The R Word - Recession? Don't Panic

If you are a supplier in compliance services - Recession is nothing to fear.

But don’t underestimate the upheaval in handling it. Back in the early 90s – now that was a proper Recession with a capital “R”– yours truly was able to increase sales significantly, double profitability and comprehensively stomp on the competition year after year with compliance services used by over 150k clients – it can be done. But it’s not easy.

Technically recession is 6 consecutive quarters of “negative growth”. But let’s face it – who’s going to argue that because we had one quarter of flat performance in the 6 we’ll wait and see how it pans out. It’s academic - only ivory tower economists can wait for two years and be able to tell us officially in 2010 that we’re in recession now. The rest of us have to deal with now – and it feels damned cold out there for most clients.

Recessions are different now, though. UK wide ones are rare, and even the current one may not trip all the buttons required by the old economist measures. Recessions are typically now industry specific and international in context. The UK can survive a series of “niche” recessions, such as the ones we’ve had in agriculture, manufacturing, mechanical engineering, etc as long as financial services, retail etc remain robust. The difference currently is that we’ve not been led into recession by the banks for centuries. This could be different, not just as it’s a disproportionately big part of the economy now, but also because the property and retail sectors are also sitting on their hands and that in itself can be enough to slide further. Those niche suppliers who've faced industry specific recessions know this - the point is that now the two biggest markets for compliance services - financial services and retail - are teetering on the brink.

So why is compliance different? Why when shops or banks lose growth and profitability will the guys who check their fire extinguishers be all right?

It’s important to know how Big Business panics to understand just how safe you can be. Big Business panics tend to run like this:

“Need to cut costs” leads to “Round 1”. This hits the soft targets, namely PR, recruitment, entertainment, libraries, training, and hammers down on expenses management (typically just when you actually need to reduce the hassle of doing business, rather than increasing it – but that’s FD logic, not normality).

Round 2 follows with “it’s gonna have to be heads rolling” (but not mine) – therefore start the musical chairs. Cut the HR guys? Nope – need them to do the cutting. Cut the finance guys? Nope – you need more actually as declining numbers are harder to watch than rising ones (and everyone is continually digging up the dying plants to see the roots and measure them, again – busy, busy, busy).

It’s never enough – the Bears are in charge now playing “who’s the daddy” - so sooner or later Round 3 comes. This is even more staff cuts – but this time, even the guys we like, as well as some of the Quasimodos in the back office.

The end result is usually too little too late. What’s left? Usually the stuff that’s actually really hard to deal with is still there – oversized or overpriced premises, under-depreciated cars and “stuff”, and of course, service level agreements with clients which were tight even when you had the staff to do them.

Buried deep within the pile of detritus and humiliation is typically also the compliance “long stop”. Finance people hate to cancel these (they are risk averse by nature) even though they will have been complicit in removing those who commissioned or ran them. The firms are actually more reliant on compliance issues than ever before and will have removed many of the specialists who know how to negotiate them properly.

Employee relations issues move from recruitment hassles to redundancy calculations. Safety issues shift from training to stress management and occupational health, surveying now has to include project management, etc. The likelihood of a compliance event in periods of turmoil is much higher than normal so while the shape of the service changes significantly, the client is more reliant on you than ever.

Don’t be afraid of it, don’t “gouge” (ie over exploit it), but do flex your service quickly and sensitively.

Weak staff will feed back that “XYZplc is cutting back and making redundancies, therefore we have to discount the service to secure the renewal at all”.

Good staff will say “we need to stop X, add more Y and up the contact rate with their new guy significantly to pitch for the 25% price rise now we’re doing much more for them and the client’s in-house team has halved – and PS - I can remove the discount Norman haggled out of us last year as he’s gone now”.

It takes balls, but that’s why recession is an opportunity. Like technology and innovation in a period of war – everything is accelerated and stress tested much quicker. It puts you on your mettle – just how good at flexing solutions specification and pricing are your team? Clients will pay more, but the service must be much more relevant.

If you can stand the pace – great, many won’t.

Now is the time to take market share.

If I gave you £4.6m could you shoot yourself in the foot please?

Why is nobody asking the right questions? Does it really need to cost £4.6m to injure more employees in UK industry each year? And yes - that is £4.6m for each extra injury - each and every one!

According to health & safety executive statistics, the number of work related injuries, major injuries and deaths is down over the long term (ie since 1997). Hooray.

Fatal injuries in 1997 were 207 and last year they were 185 - down 11%. Great. Since 1997 we've saved 186 more lives than we would otherwise expect if things stayed at 1997 benchmarks. Fantastic.

Major injuries, however, actually increased their annual run rate by 303 to 28267. Since 1997 an additional 5717 people have been injured in a major way.

Injuries causing over 3 days absence fell by 14,203 in 2006/7 to 113083 - bringing the run rate down 11% again (hooray), but the improvement relates only to the last 2 years and since 1997 an additional 8532 people have actually been injured.

Over the same period the compliance burden placed on businesses to achieve this totalled over £11bn pa (some would say £55bn pa, but we have been prudent and isolated just the safety and employee related issues). £11bn is the current annual run rate, and in the period since 1997, the total cost of implementing and running the compliance measures now in place totals £66.6bn.

At its simplest therefore we have just spent:
(a) £358m per life saved since 1997 for the 186 people alive now that wouldn't be had we continued as we were in 1997; or
(b) We have invested £4.6m in injuring each and every one of 14249 more people than would otherwise have been injured in 1997.

This does not even include the £232m 2006/7 cost of the HSE itself or the related Local Authority costs which are likely to be of a similar order each year. These are the government's own numbers - their Regulatory Impact Assessments, their HSE/Riddor statistics.

I am delighted for the 186 individuals alive now. It is highly likely, however, that they would in all probability have survived any way as UK plc marches inexorably from its industrial past to its service based future.

So why is no-one asking the obvious question:
- Why have we spent over £4.6m per injury to injure more UK employees?
- Even if the reduction in deaths is almost 200 - why are we prepared to spend over £358m per life saved here while not making similar investments in transport, the MoD or the NHS?

A dispassionate look at the facts here at the very least proves that there is no compelling case for the regulation and enforcement regime in place currently. It could equally well be argued that it is counterproductive.

The "elf n safety" culture is subjected to a lot of criticism - but no-one seems to be asking why it simply isn't working, let alone cost effective.