The Effect of the Global Economic Downturn - Essay Example

?Strategic HRM Mass retrenchment of employment was in news due to the prevailing recession, financial crisis and economic downturn in US and various parts of Europe such as UK. Generally in such situations employees are viewed as commodity, like the other resources in the business. However, the employees are not commodities. Recession negatively affected the employers and the human resource policies and practices, whose severity could not be assessed. About 66 percent of the employers in the affected countries have suffered from declining revenues. Only 6 percent of the employers have experienced growth during this time. In order to understand the utility of strategic human resource management in the organizations, this study aims to discuss the issues of unemployment during the economic downturn and recession that recently shook the international economy. The effect of the global economic downturn includes insolvency, bankruptcy, and declining revenue of the employers, decreasing purchasing power of the people, and most importantly unemployment, downsizing. The intention is to analyze every dimension of effect of recession on the human resources, so that the implications of strategic human resource management in global financial crisis can be understood. The second part of the study would discuss the strategic moves that the employers and human resource department of the organization can take in order to manage the human resource in the organization because downsizing is not the solution to reduce cost, but it decreases the pool of skilled workforce in the firm, which affects the company negatively (Galinsky, and Bond, 2009, p. 1-2). The latest data that is available from the Office of National Statistics (ONS) reveals that the employment of 460,000 people has decreased in UK since recession of 2008. The major portion of these employees is full time workers, but after recession the level of part-time employees has risen compared to the full time employees. This reason is obvious; the companies want to hire those whom they have to pay less. The full times employees had to be paid salary according to the labour policies, and also have to provide the other facilities which a full time employee is liable to get. So it can be depicted that the human resource strategy when most of the employers in UK and other parts of the world applied was rigorous downsizing, which resulted in mass unemployment (Philpott, 2012, p. 2). Any person is regarded as unemployed if that individual is out of work and is badly in a need of work to earn his/ her living. The figures of unemployment are calculated by the Office of National Statistics. During recession this organization survey after an interval of three months in order to capture the true status of job loss and unemployment. As soon as the recession surface, the rate of employment reduced considerably within few months. About 1.6 million job cuts were seen in the first few months of recession. During the end of 2009, the job cuts peaked to 2.5 million, which was the highest till then in the history of UK. However, in 2011 it further increased to 2.7 million, which was the highest unemployment level in UK in 17 years. Even the unemployment rate of women in the affected economies increased considerably. IN 2012, the first deduction in unemployment level was seen, which a positive signal (BBC News, 2012). If the output cost due to unemployment during recession is evaluated, it would be seen that the worth of the output decreased because of the rising level of unemployment. Considering about 2.67 million job cut in 2011, it can be said that the economy of the country lost about ?129 billion of the output, due to increasing level of unemployment. However, this loss was not the result of the unemployment of all of these unemployed people in UK because about 1.6 million people were already unemployed before recession. Recession added to the existing rate of employment. This amounted to about ?132 billion, which is about 9.4 percent of the GDP of UK in 2011. It goes without saying that rising level of unemployment had negatively affected the citizens of UK, their standard of living has fallen and their purchasing power has reduced. First, there was high probability that the workers started gradually losing their interest and skills. Unemployment was stressful and created strong psychological effect in the minds of the workers and their families. It increased the mental stress, illness, malnutrition, poverty in the country. Another negative consequence was that it increased the suicide rates in the country. The life expectancy of the workers was also reduced due to the loss of employment. Recession and similar situations would pass away but the quality of workforce would depreciate because of unemployment. After recession when boom in the market would be seen, then the employers would not get the once experienced and skilled workforce which it used to possess before. This is all because of loss of employment. The motive of describing the consequences of such strategic decisions of human resource department is to present that downsizing not only affect the employees in a negative manner but the employers more than its employees. During recession the unemployment rate increases because the demand for the products and services decreases and this increases the cost of the company, so they want to reduce their cost. According to the management of the companies and their human resource department, by downsizing they can reduce the fixed cost that the company has to bear. On the other hand after recession, it is obvious that economic boom will again create demands for the products and service. During this time the company will have to again hire employees and bear the cost of hiring and training them. Moreover, they have to hire the new employees at higher salary than before because of boom in the market. So this scenario clearly depicts that the strategic human resource decision to save fixed cost for a short span of time is not a wise decision. The real picture is however different in UK. After investigating and evaluating the job market and employment condition of UK after recession, it has been understood that these are the situations when the human resource department (HRD) of the companies face the real challenge. This discussion would further continue with the analysis of the role that HRD play in situations as this. The HR leaders around the world want to shift their priorities as they are rethinking about the latest challenges that vary from decimated departments to slashed budgets in the companies. It also included drawing attention and retaining the interest of the employees in the uneasy environment. The financial downturn presented a prospect for them to elevate their pro?le in the company and become a vital resource for the senior management. It has been confirmed by majority of workforce and top level management of the company that during crisis situations as recession, the higher authorities of the company trust and depend upon the human resource and the HRD. They play extremely important role in the strategic decision making functions of the company. Based on the current concerns, execution of performance management programme, organizing career development and leadership sessions becomes the top priority of the HRD in the organizations. Performance management is the vital issue which becomes that matter of concern in times of recession. So it is not only downsizing but also performance maintenance which is areas of concern in times of economic downturn. During the slowdown situation, the performance evaluation of the human resource is done based on the quantifiable matrices. Majority of the firms have taken such decisions after facing sever crisis since 2008. They agree that the metrics-based system for evaluating the performances is significant for the success of the business. It is obvious that all the programmes designed might not be well executed because neither the systems nor the resources are perfect. In this scenario the engagement of the manager with his/ her team and employees becomes the strength. If the goal and the rewards are clear to the employees they would achieve them. So this depicts that economic situations of the country will affect the company and its human resources, but it is the management and the HRD who has to manage the internal environment, so that they find strength to cope with the external turbulent environment. In this scenario successful leadership of the HRD in finding innovative ways to maintain or retain the employees would have been preferred by the management as well as by the employees too. The HRD is responsible to see that the fixed cost of the company is optimized as downsizing could be avoided. This requires succession planning, development, training on managing human resource during critical situation (Economist Intelligence Unit Limited: The Economist, 2009, p. 11). During economic downturn the HRD’s role is to emphasise on the significance of cost control, performance management, efficiency for the survival of the organisation. This would also better explain the employees regarding the goal, missions and policies of the company and they would put in more efforts to fulfil such goals. Due to intense financial downturn the companies were reluctant to spend funds to train their workers. They stopped or slowed their payments and suspended their incentives, retirement plans for avoiding higher job cuts. The situations were such that company could have cut down 70 percent of their workforce, but this was also impossible, so demotion and decreasing the remuneration of the employees were another way chosen to save cost. The human resource issues that became prominent during recession were: 1) lack of confidence of the employees on the leadership, 2) Sensation of being undervalued, and 3) Increased level of stress. The trust of the employees has been fading since few years due to slow economic condition, and the global recession has added fuel to such a situation. In the year 2010, a global workforce study was done in UK. In this it got revealed that about 79 percent of the employees wanted their senior managers to be trustworthy and only 47 percent actually believed that their senior managers were already quite trustworthy. Trust not only relates to character of the manager, but also to the level of competency. Employees should trust the leadership qualities of their leader. During situation as these this issue becomes more significant, as trust is regarded as the cornerstone for the engagement of employees in the organisation and it is very important to retain such for maintaining a healthy environment in the organisation. Due to huge job cuts, demotions, and payment reductions, the employees feel underpaid and overworked. The employees work more for less what even they used to get, so they develop a feeling of being exploited by their company. They feel mistreated and the management start treating their employees in such a fashion as if they should be obliged to be still among the employed ones rather than the unemployed number. Both of this behaviour represent negative attitude. The employer is nothing without its human resource, so the employee should not be made to feel obliged about being employed, and the employees should work in teams during such situations to take the company to a better position, as being a stakeholder of the company, it would benefit them too in return. Lastly, stress is very critical in crisis situations. Loss of job and pay can breakdown a person psychologically. It increases the stress level of the employee and the family, which can further lead to major health problems and even death through suicides. The suicide rates in UK increased due to recession and unemployment. The youth unemployment level was alarming as majority of population in UK are aged and youth being less is already a big issue (Tesvich, and Morrow, 2010, p. 2-4). It can be said that human resource management is no long the same what it used to be. The traditional concept was that human resource management something related to recruitment and selection of the right workforce for the organisation. Then the responsibilities extended and it also included the staffing and human resource planning, allocation, monitoring and controlling activities. However, day by day the business environment is becoming more challenging. Economic calamities are increasing and severely affecting the workforce in organisations, so the human resource management has been redefined to be strategic human resource management which still performs the core activities which it used to perform, but the responsibility of cost optimization, leadership, employee engagement, goal achievement, team formation, performance management and assessing the psyche of the employees to utilize their skill at the optimum level also comes under the periphery of strategic human resource management. Strategic human resource management involves the way to deploy and manage the human resources and assign activities to them in order to achieve the goals of the organization. It includes all the functions that are required to fulfil the strategic needs of the organization. Strategic Human resource concepts have to be understood in order to analyze the correct role of human resource department during crisis situation such as recession. One of the major functions which can be considered under the strategic human resource is employee retention (Storey, Salaman, and Billsberry, 2005, p. 1-3). The human resource managers and leaders in most of the companies, who are even not negatively affected by the unexpected global recession, are facing challenges that are arising from the unstable market due to unanticipated acquisitions and mergers. These dramatic changes have put pressure on the organisations those have not really faced abrupt turn down. This had made the condition of the HR professionals difficult in the business. The surveys done all round the world on the affects of recession on employment, reveals that HRD faces the greatest obstacles in managing workforce in the business, due to miscommunication between the top level management and the lower levels, lack of trust, and loss of work. The strategic human resource management challenges have extended further than just recruiting the right persons for the right roles. The consequences and challenges of the HRD during the recession of UK have been discussed, the measures they have taken have been evaluated, and the result of such an initiative have also been analysed. As already mentioned, human resource management has redefined its functions and have become strategic human resource management as the periphery of its functionalities have extended to meet the upcoming challenges as economic downturn. So now the study would be throw light on the strategic human resource management which would reveal how organisations can do their tactical planning to guarantee that the internal environment can be balance and downsizing can be avoided even during recession. The three basic consequences of the rising level of unemployment in the organisation were decreasing trust of the employees on their leaders, Feeling of being overworked and underpaid, and the rising level of stress. So firstly solutions to such issues are recommended (Economist Intelligence Unit Limited: The Economist, 2009, p. 11). During recession most of the firms had to shift or change their business strategy. In that time the firms paid less attention to the fact that employees have heard or understood the changes when they have made and also the implications. For making the employees believe and trust the companies’ decision, the first step would have been to explain the human resource the requirements of such change and make them believe that their firm is on the roads to success. It was necessary to involve the employees in the managerial decisions, so as to show that they were important for the organisation. The leaders or managers in the organisation have the responsibility to maintain an individual relationship to win the trust of the employees and boost their confidence. The second issue was the feeling of being exploited, which rose as the employees were few and work was same. Moreover they were paid less than usual for cutting down the cost of the company. This should have been done strategically. Rewards could be given to the employees for good performances for motivation. This would have satisfied them for the extra effort the human resources made for the firms during recession. The compensation plans should have been revised. Thirdly, increasing stress level could be reduced firstly through counselling the employees by the HRD and the relevant persons. Aggressive downsizing in the company should not be done to bring down the morale of the human resource and this would also increase the cost of the company because it is more costly to recruit and train new employees that retaining old and skilled workforce. Figure 1 Source: (Aon Consulting, 2009, p. 9). In this regard the Cost reducing Evaluation Grid, as shown in Figure 1, can be discussed to understand the strategic decisions that HRD can take in order to combat situations as recession without massive downsizing and demotions in the company. The Cost reducing Evaluation Grid has four quadrants. The first quadrant shows the ways of high savings, but those may result in negative employee engagement, such as reducing the salaries of the employees that is underpayment, downsizing or layoffs, and outsourcing the entire department or business process. The second quadrant depicts ways high saving and positive employee engagement, such as reducing the working days of the employees, giving them voluntary off and retirement plans. The third quadrant discloses low savings of the company as well as negative employee engagement, such as reduce the optional spending. Finally the fourth quadrant shows the low savings but positive employee engagement process, such as enhancing the benefits of the employees, encouraging the employees to work from home, so that the cost of the resources used by the employees in the office can be saved. This model is a very clear explanation of the strategies that is undertaken by companies during different scenarios, their effects on the process of employee engagement and on the company. The former CEO of General Electric, Jack Welch said that if a company wants to manage its workforce well, then it should lift its human resource to a powerful position and give prime importance to their perspective. As discussed economic calamities like recession would come and go, but shedding load of cost through eliminating the most important resource of the company is not a wise choice. References Aon Consulting, 2009. Managing the Economic Crisis Building a Framework for Human Capital Planning. [pdf] Available at: < http://www.aon.com/about-aon/intellectual-capital/attachments/human-capital-consulting/managing_economic_crisis.pdf> [Accessed 16 November 2012]. BBC News, 2012. Economy tracker: Unemployment. [Online] Available at: [Accessed 16 November 2012]. Economist Intelligence Unit Limited: The Economist, 2009. The Role of HR in Uncertain Times. [pdf] Available at: < http://graphics.eiu.com/marketing/pdf/Oracle_HR.pdf> [Accessed 16 November 2012]. Galinsky, E., and Bond, J., 2009. The Impact of the Recession on Employers. [Online] Available at: < http://familiesandwork.org/site/research/reports/Recession2009.pdf > [Accessed 16 November 2012]. Philpott, J., 2012. Counting the Cost of the Job Recession. [Online] Available at: [Accessed 16 November 2012]. Storey, J., Salaman, G., and Billsberry, J., 2005. Strategic Human Resource Management: Theory and Practice. 2nd ed. California: SAGE. Tesvich, L. L., and Morrow, C., 2010. HR’s Challenge: Engaging Employees Post- Recession. [pdf] Available at: [Accessed 16 November 2012]. Read More