In recession, job cuts may not be enough . A focus on 12 "people cost areas" will help utilities survive, say Michael Rendell and Mark Hughes.

After a long period of growth, the current economic climate is undeniably volatile. The past year's financial market crisis is now feeding into a more widespread downturn and recession in many geographic markets. The turbulence and emerging global recession is forcing companies to sc rutinise costs more closely than ever.

These stark economic times remind us forcibly that flexibility is critical to sustaining business strategy and responding to market changes. To survive and succeed through this downturn, HR must help the board identify what their business and employees should do differently to ensure they are in a strong and agile position for the future - simple job and cost cuts now are not enough to thrive nor do they create a platform for the future upturn.

As the downturn deepens, cash-strapped utilities may feel pressure to reduce headcount, but this can be a costly exercise in itself, both in terms of payments as people leave and recruitment costs when the market picks up.

While making redundancies will be unavoidable for some, there are significant potential savings to be made in managing people costs more efficiently and in deploying and rewarding employees more creatively and dealing with redundancy payments effectively if the worst happens.

PricewaterhouseCoopers (PwC) has identified 12 primary "people cost areas" that companies should assess and take decisive action on. These are: pensions; headcount; absence management; expenses; use of contractors; analytics and benchmarking; pay and productivity; incentives; employee benefits; secondments and mobility; flexible working; and HR and finance effectiveness.

A critical first step for businesses is to identify the talent that cannot be lost - top performers are even more in demand when times are tough. According to a recent PwC survey of global chief executives, while the economic downturn has helped to push the people factor slightly lower down the boardroom agenda, the issue of a limited supply of candidates with the right skills is a major challenge. A number of chief executives are also worried about declining enrolment in university courses for the sciences and technologies, and expect difficulties in recruiting and integrating younger employees, particularly in the nuclear industry.

Ensuring the right reward structures are in place for employees when costs are being cut and incentive pools are down will keep the right people in, and attract the right people to, the business. To support this, regular communication with employees will reinforce their commitment and increase retention both now and when the upturn begins. However bleak it may look today, the upturn will surely come.

Utility company workforces are diverse, with workers based in call centres, offices and remote or mobile locations. Leaders in this sector must recognise that different segments of their employees have different wants and needs, particularly in terms of communication and the way they are rewarded, to keep them engaged and productive.

Efficiency in costs such as share incentive programmes, sickness pay, other employee benefits and company car schemes are often overlooked and represent opportunities for quick wins to ease the hit to your profit and loss. The pension scheme can also be a significant financial burden and drain not only on current cash, but on your balance sheet. However, there are many ways to reduce this cash commitment, eliminate volatility and clean the balance sheet.

During these turbulent times, it is important to make decisions quickly. HR must understand the financial case for change and react swiftly to deal with the needs of the business. Even more focus comes on metrics and flexibility. A creative approach to solving these problems is needed and commercial advantage can be gained - advantage that will feed through to the future health of organisations.

For example, the manufacturing industry has taken the lead on offering reduced salaries to save jobs. Other sectors have focused on redeploying people to those parts of the business that continue to thrive. We are seeing changes to benefit structures to drive out expense and true flexibility on variable pay to eliminate "wasted" incentives. The message is clear: businesses in all sectors must consider different ways to reward and deploy their staff to minimise the long-term impact of this downturn. This means HR must ask some challenging questions of itself as it seeks to help drive out expense, and of chief executives as they reach for the tired old solutions that have been used in the past. For example, cutting training to nothing does not help build a robust and sustainable business, and ceasing an international assignment programme stops you moving people into the more robust geographic markets.

If businesses harness the flexibility and creativity needed to minimise employment costs while keeping employees engaged, the end of this downturn could look very different, with businesses much better placed to build back up quickly and exploit the upturn. Now is the time to ask difficult questions and tackle the fundamental issues to bring the agility we should all be striving for.

Michael Rendell is global head of HR services and Mark Hughes is European utilities leader at PricewaterhouseCoopers LLP

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