KEY POINTS:
The bad news doesn't stop coming.
Business confidence has suffered its biggest drop in 20 years, and Labour and National are bidding to provide the best welfare package for the forecast tide of redundancies which could boost unemployment by 50,000 within the next year.
Ominously, figures out yesterday in the United States show GDP fell 0.3 per cent in the third quarter and consumers' disposable income took its biggest drop on record.
While its size is up for debate, around the globe there's an economic tsunami on the way. So how are businesses here preparing and what's the advice from experts?
For some, savings solutions are easy - cut the Friday afternoon massages for staff. For others it's more difficult - delicate negotiations with unions to introduce more flexibility for hundreds of workers.
Graham Foster, an author and consultant doing seminars for The Knowledge Gym, warns businesses should cut costs, not prices.
"If you've got 15 per cent on the bottom line and you give a 10 per cent discount you're left with 5 per cent of net profit. So it's very, very severe."
On the other side of the ledger, variable costs such as stock and transport were hard to control so the main area to target was fixed costs - the overheads of the business such as utilities, wages and company cars.
"You've got to start cutting into that pretty severely. And you make cutting people the last thing you do. I'm violently opposed to the social damage that that causes."
Foster says cutting the head count is inefficient anyway.
Businesses have handpicked staff, trained them and put money and time into them, he said.
He cites a scenario where if fixed costs are 30 per cent of expenditure and of that 10 per cent is wages, a 10 per cent cut to the wage bill will mean only 1 per cent off the bottom line.
"There are other things you can do that will retrieve the 1 per cent quicker."
One man at a seminar asked whether that meant cutting the Friday afternoon free massage for all the staff.
"I said, 'how much is that costing you?' He said, 'about $15,000 per annum'. I said 'of course it's got to go'. And his reaction: 'I can't do that, they won't like me if I do that'."
Many people under 40 have never managed a recession - the pampering boss was in that age group.
Foster says it is better to cut the little things first. "You've got to be fairly ruthless about it, - make your first cut your best cut," said Foster.
Big companies are feeling the pinch but within a year of being short of skilled workers, many are thinking carefully about the human relations dilemma.
Fletcher Building has shed 600 workers in the past three months and has warned a further 200 jobs could go at PlaceMakers if the economy continues to deteriorate.
But it says its policy is to take a compassionate approach and shed its casual and temporary staff initially, followed by reducing the amount of overtime worked by permanent staff, then relying on natural attrition before being forced to resort to redundancies.
Air New Zealand was hit early and hard on two fronts. It was hammered by record fuel prices, particularly in the first half of the calendar year, and then by falling demand, with the biggest earnings risk the threat to passenger numbers in high-yielding premium-class cabins on long-haul flights.
The airline has already reduced its long-haul capacity by 6 per cent and is reassessing routes constantly. Its top 13 executives have had their pay frozen. Directors have turned down a fee rise approved two years ago.
In the past there have been bruising redundancy rounds but Air New Zealand says layoffs are a last resort among its 11,500 workers, of which 88 per cent are full-time.
Group general manager (people) Vanessa Stoddart said other ways of cutting labour costs were being examined including a hiring freeze, (except where the role is critical to operations and safety), encouraging use of excess leave, better planning of when holidays are taken to ensure they are in quiet periods and improving how to use part-time and fulltime staff. There's also a stronger focus on managing overtime.
Smaller airlines with good reputations are especially vulnerable to having key staff poached during good times in the notoriously boom-bust aviation sector. Figures earlier this year showed a demand for 6000 new airline pilots a year, highlighting the retention challenge.
Stoddart said Air New Zealand was looking at the implementation of more flexible working hours for some staff where contracts allow.
"Importantly, we are ensuring that our workforce planning leaves us the flexibility to be able to rapidly adapt when demand starts to increase."
Auckland International Airport warned on Thursday its profit would be at the lower end of forecasts. Chief executive Simon Moutter said now was the time for empathising with customers and not pulling down the shutters.
"The smart operator works really hard for his customers. You start there. You want to ride through and be really focused on customers and what they're feeling and how you can alleviate that and be part of the solutions," the ex-Telecom executive said.
"You've got to be cautious not to get into a vicious cycle when you start cutting your advertising spend or reducing your service because you're not going to help yourself."
SkyCity chief executive Nigel Morrison, who only joined the business in March, says the company's objectives and strategies have not changed in the face of tougher times but it is focusing more on finding out what its customers want and meeting those demands.
Morrison says SkyCity has no plans to make people redundant but its flexible workforce allows it to trim back the hours of casual staff during quieter periods such as the graveyard shift when business is slower.
A 1 per cent revenue growth in the first quarter of the year has also allowed it to maintain its marketing levels although Morrison said if growth did dip marketing would be an area it would look to cut back on.
"We are continually looking at costs and are renegotiating with suppliers at the moment. We are looking at where we spend money and asking 'have we got the best possible arrangement?'."
Signs of tough times are reflected in the doubling of redundancy-related calls to the Auckland Chamber of Commerce free 0800 business advice line during the past month.
Chief executive Michael Barnett says while calls about starting up a business have remained constant at around 60 to 70 per cent of all calls, one in 10 are now asking about redundancy.
He says companies calling about redundancy are generally at the larger end of the small and medium enterprises it serves and have been around for a number of years.
"Companies of a few people and the newer ones don't seem to be phoning about redundancies."
Those working in sales and industrial sections appear most vulnerable.
But, he says, most seem to be trying to avoid purely cutting numbers.
"People are asking for advice around cutting back hours or natural attrition rather than redundancies."
Ernie Newman, chief executive of the Telecommunications Users Association, wrote in the Herald earlier this week the temptation to cut deep and cut fast would be hard to swallow for New Zealand businesses which have spent the past 10 years trying to find the right people.
"Who wants to let people go, only to see them join a competitor or exit our workforce altogether?"
He highlighted the benefit of teleworking, replacing unproductive work-related travel with information and communications technology (ICT).
He said it was almost embarrassing to compare New Zealand's rate of teleworking, by one estimate just 6 per cent, with better-connected countries such as the United States, Australia and Britain.
One Australian study in 2005 found that 30 per cent teleworked to some extent.
Matt McKendry, a Deloitte partner and specialist in giving accounting support, says businesses are getting creative rather than cutting back their workforce.
"Many are talking about investing in the upskilling of existing staff. It's low cost and the investment will already be made when things start to pick up."
His advice to businesses looking to trim back is to review all costs especially discretionary spending and keep a close eye on debtors.
"Look at whether you can cut back on things like conferences and travel - those things that you left uncapped in the good times. Look at what is key to your core business."
McKendry says communication with key clients is a good way to avoid nasty surprises. "If you can keep in touch with them and keep good lines of communication going then if they are distressed at least you are aware of it."
And don't forget to keep communicating with those for whom your business is a customer - such as the banks.
While things seem hard now, McKendry says it's important to remember times will get better.
"Don't lose sight of the three- to four-year plan. It will cost more to re-do it. Stick to the plan. The plan was a good plan - it might just need a slight refining."
