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Saturday, September 06, 2008

Slow Economy is an Opportunity to Build Loyalty

Financially I'm a contrarian; when times are good I try to save, and when times are bad I purchase. Every down economy is an opportunity to gain value. The same is true about customer and employee loyalty; this economy is providing us a period of great opportunity.

Like practically every other company operating in this country, the economic environment of the past few months has been challenging. In my HR position I'm involved, as you might expect, with efforts to control our employment costs which included a staff reduction in April. As a department head, I've also been involved in controlling costs including attempts to cancel or negotiate my way out of contracts charged to my department. We also manage fully-insured employee benefits plans that cannot be changed until the end of March, so we're making sure that both employees and the company get the most for the money that we are obligated to spend. Watching vendors and others outside our company operate in this tough environment reminds me of a wise saying from one of my colleagues, "Its every American's God-given right to be stupid". In the scramble to get every dollar possible in a tight environment, I see people making short-sighted decisions and missing a huge opportunity to build customer and employee loyalty. Here are a few examples.

Job Boards
Literally 48 hours after I signed our annual agreement with a national job board company, word came down that we were going to have to reduce staff. The contract period didn't start for 45 days, we had been a loyal customer, paid timely, for years, and the contract ink was not yet dry. I immediately contacted that company and told them we would have to cancel the contract. Their response; the contract has no provisions for cancellation. I offered to pay a reasonable cancellation fee of $1,500 for their time and trouble, and they refused. I consulted with our General Counsel and we agreed that our notice was timely and that this company would incur no damages if we breached. I wrote them a letter cancelling the contract and offering again to pay a cancellation fee. This was February.

After months of nasty-grams and threats and phone calls, this now ex-vendor sent their "Final Collection Notice" from their litigation department; $1,525 in cash in two weeks and pay the balance if we ever use them again. I took it. Now think it through; they could have worked with us, collected $1,500 in February, kept a loyal customer, and had our business next year when (I suspect) we'll be back in hiring mode. Instead, they spent untold hours of staff time, including staff attorney time, to collect $25 more in September, offended a good customer, and provided us a financial incentive not to use them ever again. Am I missing something here?

We similarly cancelled a local job board subscription, worth about $4,500 per year. We offered to pay 1/4 of that as a cancellation fee, and were informed that the cancellation fee would be $9,500, or more than double the cost of the annual subscription. We're still dancing with these guys, but the really bright thing they did this week was turn down a pre-paid ad from us because we owed an outstanding balance. Again, they could help us out in a tight year, keep a good customer whose always paid in full and on time, have our business on a pre-paid basis this year and have us back on board next year. Instead, they've offended us (these folks are particularly nasty over the phone), won't take revenue from us (I placed the ad elsewhere in 10 minutes), and may or may not collect anything more than what we've offered.

Carrier
We've been dealing with an insurance carrier of late whose service has been less than what we'd like. They misrepresented their claims payment platform and capabilities, botched the eligibility file leading to problems when employees go to their providers, and now owe us money under the performance guarantees in their contract with us. In negotiating the payout back to us their offer was to reduce our premiums by 5% for the rest of this year. My offer back to them was this: we're not satisfied so you're fired effective March 31, or you can extend the reduced premium through the following plan year and give yourself essentially 18 months to win us back. After two months of negotiations, they declined. Its a new benefit, so we'll notify our enrollees this next week that its going away March 31 so that they can use it before its gone. The discounted premium we sought will be eclipsed by the losses the carrier will incur by having strong utilization for the next 7 months and then losing the premium revenue before they can recoup.

Employees
I have no war stories on this, yet. The one staff reduction we've done was executed in such a way that we've stood by everyone terminated through severance, outplacement, putting them on a preferred rehire list, etc... and almost all of them have now found jobs. That's been noticed by those not cut and its helped to reduce some of the nervousness in the workforce. Not every company does it this way.

Every day I read where companies are cutting staff. With January 1 approaching, the period when most companies renew their employee benefits, I'm starting to hear of other companies making drastic cuts in benefits and cost-shifts to their workforce. There's a problem with that strategy, and I know of what I speak. Hard economies suppress turnover due to lack of options, but bad economies always turn around and people have long memories. Standing by your people now, when money is tight at home and the prospect of unemployment is scary, builds loyalty and retains talent once things turn around. Leadership teams and HR departments all over are undertaking efforts to squeeze costs at the expense of their workforce; efforts that will lead to fruit basket turnover later. Like my three vendor examples above, employers can throw people overboard to keep profits high and lose them forever, or stand by them and build loyalty.

This is a time of opportunity.

1 comment:

Eric said...

Excellent post!!! And I completely agree with the thought on how the staff reduction was handled....first class. That alone bolstered my faith in this company and what it stands for.