HRM Theories during Economic Crisis - Essay Example

?HRM Theories During Economic Crisis The Theory of HRM working within a psychological contract, according to Rowley, C. and Jackson, K. pp. 141-142), states that commitment, satisfaction, and motivation of employees are caused by HRM policies and practices as well as whatever is the employee perception of fairness, trust, and delivery of deals. This essay aims to apply this theory under a scenario of economic crisis. First it provides an example from an actual company experience from the recent recession of 2008-2010. Second, it adds potentially good effects of HRM strategies following such a strategy and by implementing other consistent ideas along the line of the same theory. And third, this essay identifies bad effects of HRM and leadership failure to live within such a modern theory of HRM. By definition, Human Resource Management is the strategic process of sourcing manpower through recruitment, selection, and hiring, followed by rewarding, developing with training and assessments, relationship building and sustaining. (Rowley, C. and Jackson, K. 2011, p.xxvi). It normally takes time and financial investments to build up good relationships with employees on top of just training them to perform well in their jobs. This is very important to derive positive attitude and wholesome cooperation from employees. If they work hard enough, the company derives more benefits from them. But employees need to be engaged with their part of the functions, duties and responsibilities, in order to be highly desirable in their behaviour and highly productive in their share of the works to achieve objectives. The benefits of training and development over the years are realized in achievements of goals through good performance. Whenever a company has to retrench manpower by reason of force majeure, e.g. in times of economic crisis, the company actually loses not only qualified manpower but also the training and development investments incurred to make employees perform better. In the HRM Theory of Engagement, the term “engagement” refers to a mental attitude with positive behaviour, emotions, and thoughts about a job for the organization to meet the required high performance of manpower capabilities in achieving company objectives. (Holbeche, L. and Matthews, G. 2012, p. 12) A very good example in connection with applying these two theories was reported by the CEO of SRS Real Estate Partners, Chris Maguire. The economic crisis that started in 2008 forced him to sell a part of the real estate business which was supposed to be the “bread and butter” of SRS in the USA (Fehrenbach, P., 2012) even while he wanted to maintain his management and staff because of their years of being together. How to maintain their morale and work performance obviously became a major problem. From depending on the big market for real estate and construction industry, SRS shifted to the retail sector or the smaller market in an attempt to find transactions for their survival. One of his leadership skills which paid off eventually was the willingness to be transparent to the people he managed. All members of the organization knew what was happening to the organization. Involvement was high for the survival of the entire manpower resource. This implies the depth and extent of knowledge by the employees that they had to scramble for transactions in the retail sector of the industry in order to find transactions for SRS. Also implied in the situation of SRS were the treasured training, relationship building, and maintenance of good leadership-employee relationship in good or bad times. From the viewpoint of the leadership, retrenchment in operations was necessary for survival. Although the story does not give details about what happened to employees connected to the sale of major assets tied with the big chunk of its real estate business, it can be imagined how employees were either transferred to the accountability of the new owner, Jones Lang La Salle, or probably transferred somewhere else. In an economic crisis, where people would know about their jobs being threatened by retrenchments of companies, the attitude of people towards change would have to be positive. Reflection # 1:How Positive Attitude Can Eventually Satisfy Both Leadership & Employees Given the real estate and construction industry in an economic crisis scenario, both management and employees can be made aware of the circumstances through ongoing provision of awareness about the impact of a poor economy on the business and for its employees. An atmosphere of fear can be developed in the process but only if uncertainty of end results for each one will be maintained. Employees will fear loss of jobs and loss of income. Management will fear business losses in terms of profits, investors, and qualified manpower. And because the management is also made up of people with similar needs of employees in the rank and file, members will also fear for the loss of their jobs as managers, loss of income, and uncertainty for the survival of families. This is where the role of leadership will be very important. A good leader shows the way to go over the crisis not only for him but also for the managers and other employees. That good example of leadership showed by the CEO of SRS Real Estate Partners started with the positive attitude of affirming the value of manpower, especially after many years of building up manpower resources and maintaining good relationships with them and sustaining that relationship. It was followed by a willingness to be transparent and the confidence in knowing what to do in times of economic crisis. What he did was to go back to the basics of the business of real estate and construction. He understood how every single transaction meant better chances of survival while demand was low. So he guided the manpower resource to find more transactions in the retail section of the real estate and construction industry. Transparency meant letting people know the developments about solutions for all of them to overcome the economic crisis. The CEO himself admitted to not knowing where all their effort of finding customers in the retail sectors might end up. All he knew was that the management had to find a way to make manpower resources realize the urgency of the situation for each and every member. In fact, the CEO recalled how the first 6 months of “bleeding” (referring to not earning yet incurring ongoing cash outflows for overhead expenses in order to operate) was “hyper-urgent” and “scary” (2012, par. 8). He also reported having to go through 24 months of tough times along with a manpower who encountered difficulties with understanding the crisis that was going on. The intensity of teaching people to understand how to go about surviving by going after the retail sector of the industry was at all-time high. In a practical sense, most companies would start retrenching employees to the extent that it would make the business profitable given the low level of demand. Manpower will naturally realize demoralization even as they continue to work, knowing it would be just a matter of time before it might be their turn to be terminated due to the economic crisis. This would be the normal reaction of employees. By expecting the worst, they not only experience great frustrations, anxieties, loss of trust and confidence in the ability of the leadership to provide for their good future. In other words, the expectations could have been tragic. Motivation would have been way below desired level. Just imagine an atmosphere of manpower living with the anticipation of a sinking ship while they are on it. Everyone will want to start looking for a new job if they can find a replacement somewhere. Aware of the presence of the economic crisis, people will realize few job opportunities open to them because other members of the real estate and construction industry are also retrenching in a time of economic crisis. Their next alternative is to look for a different industry where there might be more job opportunities. Unfortunately, when the news of economic crisis spreads, most businesses refrain from hiring or even cut down in their manpower. In fact, the atmosphere of tension build-up in USA, UK, and the rest of Europe did become apparent when people started rallying in the busy streets blaming government for the economic crisis. They were either made up of those who lost their employment or family members who must have lost their budget for maintaining their desired lifestyle. Following the theory of HRM working with a psychological contract between management and other employees, it would appear that manpower motivation, satisfaction, and expectations can be adjusted through leadership skills which should include transparency. One other way (not mentioned by SRS CEO Chris Maguire) could have been about management being able to convince the manpower to accept a reduction in compensation to a level wherein the company will not lose by maintaining people. Employees can be transferred where they will be needed. But the pay may be lower than the current compensation. This may be made possible as the doors are kept open to employees who need to get the same pay even if they have to transfer to another company. Later on, the same employees who occupied particular positions may be given the priority for rehiring with their desired pay after the economic crisis and recovery of the business itself. For as long as the manpower continues to work positively in cooperation with the management, while the business leadership strives to satisfy the interest of employees aside from just the business profitability, many creative alternatives can be negotiated. Another example of serving both the business survival in terms of keeping it operational without losses would be by offering alternatives to employees. During economic crisis, lack of transactions would normally mean a need to reduce the direct and indirect labor cost and expenses. Fairness to employees should consider their immediate needs as well as their future. Retrenching some of them can be avoided by granting some employees the opportunity to go on educational leave without pay. If there are those who need cash during the educational leave, they can be offered a loan against their accumulated employee benefits. That angle can be considered for its feasibility for both parties. As soon as the company is able to find new transactions to justify continuation of work for those on leave, they can be notified and given priority for the openings. No economic crisis can ever last forever. The latest lasted for only about 3 years, which is shorter than the time needed to complete a 4-year course higher education. With no record of termination and a priority status for employment, plus higher education by the time there is an economic recovery for the business, an employee offered the opportunity to go on leave without pay can depend on their employee benefits for retirement by way of loans against their unclaimed employee benefits. Furthermore, because they are still connected with the company, such employees can avail of outside educational loans payable after they are once again hired later. The company itself can help facilitate the loan access because the lenders will be pleased to know there is an organization helping out the employee in pursuing higher studies and in the future payment of loans. The effect of granting opportunities for higher education with future assistance from an organization will have many advantages. From the viewpoint of the leadership, costs will be reduced without creating dissatisfaction and loss of loyalty on the part of employees. The company manpower will gain higher education while demand is low. Cash loans will not be treated as expenses, but as either receivables or directly reducing the company obligation in terms of retirement benefits accumulated or other employee benefits. Thus, corresponding cash outflows for those on educational leave will not register as part of net losses or expenses resulting in net losses. The problem of manpower requirement for future opportunities will not be a problem by the time the economic crisis is over and there will be a need for build up of manpower for higher levels of operations.. That would be due to ready accessibility to the former employees who went on leave. Future recovery of trained manpower will also mean little or no further investments in training the same manpower all over again. This saves some cost of training and development. On the part of the employees, they can remain as good providers for their families not out of salaries but out of loan facilities while on leave. What they will sacrifice is their future benefits. However, future benefits can be worked out after getting hired again when the business recovers and calls them back for work. They might have to settle for less monthly budget for all the basic needs. But that is better than losing a job they are familiar with and starting all over again with another company. Employee track record of loyalty can be preserved. Credit standing for employees is also based on continuity of work in a specific company, since it speaks of stability for those who have been serving a company for many years. Behind all these strategies is the policy of transparency, fairness, commitment to serve between the business and the employees, and sound leadership. Financial statements can be verified to determine if the business is recovering. Management can, in turn, openly communicate whatever developments there might be to notify employees on leave about the needed preparations to either report for work within a given time frame or to focus on higher studies. What will be most crucial behind the policy of transparency and other procedures for the good of both parties should be the concern for the welfare and survival of all deserving team members who served the company well when they were needed. Reflection # 2: More Popular Solutions Which Failed to Keep Good Manpower In contrast, what actually happened to many businesses was the heartless decision to lay off employees, in order to give priority for the survival of the business itself. It was without much of an effort to be involved in the human conditions of those who lost their jobs and became a part of the high unemployment. This type of management policy does not value manpower for the long term. Those companies who retrenched lose their access to even their good employees. If the business survives to see a favorable trend, its management will have to incur fresh investments to recruit, train, develop, and build relationships with new employees. In the long run, companies that are able to avoid these unnecessary new investments will be able to operate more profitably. It will have preserved a dependable team for the harvest when the economy is good. There may be other ways of preserving the good relationships and access to manpower. What has just been presented are a couple of examples aside from the reported strategy of the SRS CEO. If the trust of good employees towards the management gets broken, usually due to the lack of HRM and company leadership concern for their human lives, aspirations, and families, when the trend changes and the opportunity to reap income based on peak employee performance finally arrives, it would be logical to conclude that it is at that time when the leadership will have realized the great loss of its biggest resource --strong manpower.. References Fehrenbach, Pete. How Chris Maguire Led SRS Real Estate Partners Through a Crisis By Going Back to Basics and Taking Small Steps. SMART BUSINESS Insights, Advice, Strategy. October 1, 2012. Viewed online January 23, 2013 @ http://www.sbnonline.com/2012/10/how-chris-maguire-led-srs-real-estate-partners-through-a-crisis-by-going-back-to-basics-and-taking-small-steps/ Holbeche, Linda and Matthews, Geoffrey. Engaged: Unleashing Your Organization’s Potential Through Employee Engagement. USA: John Wiley & Sons, September 2012. Rowley, Chris and Jackson, Keith. Human Resource Management: The Key Concepts. Canada, USA, UK: Taylor & Francis, 2011. Read More