The Impact of the Economic and Financial Crisis on HRD - Coursework Example

The Impact of the Economic and Financial Crisis on HRD THE IMPACT OF THE ECONOMIC AND FINANCIAL CRISIS ON HRM AND KNOWLEDGE-MANAGEMENT Introduction Following the 2008 financial crisis in the UK, companies started cutting back on training budgets in order to minimize the costs arising from the recession. Figures collated from Harris Interactive by HR Magazine revealed that 38% of employees had not received any training in the past 12 months, with a further 20% responding that learning budgets had been cut as a result of the recession (Feldstein, 2011: p6 55). As a HR Manager, our company CEO has expressed a similar viewpoint, contending that HRD is unnecessary during the financial crisis and that the HRD budget should be the first to go in case of cost reduction. This is informed by previous actions taken after financial crises, during which this strategy worked. However, the present crisis is starkly different from the earlier ones as it has spread very fast globally and brought world economies close to collapse. This course of action, therefore, may not be as effective as it was earlier. Markets have been steadily decreasing with sales also shrinking; therefore, different solutions are required at company, national, and international level (Caprio, 2012: p54). The current crisis has been compared to the Great Depression, with the remedies used then being implemented by various companies to date (Jungmann et al, 2011: p33). However, serious and vital changes have happened since then. The most important difference is the change in the national economy structures. Compared to the Great Depression era, the service sector has grown in significance with the industrial and agricultural sectors decreasing. This has meant that there has been an extensive strengthening in an area where connection to the material processes has been secondary, even as employment factors have remained significant (Fuchita et al, 2010: p65). Productive capital is to be found embedded into the employee’s and their work. This paper will seek to show that corporate methodology for dealing with the current crisis cannot follow earlier patterns by cutting funding to Human Resource Development L&D. This is informed partly by the character of the present crisis. This is especially factual for a company where intangible assets, have a vital role to play and where production is linked to knowledge instead of tangible assets. The Role of Learning and Development in Times of crisis The management of crisis and their solutions appears time to time in the media. This usually involves reduction of working time for employees, lay-offs or cuts to Human Resource Development. In most cases, the organizations have no choice with regards to avoiding insolvency or bankruptcy. Cutting funding to Human Resource Development, however, offers short-term solutions while leading to long-term problems (Lazear & Michael, 2009: p44). One assumption made regarding knowledge management is that human capital and information play a more significant role in the input process. A significant part of the organization’s value lies with human capital, i.e. the knowledge in its employees possession, which is a crucial factors as far as improved corporate performance and competitiveness are concerned (Lazear, 1998: p10). Faced by a crisis, however, an organization may begin paying inadequate attention to the retention of knowledge that is lay-offs as well as the improvement of knowledge for its employees. Most companies will utilize a “lawnmower principle” with an aim to reduce costs by trying to economize on their highest components of cost; wages and Human Resource Development (Buckley & Jim, 2009: p22). This strategy, however, is limited in its effectiveness. Cutting costs involves the sacrifice of resources in order to increase profit, with whoever is tasked to examine resource utilization attempting to cut costs by all means possible. Costs, however, occur during operation and not at the investment point. Assets improve profits and costs need to be assigned to their operation. In companies that are knowledge-based, the most valuable and productive asset is human capital. Human Resource can be viewed as a particular good because it has a low investment value, although its operation costs are significantly high (Stewart, 2011: p32). Cost management cannot be effective if it only considers costs and profits, rather, only companies that use the most effective assets in the most efficient manner can manage costs efficiently and effectively (Crossan et al, 2005: p98). Using this viewpoint, dismissing and cutting funds to HR, is equal to scrapping. The only way this would be effective would be if the asset, were not providing profit that covered its investment costs and was in excess of the operational costs. In the human factor case, this is almost zero. Cutting HRD funding is, therefore, not a necessarily effective solution. It is important to retain employees and improve their knowledge on the market (Goldstein & Kevin, 2002: p44). Focusing on employees’ knowledge on how to work their market will enable the company to maneuver through other crisis. Maintaining a proactive attitude towards employees who have been retained and helped through HRD initiatives will be repaid once the good times return. Crisis-driven layoffs and HRD cuts can lead to the loss of certain elements in its knowledge base. By cutting HRD funding, the organization suffers from decreased personal competencies, employee proficiency, human capital, individual knowledge and related synergies (Taylor & Akila, 2011: p101). The organization also suffers losses on its client capital, which are reduced after cuts to customer service training cuts. Learning and Development, which involves knowledge acquisition and knowledge sharing, has become the most vital element of organizational potential, especially in the current environment of unpredictability and rapid change (Harrison, 2005: p37). This is because it increases the organization’s competitiveness. On the case, of UK small and medium enterprises, the maturity of knowledge management can be directly linked to sustainability and long-term growth. Companies in the UK that employ a more strategic and comprehensive approach to the management of knowledge have been shown to improve more than those companies that do not. Companies that reduce funding to learning and development as a means of economizing are making a fatal mistake. Of course, learning and development does not yield any short-term profit or revenue, which could make cutting costs in the department appear as an easy solution. Reducing learning and development costs may also lead to a serious negative message being relayed to the knowledge-based workers who are representative of the major non-material wealth possessed by an organization (Harrison, 2005: p39). Instead of cutbacks, companies should have a strategic approach to costs arising from learning and development and retain programs aimed at the same. The company should consider this crisis as an opportunity. According to studies carried out in the UK, funding cuts to HRD is especially used for workers who are still learning their skills during the beginning of the crisis (Pedler et al, 1996: p56). It is forecasted that, should this continue, the measures could soon be extended to the skilled managers and employees. Hewitt Associates carried out a study on HRD in Europe, including the United Kingdom, in the crisis period and grouped companies into four categories (Reid et al, 2004 p60). The first were traditional firms, which followed full scale strategies aimed at cutting costs. These save expenses in all Human Resource activities and operations. A second group is that of traditional firms that carry out differentiated strategies aimed at cutting costs across various fields on Human Resource. Third was a group of firms, which were not adversely affected by the financial crisis and thus concentrate on strategies aimed at the short-term including outsourcing Human Resource activities and introduction of flexible solutions to the crisis. Finally, firms that are in the growth phase and searching for optimal Human Resource solutions implement total competency and compensation development systems. Among most UK companies, basic headcounts are not considered as a significant Human Resource tool. The traditional firms with full-scale cost cutting strategies were found to be lagging the most as far as employee competency development was concerned. The Cost of not investing in HRD Giving decreased attention to Human Resource Departments is reflective of an organization’s overall state of affairs and its possible uncompetitive position in its market base (Peter & Euigene, 2012: p33). The barriers between the Human Resources Department and the organization’s executive management lead to poor decision-making, miscommunication and critical mistakes. Poor funding to Human Resource Development ensures that the Human Resource assets are not aligned to the objectives and goals of the organization. The first disadvantage of under-funding Human Resource development is the unmotivated employees. The indifference to the employee needs by the top management will filter down the employee hierarchies which could affect work ethic and generate personal conflicts and destroy teamwork (Peter & Euigene, 2012: p34). The organization also grossly underutilizes the capabilities and skills of the experienced workers to train the new blood. Other professionals are also not groomed appropriately in negative environments. Lack of incentives and poor motivation can lead to poor performance and lower quality of services and goods. Another disadvantage is a mismatch between employee demand and supply. The recruitment and selection of employees occurs as a continuous cycle. Employees need to be hired and trained based on the requirements of specific projects. In a mismanaged company, Human Resource personnel with lack of communication and a lackadaisical attitude towards, managers and supervisors, find the act of addressing workforce requirements difficult (Peter & Euigene, 2012: p35). Job postings and vacancies are not filled in time and vital business operations, and functions are affected and have a knock-on effect across the company. Poor funding to Human Resources also begins to reflect in high employee turnover. The organization’s working culture is affected in a negative manner as performance appraisal systems and performance reviews are badly managed, with employees uncertain with regards to future and immediate prospects (Schuerkens, 2012: p43). Employee working conditions and safety practices can be compromised at manufacturing and factories facilities. Poor conditions of work could force employees to quit. Finally, it could also give way to a negative impact on the bottom line. An ineffective management strategy for Human Resources or a dysfunctional Human resource roadmap portends long-term consequences for the company. It affects business performance, as well as employee productivity levels. Customer service performance is affected across all company fronts. Additionally, the loss of medium-term revenues and loss of clients is immediate (Schuerkens, 2012: p 45). Over time, the freefall impacts the organization’s bottom line. Challenges of Investing In HRD Most countries have reported reduced formal training investment because of the economic crisis, these include; the Netherlands, Germany, France and Italy. Spain is an exception since it has reported increased training investment due to the financial support given by the Spanish government to companies affected by the financial crisis (United Nations, 2009: p456). This government money can be used in employee training with the state paying a little salary to the workers during their training period, Spain and France saw an increase in training funds. Belgium has not seen a great effect due to the economic crisis, although they have less reflection and benchmarking time, as well as focusing on short-term training. The financial crisis is making the position of the organizations less secure, with clients asking for results in the short-term. Because of the reduced formal training investments, more attention is given to informal and formal combinations and learning on the job (Batten & Peter, 2011: p23). Another challenge to maintaining Human Resource Development funding is the shifting responsibilities for development and training (Gourevitch, 2012: p20). Links between training and formal education systems in organizations have grown stronger. Some European countries have improved attention for prior learning accreditation linking informal and formal training (Jackson, 2010: p45). Accreditation of Prior Learning implies professional competencies acquired by on-the-job learning in voluntary work or the home setting are, in principle, comparable to those acquired from situations of formal learning. Recognition could mean the award of diplomas or certificates on generally recognized standards, for example, the qualification structure involved in vocational education. The Netherlands, France and Belgium show increased attention towards APL from their governments. Germany and France have also introduced personal training vouchers specifically meant to stimulate development and training on a personal level. German organizations have also shown training responsibilities have shifted to the individual from companies. France, on the other hand, has a stronger influence from intermediate bodies on development and training. Summary, Conclusions During the recent financial crisis, most organizations have attempted to apply different methods and strategies to ride out the crisis. The underlying reason is usually informed by attempts at short time survival and to avoid the ever-present threat of bankruptcy. This, however, puts the company’s future at risk in various ways via cutting funds to Human Resource Development, lay-offs, and the thoughtless asset handling. By losing human capital, the organization, jeopardizes the company’s flexibility, as well as losing the driving force behind growth, that is their intangible assets. The strategic-level and comprehensive management of learning and training development can lead to recovery and faster growth. Earlier management tools of talent management will work with limited and costly success in the altered economic environment. However, the paper revealed that some companies tend to prefer the old solutions to new problems. These companies try to avoid having to lay-off workers, although the reasons underlying these decisions have more to do with social issues rather than relations to Human resource knowledge management as no differences can be detected among the application of this method in various industries across Europe. A majority of companies do not have any plans to innovate in the Human Resource field, as they do not believe that the strategy could be a solution. The underlying explanation could be a lack of organizational appreciation for the advantages to be gleaned from Human Resource knowledge management. 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