The Credit Crunch - Essay Example

Recruitment, Selection, Training and Development By Credit crunch is a condition in the economy which capital for investments is almost impossible to secure. The lending institutions and investors turn to be very cautious while giving out credit to corporations, because of the anticipated bankruptcies and credit repayment defaults. Consequently, the cost of debt, interest rates, increases for borrowers. It started with a housing slump in the US in the spring of 2007. It then advanced into a global liquidity crisis in late summer and resulted in a financial crisis in the UK in the autumn, and a collapse in business and consumer confidence in the winter. The credit crunch has implications both on recruitment and selection on one hand and training and development on the other hand of human resources across organisations in the United Kingdom such as Standard Chartered (Amyx, 2004, pp121-9). The rate of unemployment increases releasing the tensions associated with shortage of skills. But where the skill shortages result from the constraints of supply side, then the tension remains. Similarly, the skills arose from buoyant demand will disappear (Venugopal Reddy, 2010, pp256-289). The tight search for talents will continue after recession at a comparatively lower level. Additionally, the management of talents is focused on the retention of strategic personnel. The rate of growth for wages will be moderate, but will shrink mostly in sectors where a significant proportion of the pay benefits comprise bonuses due to the need to reduce costs (Allison, 2013, pp178-234). The company will have to revise its current salary schemes as it tries to look for cheaper means to finance its activities. The earnings of the public sector will trigger industrial unrest as negotiations for wages will become more difficult with the trade unions. An overview of credit crunch theories Marx explains the credit crisis from the perspective of the business cycle. The business cycle refers to the booms and slumps in an economy. He explains the occurrence of the boom as when invest heavily while anticipating generation of huge profits. This results into competition among the firms. Consequently, output expands rapidly. The investments by firms to widen their profit bases again create an opportunity for other firms which supply them with capital goods, for example machinery, and other products. The economy experiences booms as more output is produced and reduced unemployment rates (Amyx, 2004, pp121-9). This boom does not last as accumulation of capital with time reduces the profits made by the companies. According to Marx, the realization of huge profits during boom is due to exploitation of workers. The workers work for longer periods than they earn from the company. As competition sets in, many firms tend to apply advanced technology in their production processes causing the profits across the industry to fall (Allison, 2013, pp178-234). He acknowledged that firms responded to lower returns by increasing the exploitation of the workers, either by lengthening the working hours and paying them less, or reducing the wage rates. Capitalist firms maintain their profit margins after the credit crisis through buying the capital of the firms which became bankrupt, a phenomenon that Marx referred to as the ‘concentration and centralization of capital’(Savona, Kirton, & Oldani, 2011, pp267-289). After the boom comes the recession. The businesses start making losses as costs of investments are much more than the returns. This due to the prevailing high costs of credit in the economy (Allison, 2013, pp178-234). The financial lending institutions start to shy away from giving credits to the loss making firms. The economy continues to perform poorly for some significant periods. When the interest rates are so high, the firms that cannot make appropriate adjustments end up making, huge losses and in the process end up being bankrupt. Most organisations resort to the techniques of reducing costs of operation leading to retrenchments. This leads to increased rates of unemployment. The organization with the innovative human resource embark on the evaluation of the appropriate human resource strategies to cushion the organization from the negative impacts of credit crises. The theory of supply and demand perspective analyses the cause of credit crunch. The two dimensions include; Case 1: the decline in supply of credit; this is characterized by the unwillingness of the lending institutions to lend credit to the corporations. This causes the supply curve to shift leftwards while the demand curve remains constant. As a result, a new rate of interest is set in the economy which is higher than the initial interest rate. This trend makes the cost of capital to be greater than the returns, thus the cost of borrowing becomes high making borrowing almost impossible. This is illustrated as below: Case 2; decline in the demand for credit In this case, the firms are unwilling to apply for credits. The supply curve remains unaffected. This causes the demand curve to shift downwards. As a result, a new rate of interest is set which is lower than the initial interest rate. This phenomenon is illustrated as below: The theory of complexity, endogenous money and macroeconomics; based on the post-Keynesian theory of money puts more emphasis on the aspect that banks do create money to respond to the demand for credit by the general public and not solely for the firms that are willing to expand their production capacities (Savona, Kirton, & Oldani, 2011, pp267-289). In this sense, the theory of output becomes the theory of output at the same time. The banks have a very important role to play in the economy. There exists a direct connection between the amounts that banks give out as loans with the output generated in the economy at large. A fall in the supply of credit leads to the fall in the economy’s output. And as supply of credit is increased, the output automatically increases (Amyx, 2004, pp121-9). Credit rationing is not necessarily in the sense of credit being limited supply, but should be viewed in the sense that this is based on the number of borrowers who are creditworthy. The focus should be on credit rationing by the banks, but rather on the credit constraints. Hence the theory of credit supply should not focus on mere availability of credit, but it should concentrate on the creditworthiness of the borrowers of these funds. The banks should evaluate this based on the credit history of the borrower, and the effectiveness of other evaluation procedures established by the banks (Venugopal Reddy, 2010, pp256-289). Implications of credit crunch on recruitment and selection During recession, there is cancellation of applications for jobs, and this implies that the HR function should design a new recruitment strategy. The organisations have to re-evaluate their recruitment and selection processes (Baiman ,Boushey & Saunders, 2000, pp123-189). The credit crunch alters the established criterion on how the process was exercised. An organisation should consider embarking on a new recruitment drive because any deficiencies in the recruitment and selection processes are costly to correct in the future when the organisation will start feeling their impact (Savona, Kirton, & Oldani, 2011, pp267-289). These areas include; Job specification – a change in the roles and responsibilities of the workers resulting from the structural change of the organisation demands a corresponding change in the various job specifications (Allison, 2013, pp178-234). The organisation should come out clearly on the current roles and the anticipated evolutions regarding the job in the future. This aspect may constitute varied behaviours, new critical responsibilities, experience and skills. Selection process design – research has it that matching of roles with the selection process yields prediction of better performance of the employees. The selection process must therefore recognise the fact that roles may change overtime.The organisation should make the adjustments as appropriate to remain relevant in the labour market. Recruit to retain – the organisations should have the mentality of recruiting to retain. During bad economic times, many peoples with good skills will be available for employment at low costs. The business should take advantage to recruit these people and retain them in the organisation as they could easily be employed at high costs after the recovery. Seek out and attract the best – the company employer brand should be built to make it more attractive so that it can sell to the potentials and not to the past. A company should not wait for actual vacancies but should rather poach the best labour in time through building relationships that helps the company to save on costs related to recruitment drives in future (Allison, 2013, pp178-234). Recession is characterized by employees receiving rumours of possible retrenchment as they debate about the impending hard economic times (Venugopal Reddy, 2010, pp256-289). As a result, the highly talented and top potential employees may see no future in the organisation and find themselves out of the organisation even the actual layoffs take place. Implications on training and development. Large investment banks in UK have indicated that Human Resource will be committed due to growth in graduate recruitment. Again, there is an increased attention on learning and development which is driven by the need for retention of in-house talent and the development of the existing employees (Allison, 2013, pp178-234). The potential economic changes from the recession will present a variety of challenges and opportunities for the Human Resource function. The companies in UK may start to encourage global mobility of labour. This implies that the HR teams will have to evaluate of this global movements of labour on the workforce, their workforce and their skills. During recession, the trainings are stopped immediately to reduce the operation costs. This implies that the future trainings will be focused on training sessions which are more specialized and introduce more training courses internally. Credit crunch causes the erosion of the previous business structures established before the recession, and may also break the skill and processes involved in the recruitment, selection, training and development of the workforce in the organisations and may be irrelevant and therefore their review could be of great strategic importance. He gives an insight into how a company can be to recover quickly after the credit crunch (Savona, Kirton, & Oldani, 2011, pp267-289). He suggested the following for human resource to think about. The design of the organization During the economic depression, most organisations reduce the number of workers, change the hierarchical structures and even changes the roles or responsibilities of the retained workforce. These organisations like the Standard Chartered do this in order to reduce their costs of operation. The organisation structure may to be reviewed to prepare the organisation for the long term growth. The organization design is prerequisite concept that facilitates the effects of financial crisis in any economy (Baiman ,Boushey & Saunders, 2000, pp123-189). The organisation design evaluates the ability of the organisation to perform effectively in case of rapid growth under the current design. It looks at the efficiency of the process of the business, the clarity of new roles and responsibilities and the need for areas of restrictions or duplication in the business (Baiman ,Boushey & Saunders, 2000, pp123-189). It critically evaluates the decision making process. In this regard, it views it in terms of whether the changed structures and roles could facilitate or hinder decision making and also, whether the decisions are based on cost or on growth and their respective appropriateness. It reviews talent management in regards to whether the jobs are matched with talents, and identifies the mismatch of jobs with talents that could cause the workers to leave the organisation. In addition, it checks on the skills and experiences that the organisation will demand in future and the possibility of creating the opportunities in the organisation as soon as today. During recession, retrenchment of the employees leads to loss of talent. It therefore means that from the current credit crunch, the company has to design an appropriate means of tapping talent from the labour market (Amyx, 2004, pp121-9). Talent management is key to the performance of an organization. The company should ensure that the talents are retained in the organization by sacrificing its constrained resouces during recession to see to it that such talents are tapped and retained in the organization. Development and training The current credit crunch has not impacted greatly on training and development. But some companies are likely to halt certain training programmes during recession in a bid to reduce to the costs of operating the business. Nevertheless, the solution to realise a dynamic recovery from the effects of credit crunch is training and development of the employees. This is because, better performance of any company stems from the quality of training and development that its employees undertake (Venugopal Reddy, 2010, pp256-289). Research points out that firms that train their employees during the recession period are more likely to survive the crisis and escape the dangers of bankruptcy than those firms which do not perform training and development activities during the crises. This aspect focuses on the following areas; What to invest in – the pre-recession programmes could be lacking in some of the current areas in the company or even prove to be inappropriate in some current areas. The company should review its programmes to be in line with changed priorities of the new businesses and concentrate on the most critical areas of concern. After the crisis, the company should be very cautious in what kind of investments to undertake. The choice of the right investment destinations is key to the success of the company after the downturn. The initial investment programmes of the company are disrupted during the credit crush (Allison, 2013, pp178-234). This means that the company must draw a fresh plan of what to invest in. additionally, even the market conditions do change necessitating fresh and better plan for the good of the company. Experience – based development – the current business climate gives a wider space of learning for the managers. They should consider how the roles, and mentoring can be applied to achieve the best results while utilizing the available resources in the company. The employees should be developed based on the various experiences that the company demands during and after the credit crunch. The experience-based development is key for future performance of the company. Review career paths – the disturbances caused by the economic crisis results in to loss of skills and experiences since some of the employees could be laid off or put on temporary leave. This creates a gap in the experience and skills that a company requires (Amyx, 2004, pp121-9). The opportunity to develop career skills and experience is lost during the turndown. As a result, the Human Resource and the individuals have the opportunity to clearly indicate the new skills and experiences demanded by the new business climate to help shape the career paths. Measuring effectiveness – the Human Resource should have a gist on how learning and effectiveness is measured and do a review on the same. The focus on this should go beyond event-based measurement to enable attainment of relevance and performance as the economic cycle begins to take shape. The training and development programs should not be stopped during crisis as this would compromise the effectiveness of the operations of the company in recession. Strategies 1. The application of Human Resource innovation strategies in recession. This strategy applies the Human Resource strategies to counter the effects of external economic conditions such as the global economic recessions, the aftermath credit crunch and the impact it has for employee performance. Human Resource innovations in recession The economic recession requires a very creative and innovative human resource management. The Human Resource Management has to come up with new ideas on how to change the Human Resource Management processes and even change the Human Resource procedures in a way that itself reduces the costs of doing business. The costs related to Human Resource Management are very crucial costs in the organisation necessitating the proactivity of the Human Resource function. At times of economic difficulty, the sole purpose of Human Resource is to reduce the cost of running the business (Bernanke, 2013, pp211-267). This facet calls for every department to construct innovative solutions that will strengthen the organisation during the next era of growth. To achieve this, the Human Resource innovation has to undertake the following actions: The optimisation of the strength of manpower; the inevitable reduction of the number of employees; strategic initiative to improve the overall efficiency and productivity of the organisation in entirety; to revise the compensation benefits; to oversee the cancellation of various benefit schemes; the process of identifying employees who are key to the organisation to be retained; and the identification of key potentials and the strengthening of their respective development programmes. The strategic role of Human Resource in recession; The classical strategic paradigm has it that a recession is an opportunity for the Human Resource Management to step in and make strategic contributions having assessed the micro and macro- economic environments. The points of focus would include: i. Optimizing the strength of manpower; ii. Undertaking strategic initiative to improve the efficiency and productivity of the organisation; the redesigning of training and development programmes; iii. Ensuring that the policies and handbooks of the organisation are updated accordingly; the legal lay off procedures and the right criterion of laying off the non-key employees; iv. Ensuring the establishment of alternative work schedules and the adoption of flexible work scheduling to maximize productivity and minimizing the overhead costs for the organisation; v. Consideration of cutting the pay of the retained workforce-this aspect of cost reduction is very sensitive as it may cause highly valued employees to leave the organisation once they receive better offers from other organisations. The Human Resource Management should ensure that a proper strategy is put in place before the pay cut can be effected. The Human Resource Management has the responsibility of determining the relationship between the employees’ pay scales of the company to the market conditions. The pay cut should not be effected without an appropriate strategy on how these pays shall be adjusted in the future the tough economic times shall have ceased; downsizing that requires an internal documentation for maintenance by the company (Bernanke, 2013, pp211-267). The modification of jobs demands a corresponding increment in the responsibilities, there is need to change the job descriptions to suit the changes. Alternatively, the Human Resource Management has to coin innovative activities as well such as the identification of key employees and their retention in the company, and the identification of the key potentials and the strengthening of the of their development programmes. Recession and employees’ career options At times, rumors about an impending recession always panic in the organisation. The key top potentials and highly talented employees may opt to leave the organisation since they feel that the future is not in their favour. The Human Resource Management should ensure that there is a proper communication channel that can dispel such rumours and convey a straightforward message to all employees regarding the stand of the organisation on any anticipated economic disturbance (Allison, 2013, pp178-234) . Even though the company may wish to reduce operating costs during the recession times, the very company has a responsibility of identifying the top potential workforce and requires an additional for journeying through the future era of growth. The Human Resource function has the responsibility of redefining the vision and a new strategy for the future times since the cost cutting approach is not only the way of building a stronger organisation that is struggling to do its best during recession (Baiman ,Boushey & Saunders, 2000, pp123-189). Human Resource Management communication in recession The Human Resource function should employ a transparent, honest, and fair communication system that serves the employees right. In recession, the employees do not expect good news, but the management can handle this with positive impressions on the communication system. The Human Resource communication is a critical instrument for the retention of key employees in the organisation. Otherwise, if not properly structured, the company could be at risk of losing its high potential and highly talented employees to other organisations. In recession, the role of the Human Resource communication is to give the employees a clear stand of the company on the general outlook of the company’s market, and the strategic products and services it intends to deal in during the next periods (Venugopal Reddy, 2010, pp256-289). Recession and recruitment Recruitment is one of the most affected aspect of Human Resource process by recession. During recession, the companies do not offer job opportunities as Human Resource Management fights to reduce costs. The number of job applications grows rapidly. This is because the number of graduates has tremendously increased in UK. This presents a better chance for the Human Resource Management to design a better approach to evaluate the selection criterion and the recruitment process in a smart way. This is the time the company should apply the best approach by focusing on the development and re-design of recruitment process. The company can select best recruits during this period (Amyx, 2004, pp121-9). The human resource management should take advantage of opportunities presented by the recession to identify key and top potential recruits and offer them jobs at lower wage rates prevailing in the labour market during recession and adjust the wage rates later when the economy recovers. This way, the organization is better places in terms of skills and talents prior to the end of the economic turndown. This will enable the organization to recover very quickly soon after recession. Therefore, a strategic human resource management will ensure that the opportunity is exploited and the company is placed at a better position. Recommendations in recession i. The high level management should have a contingency plan. This plan will enable the management to manage as the economic situations would demand. ii. Whether there is need for partial or complete freezing of jobs, the employers should communicate to the workforce and assure them of the retention of key employees even during hard economic times. iii. The employers should do a revaluation on the performance of the employees to help them identify the top potential employees that the company will not afford to let go under whatever economic circumstances. iv. The company should ensure that there is a clear flow of information from top to bottom to remove confusion and the inefficiencies that relate to rumour mongering. v. The company should adopt counselling sessions to cushion the employees from the stressful economic environment with pay cuts or retrenchments. vi. The employees should maintain an atmosphere that is calm to reduce tension. vii. The policies, processes, and the procedures should be reviewed to ensure that they serve their intended purposes and share in the aim of promoting success in the company. viii. Should employees be laid off, the Human Resource function should ensure that there are no opportunities available for them in the various divisions of the company. ix. The management should employ the skills of managing change as recession constitutes a shocking reality that both the management and the employees must learn to live with. Human Resource initiatives in recession When a company is not affected by recession, while other companies around it suffer from recession, the company can experience growth. The HR function has the responsibility of establish HR initiatives immediately recession is recognized in the organization (Bernanke, 2013, pp211-267). HR recession initiative analyses the current economic situation and opens potential for future growth. It pin-points the following areas; cost reduction, key groups of employees, the efficiency of the Human Resource processes, conveyance of honesty-based information to employees, and the management consultation aspects. The application of outsourcing Outsourcing is of great importance to professionals in the HR field during a credit crunch. UK companies may start to promote the global mobility of labour , which would mean that employees from UK may accept to job opportunities in new markets and the movement of foreign employees into UK. Research has indicated that most companies are willing to outsource quite a number of HR processes (Amyx, 2004, pp121-9). Many companies are beginning to embrace outsourcing beyond the traditionally known outsourcing of pensions and payrolls. The evolution of the market has led to the acceptance of outsourcing even in the areas that traditionally considered as the ‘no go zone’ of recruitment processes, and leave management by the HR decision makers. HRO in recession Human Resource Outsourcing is a value-driven strategy that avails a powerful impulse beyond the sole objective of minimizing costs during recession. The human resource outsourcing should not be viewed as additional costs, but rather as a radical measure to enable the organization move forward in recession. It becomes a necessary practice so as to enhance the performance of the company. It enables an organisation to certain functions such as temporary staffing and short-leave management for the company during a crisis. The human resource professionals have sought leverage outsourcing to ensure crystal clear fiscal policies to enhance efficiency of the economies of scale in the short-run. The human resource has been dominated by the outsourcing of pension and payrolls (Amyx, 2004, pp121-9). Most companies have now broadened their outsourced activities like administration of workforce and the drawing of plans for succession. Outsourcing providers are always fight to deliver what the business requires during the crisis. The human resource management is now considering not only outsourcing pension and payroll services, but also activities like temporary staffing, recruitment, training and development. Human resource outsourcing enables the company to be flexible by permitting the human resource team to concentrate on key strategic human resource issues in the organization such as efficiency, effectiveness and productivity of the workforce (Allison, 2013, pp178-234). Even though human resource professionals have been resistant to work with the providers of human resource outsourcing due to fear of loss of authority, the organization must just work with these providers as there is a clear cut line between the two professional fields. The strategic human resource demands for this application to rescue the organization during financial crisis. Bibliography Amyx, J. A. (2004). 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