the point where financial prudence means making redundancies, finance firms should think about strengthening their recruitment process. This means critically evaluating the old ways. Was your hiring spree before the freeze strategic, or was it more reactive to immediate needs? We cannot influence stock markets or slow revenue growth, but we can influence internal processes. By adopting a more visionary approach, you’ll get a long-term hiring strategy that fits your needs no matter the market
In addition to rethinking strategy, it’s important to think about how technology can shape and support the business. Automation and technology investment can enhance efficiencies, enabling you to achieve more. While global events and market volatilities remain unpredictable, if you focus on the aspects you can control, such as internal processes including hiring, you’ll have a more streamlined and resilient way to deal with downturns.
One sector with a more robust and controlled process around recruitment is hedge funds. Whilst there is a war for talent in certain areas, hedge funds tend to stick to their processes and do not compromise on quality. Their recruitment procedure, whilst at times influenced by market forces, is ultimately driven by performance, and this ensures a stable, talented workforce.
How can Hanover support your recruitment processes?
With the hiring freeze showing signs of a thaw, it’s time to look at how you're hiring and create a stronger, longer-lasting recruitment strategy that will level out the peaks and troughs that come with market cycles.
Contact me directly to help you map out a better hiring strategy, discuss your processes and requirements and put in place an overarching recruitment strategy that goes across your entire business.