Lessons to be learned in recession


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Lessons to be learned in recession

  1. 1. HR Lessons to be learned in Recession Recession is a sour fruit for the global economies. The overall economy undergoes through a gradual meltdown which seems evident from the low sales proceeds and buying behaviour of the consumers. Recessions are times when we make changes in the way we do things — consciously or not. Although it would be smart to do it consciously, probably some of the most significant changes have just, well, happened. The consumers get very edgy while spending on any commodities and thus it casts a negative effect on the business economies. The main motive of every business organisation is to earn profit. This statement implies Finance department is the most important in a business organisation. They handle all the transactions and ultimately the company banks on their efforts to earn handsome profit. Thus formation of finance department in a business organisation warrants for intelligent and consistent folks. These people are recruited by none other but the Human Resource team. HR plays a vital role in the functioning of an organisation. In time of the recession, the Human Resource Management Role is to make cost cuts and the Human Resource Management Function has to provide the list of the policies and the procedures to be cancelled or discontinued. The employees do not like it, but the company has to return to the healthy basis for the future growth. The Human Resource Management Function has to be able to identify the top potential in the organization quickly as the company needs to make the cuts in the human capital of the organization. The Human Resource Management Function needs to provide the tools to managers to inform their key employees about the security, the company wants to offer to key employees. The recession period opens up ample opportunities for the Human Resource Management function. The recession is about the creative Human Resources Management. The Human Resource Management Function is asked to bring new ideas, to change the Human Resource Management Processes and to develop or change the procedures. The Human Resource Management function needs to redefine the business vision & take strategic measures. It needs to cut down costs which are usually done by retaining the talent, downsizing of employees and by freezing the recruitment. The Human Resource Management Vision for the Recession is needed for the employees of the Human Resource Management Function as they should serve the organization as the change agents. Many procedures, policies and processes can be cancelled during the recession or they can be strongly changed and the HRM Employees have to be able to explain the reasons for the change or cancellation of the policies. HR should continue to ruthlessly improve its own processes to make them more efficient and effective. It will need to devote all of its resources and growing capabilities to the addressing the pressures and paradoxes of the near‐uniquely difficult set of economic conditions now prevailing, which look set to continue for at least 12 months and possibly/ probably much longer.
  2. 2. The HR has to push the top management to define the vision of the organization for the recession as the roles in the organization can be clearly defined. The top management has to set the vision for the strategic initiatives as the whole organization can share the same goals. It is very painful for the top management to define such goals, but the employees and managers can support the painful way to prosperity, when they believe and trust their leaders. HR needs to also define some HR initiatives in the times of recession. These initiatives will help organization to be focuses on the analysis of the current situation and the unlocking the potential for the future growth. Human Resources has to quickly react in the recession and HR has to bring several initiatives to save the organization from the bankruptcy. The HR Recession Initiatives are not just about the cost cutting, the recession initiatives have to be focused in more areas: • To optimize the manpower strength. • To take strategic initiatives to increase the productivity and efficiency of the entire organization. • To work on compensation benefits. • Redesign training and development programs. • Ensure your organization’s policies and handbooks are up to date. Remember that an annual review of your employee handbook for compliance by an experienced professional is highly recommended. Also, each employee having a copy of the employee handbook is not enough. They have to be able to read and understand the content. Be sure that you provide employees a handbook in a language they can read and understand. • Layoffs are never easy. Ensure you are familiar with your legal responsibilities in a lay off to minimize your organization's risk. Be sure that you have properly defined the criteria you are using to determine who will be let go. • Alternative Workweek Schedules and Flexible Scheduling can maximize production and cut-back on overhead costs for organizations. Be sure you follow all of the DLSE rules when deciding if an Alternative Workweek Schedule or Flexible Scheduling is right for your organization. • Cutting Pay may be an option to consider to save on today’s costs. Is this really an option for your organization? How are your pay scales as related to the market? Are you willing to risk losing key employees whose talents may be needed by other organizations, because you chose to reduce their pay at this time? Remember, you should not cut pay without a recovering strategy of how you will re-adjust when the economy has turned. • Downsizing does require internal document maintenance for your organization. As jobs are modified and responsibilities are increased changes also must be made to your job descriptions.
  3. 3. On the other hand the HR Management has to find some innovative solutions during the recession like, 1. To identify the real key employees and to intact them in the organization 2. To identify the real top potentials and to strengthen their development program The employees are told to be the best capital of the organization and the HR Recession Initiatives cannot be focused on the full destroy of the human capital of the organization. The employees to be fired have to be selected carefully and the rest of employees have to sure about the future of the organization. The organization has to guarantee the future for the most important employees – the key employees, high potentials and the managers. HRM Priorities and Recession Recession also changes the priorities of an organization. Thus this in turn changes HR priorities too. One must keep in mind that HR priorities must be alignment with business goals and objectives. In short The HRM Function cannot live alone; it has to follow the general business strategy. In order to decide the HR priorities, organization need to do quick scanning of current policies, procedures, and processes carried out in HR. The recession is about cost cuts and designing efficient, cheap HR Processes. Generally, the HRM Function should cancel the processes and procedures with the highest costs and lowest impact on the organization. The HRM Function has to be very careful as cancellation of some policies can be very sensitive for employees. Those are the processes and procedures with the highest impact. On the other hand HRM Function should continue with the processes and procedures with the lowest costs and highest impact on the organization. These processes and procedures acts as an advantage or opportunity for an organisation to survive in recession. By continuing some of these processes and procedures even employees may feel some security and consistency and that they can trust the organization and its success in the war with the recession. Recession impact on employees Mr.Narayan Murthy, CEO of Infosys Technologies once remarked, “Our assets walk out of the door each evening. We have to make sure that they come back the next morning.” Yes, the employees are the most important assets of the organization. In times of the recession, the employees have to be secure about their future and the organization should announce a clear plan to them. Again one must keep in mind that the recession has a devastating effect on employees. So during such times of turbulence, management need to have effective HR communication system. Recession brings out the fear of insecurity among the existing employees of an organisation. The recession brings a panic to the organization. The rumors about the recession and the layoffs spread quickly around the organization and the HRM Function has to monitor the emotions in the employee population. The rumors are the most important danger for the successful survival of the recession. When the employees start to speak about the recession, the key employees and top talents can leave the organization within several weeks, as they feel no future in the organization. Therefore, here HR has to prepare a plan with the management to overcome the fears to keep and increase the performance and productivity of employees.
  4. 4. The productivity is a key success factor in the recession. The organizations fight for less business opportunities and the organizations have to offer smaller margins as the customers are extremely price sensitive. The management has to understand the recession as the opportunity to improve and fix the corporate culture and the corporate values by changing its behavior. The employees need to know the situation of the organization and the management can put a lot of energy among the employees in the recession as the employees feel the situation, which is dangerous for the future of the company. The employees look for the security in the recession and they feel the trust in the trustful management. The enthusiastic and confident management, which can present a clear plan for the fight with the recession, has a great opportunity to build a new super-organization of the future. HRM Communication in Recession The HRM Function is always responsible for the mass communication to employees in the recession. The HRM Function should be responsible for the consistency, transparency and fairness of the crisis communication to employees. The recession is usually not about the good news, but the HRM Function has to be the employee advocate and the messages should provide the employees with the clear outlook of the future. The crisis and recession communication have to be targeted, as not all the employees should receive the same amount of the information. The Sales employees should have completely different details from the Operations guys. The HRM Communication in the Recession is about defined and agreed target groups. The organization cannot publish the details about its business position to all the employees, but some groups of employees have to know more to feel comfortable and more secure. The HRM Communication is one of the strongest tools for the retention of key groups of employees. The talents and key employees have to receive more information from the organization to keep their own security and their value for the organization. The organization needs to raise the level of the motivation and the honest communication is one of the best tools for motivation. But the HRM Function has to act as the consultant to make sure, the employees are not de-motivated and frustrated by the amount of messages and the details provided. The HRM Function has to provide the advice on the communication channels used as not all the messages should be sent via email. The HRM Function is the only function in the organization to have a general picture of the target groups and it can provide useful consultancy in the description of the target communication groups. The HRM Communication in Recession is about a clear description of the organization´s position on the market, the economic outlook for the next period and about the strategic
  5. 5. products and services, which will be the leading the growth in the era after the recession. The employees should know about these topics as they can prepare themselves. Recruitment during Recession The recruitment process is the first HR Process to be affected by the recession. Employers today are facing problems in getting the best people and retaining them. The job vacancies are cancelled and the HRM Function should come with a new recruitment strategy. The recruitment freeze is usually the first top management decision, when the sales numbers goes down. As the top management wants to keep the cash-flow under the control, the recruitment freeze is the first logical decision. The recruitment after the recruitment freeze is more selective and the company has to clearly decide about its priorities as the organization does not carry additional people on its payroll. The top management decides about the new strategy and the management is allowed to hire just the missing skills and competencies. Companies are now resorting to options like Contractual or Project based Hiring, Outplacement, and Reallocation of Work etc. HR Outsourcing services is an age old concept, earlier and even today most companies outsource their manpower sourcing to recruitment agencies and staffing & manpower consultants. Gradually the move has diversified from sourcing non-core processes like payroll processing, fit gap analysis, reference checks and to a certain extent on-boarding. HR Outsourcing majorly deals with outsourcing full or part (non-core) processes to a specialist vendor. In current market scenario Recruitment process outsourcing is catching the attention of all on as large companies strive to improve their bottom lines and at the same time maintaining the quality. Training Needs and Recession The training and development is the second HR Process to be affected by the recession. The management decides about the cuts in the investments and Human Resources has to find a way, how to keep the knowledge in the organization. During such times of turbulence, the organisation must impart minimum training to its employees and that also if necessary. The company can survive without training and development for a limited period of time. In fact organization can conduct training programs about strategies on how to cope up with the recession. Gone will be days when few days of training meant a nice vacation in a hill station or a swanky hotel. The training function also needs to look at this aspect seriously and assist the organization to reduce costs significantly wherever possible by cutting down on the frills associated with training. The cost savings can be huge and the organization feels no impact of the lower training budget. But the period has to be really limited as the organization does not lose the talents and the internal know how.
  6. 6. Benefits and Retention Strategies in a Recession The compensation and benefits is the HR Process, which is heavily affected by the recession. The bonuses are not paid and the base salaries are under a huge pressure. The compensation and benefits specialists are under the pressure as they have to identify the areas in the organization to realize the redundancies. According to Mercer's 2008 Report on Human Capital Management for Slow Growth Times, employers should: 1. Be looking for new ways to generate sustainable reductions in benefit costs using innovative strategies that do not adversely affect perceived value. 2. Implement creative, highly-targeted strategies to recruit and retain the optimal workforce for long-term success, and 3. Communicate often and honestly to employees to bolster flagging engagement and productivity. The compensation strategy can be under a huge pressure in the recession. The top management sees a great opportunity to realize significant cost savings resulting from lower base salaries offered to the new employees. The compensation strategy should not be that flexible as it can breach the internal equity and the external equity can quickly change too. The internal equity is always a good goal for compensation and benefits and it is a real long term goal. The recession should not break such a goal and the organization has to identify other areas for cost cutting, not the compensation strategy and the compensation policy. The compensation strategy is very expensive and the quick change in the middle of the implementation can cost huge money. The organization can realize short term cost savings, but the costs in the future is enormous. The HR invests money into bringing the internal equity and the simple solution can break the whole effort. The compensation strategy cannot be changed easily and the recession is not a good decision moment. The recession can show, if the compensation strategy works, it is not a good moment to cancel the current compensation policy. Talent Management and Recession The talent management is about the selection of the group of key employees with the high potential to develop, learn and grow in the organization. When the recession comes, this
  7. 7. group of employees can generate, design and develop the ideas, which can help the organization to survive the recession successfully. The top management has to empower the talents to change the organization. The top management has to support their effort in pushing new ways of business through the organization. The talents need a support from the top management. The top management has a very important role in the recession for the organization. Their communication is essential and their trust to the talents is also very important. The organizations do not hire new employees, but the recognized talents are always welcome. The organizations, which empower their talents, have a better chance to go through the recession successfully with the new evolving leaders. The talents know about their qualities and when they feel a possibility to develop their skills and competencies, they will look for the opportunity to show their potential in other organization. This is a task for Human Resources to support the role of the talent management and to show the connection of the talent management and successful fight with the recession. The talents are usually known in the industry and the recession can make them to be more sensitive to the job offers from the competitors. When the organization has a clear plan for the fight with the recession. The talents from the job market do increase the personnel expenses of the organization, but they can bring new sources of the revenue and they hugely increase the trust of the existing customers. The role of the HRM Function is in the quick reaction to the recession, making the proposal to the top management and having a good contact with the recruitment agencies to start the hiring process as soon as possible. The HRM Function has to co-operate closely with the top management, as the talents from the job market need to know the clear plan and clear expectations from them. The HRM Function cannot communicate the clear expectations itself, but it can co-operate with the middle management of the job positions, which can be created for the top talents from the job market. The HRM Function has to monitor the personnel expenses added to the payroll of the organization as the company does not exceed the agreed rules and the HRM Function has to co-operate closely with the recruitment agencies to get the best class employees from the job market. The recession is a tough time and the top talents from the job market will definitely help to win the battle on the market. Eventually we find out that recession is a double edged sword. HRM should learn to take it as an opportunity to improve the goodwill of the firm. HR must consider recession as a challenging situation to handle.
  8. 8. WEBLIOGRAPHY: www.blogs.harvardbusiness.org www.yourhrguide.com www.citehr.com