1. INTERNATIONAL BURCH UNIVERSITY MBA PROGRAM Global Comparative Management Prof: Mustafa Kurt Research Paper: „ HR in recession“Name: Merima Bejtagic-Makic
2. IntroductionThe world is currently in the middle of the most serious economic recession in its modernhistory. This downturn has caused serious effects on the businesses and on the management ofhuman resources. As many companies rethink strategies and structure in response to theshortterm demands of the global recession and its anticipated long-term impact on thebusiness landscape, their HR rationales must change as well.Human Resource Managers play an important role during recession as they help theircompanies attain both goals by quickly cutting unnecessary costs from the employee baseand forces them to think creatively what to do with the exisitng personnel.Tough times call for tough measures - and today it is especially important for HR Managersto reflect on how to retain and motivate their employees, while staying on the low budget atthe same time. Smart HR Managers know that good employees and motivated employees arethe driving force behind your business. To help their companies survive, chief humanresources officers must work to improve talent management and performance over the longterm, they should realign their function, policies, and services, as well as seize otheropportunities created by the economic downturn.The impact of the recession on HRChartered Institute of Personnel and Development (CIPD) say that 1.3 million people weremade redundant during the recession. The business cut down employees which caused morework to be done by fewer people in the companz. Productivity per employee increases, butmorale suffers as hours become longer, work becomes harder, wage increases are stopped andfear of further layoffs persists. Managers and their employees usually come to an agreementto keep the job but reduce their wage and benefits. (investopedia) . This can be shownespecially in the HR department, where some study suggesting that numbers working in HRwould be cut disproportionately compared with other support functions.Most companies are decreasing their annual HR budget in areas such as training anddevelopment, external training, the use of external consultants, recruitment and HR systems.Other affects of recession in businesses are a slowdown in industrial production andmanufacturing and a slump in consumer spending, decrease in GDP.A survey done by (ipsos Mori), states that the economic situation has led to 82% ofrespondents making changes to their HR strategies. Of these, three in five (58%) expect suchchanges to be long term rather than short term. Below we are going to look at some of thenew HR strategies that happen during recession.
3. HRM practices in the recessionRegardless of all the negative impacts that the economic downturn had on the HR, it isreassuring that the HR function is seen as having a crucial role to play in improvingorganisational performance. Given the downward pressure on revenue and profits, many HRManagers have been immediately and intently focused on rapidly reducing the number ofemployees. But the best HR heads are avoiding this kind of major reductions of employeesthat often destroy value and damage capabilities. Instead, they reduce jobs that are noncritical,or that no longer fit with the strategic direction and structure of their companies. In addition toreducing head count, HRs should be eliminating low value and low priority HR investmentsand deferring major technology implementations, while making sure that essential long-terminvestments, such as those aimed at building critical capabilities and key leader-shipdevelopment initiatives, have the funding and support to continue uninterrupted.The CIPD has advised HR professionals on how they should manage their workforces in therecession. They are exhorted to ‘think long term’, maintain employee engagement, strengthenline management capability, support employees’ health and well-being, develop a strategy forredundancy, find ways to minimize redundancy , if staffing reductions are unavoidable,consult with the workforce and their representatives, establish fair and objective selectioncriteria for redundancy, provide advice and support for people losing their jobs, and plan forthe future, especially by reallocating jobs and responsibilities, provide training for new jobs,and communicate with employees at all stages (CIPD 2008).As the leader of a function that affects people and performance across the business, the HRsresponses to this recession will contribute to a company’s long-term success as well as itsshort-term survival. Below are some of the policies and procedures that HR managersundertake to help firm adjust to hard economic times.Wage adjustment: companies may adjust wages to their employees in the form of freezes oreven cuts in pay and benefits. The measures ranged from reviewing remuneration policies toensure affordability, to implementing cost reductions in terms of wages, salaries, bonuses,pensions and fringe benefits and redundancies. Lower wages for new employees and limitingovertime bonuses.Employment adjustment: this can be secured by reducing employee numbers or by increasingworking time flexibility or a combination of the two. An option open to an organisationseeking to avoid job losses is to develop a workforce stabilization programme. A number ofspecific policies fall within this category, such as a temporary layoff scheme for employees;Firms can also re-organize working time to avoid making redundancies, curb overtime, orintroduce short-time working. When job losses are compulsory the main concern is the typeof criteria used to select people for redundancy. Traditionally, the seniority rule last-in/firstoutprevailed in redundancy situations, although this practise has been eroded somewhat in recenttimes. Comprehensive objective criteria such as attendance, sickness and disciplinaryrecords, skills, competencies and qualifications, work experience as well as performanceappraisals are now commonly used to select redundancy pools (Doherty 2009). Of course, attimes, organizations have no alternative but to cut jobs. It is important in these situations that
4. HRM managers do not focus solely on maintaining the morale of employees not affected bythe redundancy decision. They must also endeavour wherever possible to devise acomprehensive employability package for those losing their jobs (Incomes Data Services,2009). Because job loss can have a devastating impact on individuals and their families,organizations are encouraged to try and find alternatives to redundancies (Cascio 2002). Forexample, to develop a workforce stabilization programme or temporary layoff scheme foremployees, employee redeployment and staff sabbaticals.Re-organisation of working time: Firms may also respond to the recession by increasingnumerical flexibility: greater numbers of part-time and temporary workers are employedinstead of full time workers in an effort to match more closely company employment levelswith changes in demand for the company’s products or services.voice and engagement: Keeping employees regularly and fully informed of the organisation’scommercial position as well as management’s plans is considered important to maintainingemployee commitment and engagement.Communication: Communications and information disclosure was listed and clearly ranked asthe most effective HR practice in helping firms manage the recession. Intensivecommunications shows that management are seeking to develop policies which address theinterests of employees. The employees will therefore be involved in the formualtion andimplementation of new plans which will result in understanding and increase profitability inthe organization.Process or product innovation: smart managers work with their employees during thisrecessionary times to increase innovation activities which are designed to improveorganizational products or processes. On this view, it is important for firms not to lose focusabout what they are fundamentally about and become too concerned with reducing costs.Instead, they should continue making planned improvements to organizational processes andsystems as well as to product or service quality. In other words, the search for long-termimprovements in competitive performance should not be derailed due to the onset of badeconomic times; if anything it should be intensified (Chubb et al 2010).Building talent advantage in Recession And recoveryAccording to Booz and company, HR Managers can help prepare their companies to profitduring the recovery by turning their attention to opportunities to strengthen the talent base andcapabilities and to enhance the effectiveness of the HR function. There are four tasks thatsupport these goals: 1. Realigning HR with corporate objectives: The recession and the changes it has caused have spawned many strategic and structural changes in companies. CHROs need to reshape their HR strategies and operating models to align with the new economic environment and the revised priorities of their companies. Toward end, they should thoroughly understand the revised people priorities of corporate, business unit, and functional leaders, and support them as they seek to effectively execute
5. their restructuring plans. HR Managers must also ensure that HR’s structure, capabilities, and services are aligned conduct contingency planning in order to be prepared for potential future adjustments to their companies’ business and staffing priorities. 2. Realigning HR with corporate objectives: HR Managers need to reshape their HR strategies to align them with the new economic environment and the revised priorities of their companies. Toward this end, they should thoroughly understand the revised people priorities of corporate, business unit, and functional leaders, and support them as they seek to effectively execute their restructuring plans. They must also ensure that HR’s structure, capabilities, and services are aligned with new business imperatives and conduct contingency planning in order to be prepared for potential future adjustments to their companies’ business and staffing priorities. 3. Reappraising talent and performance management: Once HR is realigned with the company, the HR can continue to reduce costs and prepare the company for recovery by conducting a rigorous talent review aimed at creating an enterprise-wide talent portrait. This review should identify the company’s most critical talent segments and optimize their contribution to strategic success, as well as pinpoint and close critical capability gaps in high-priority areas. A rigorous talent review serves as the foundation for maximizing the productivity and performance of the workforce: Low- performing employees can be identified and aggressively addressed, and leadership capabilities and bench strength improved. 4. Reenergizing the workforce: Now is also the time to reenergize and reengage the surviving workforce. Employee trust, productivity, and commitment levels typically decline dramatically in uncertain times. Top performers, who are always in demand, are tempted to leave. And the limitations on cash and stock awards in many companies create a greater need for a more strategic focus on enhanced employee value propositions. This is particularly important given the multigenerational and multicultural nature of today’s global workforce. Employees have very different expectations and motivators; a one-size-fits-all employee value proposition is no longer an option. Finally, HR Managers should also encourage senior leaders to be visible and ensure that internal communications about the business are frequent, transparent, and honest.If they haven’t already, HR Managers need to invest in building better leadership capabilityand effectiveness (a key driver of employee engagement and performance. The currentdownturn has created many human capital challenges, but it also harbors opportunities.Successful HR Managers can position their companies to emerge from the recession with ahigher-performing workforce, differentiated capabilities, and a deep leadership bench. Just asimportant, they can align the HR organization and talent programs to better deliver the kind ofstrategic impact that enhances business performance in good times and bad.Reinforcing leadership development efforts: For companies to prosper and grow duringrecovery, performance management efforts must be tightly intertwined with continued and
6. reinforced leadership development efforts. Managing and maximising performance: Goodperformance management is critical to organisational success. It is defined by the charteredInstitute for personnel and development „ performance management has a siginifcant role toplay in enhancing organizational performance, by ensuring all individuals understand theirexpected contribution to business objectives and are equipped with the skills and support toachieve this. The process drives engagement by ensuring effective communication throughoutthe organisation and the linking of objectives, as well as enhancing the individual/ linemanager relationship by encouraging line managers to build positive relationships withindividuals based on trust and empowerment.“ConclusionThe research highlights the difficulties facing HR in the current environment. Most corporateHR departments are freezing or decreasing their annual budgets and there is an enhanced needfor HR leaders to focus on the urgent business critical initiatives. However the survey alsoreveals the key role HR has to play in driving organisational performance. Now more thanever before, HR needs to show itself to be about more than making redundancies by helpingthe organisation to reduce costs and improve efficiency and performance. Organisations thatintelligently manage talent and communicate with employees honestly, accurately and at theright time will ride the current turbulence and be successful in the future. Whats moreimportant is that they need to improve performance management and put in place interventionthat promote effective performance management takes time.