The Global Economic Crisis and Its Implications for Strategic HR - Essay Example

The global economic crisis and its implications for strategic HR BY YOU YOUR ACADEMIC ORGANISATION HERE HERE HERE The global economic crisis and its implications for strategic HR Introduction Today’s global economic crisis is creating a wide variety of challenges and opportunities for the HR strategist. Much to the dismay of current HR practitioners, the economic crisis is not tightly wound around a specific sector or industry, but is being felt by multiple industries in a multitude of different business divisions. In essence, the global crisis affects both product- and service-oriented businesses in terms of diminishing sales volumes, rising costs within the supply chain caused by external recessionary forces, and also the psychological impact of troubling economic times which can create negative output and labour outcomes. This tough economic reality in today’s businesses is causing many HR professionals to re-examine existing HR policy and benefits structure in an effort to recognise cost reduction or enhance incentives-based HR programmes to muddle successfully through the economic turmoil. In difficult economic recessions, many business strategies look for “tangible, quantifiable problems and ignore softer issues such as employee engagement” (Nielsen, 2009, p.13). This would tend to suggest that cost reduction issues and changes to internal operational strategy are often the focus to combat negative outcomes stemming from tough economic conditions, somewhat obscuring less tangible needs such as creating a sense of belonging within the organisation, building job security, and ensuring that employees maintain a positive sense of self-identity related to the organisational environment. This paper highlights what steps are available to contemporary human resources professionals to gain competitive edge and improve workplace relationships during periods of difficult economic growth and where slow recovery seems to be on the HR agenda. The effects on actions of key stakeholders will also be identified. Strategic implications A recent survey of 522 different HR managers identified that nearly all HR professionals believed their organisations had been negatively affected by the current financial environment (Khakti, 2009). At the strategic level, this creates considerable pressure by senior executive leadership to recognise areas of cost savings whilst also dealing with employee sentiment related to areas of job security. In order to meet these business pressures, nearly 81 percent of today’s HR managers have begun reviews of their bonus and benefits structures to identify a new methodology which meets with both employee satisfaction and organisation-wide cost reduction. Since “employees consistently rate benefits as one of the key factors in job satisfaction” (Khakti, 2009, p.10), it is logical to begin with a benefits review to identify whether reductions in benefits offerings is required in order to sustain competitive advantage from the cost perspective related to employee labour payouts. Surprisingly, almost 92 percent of today’s organisations offer some form of retirement plan, either for generic employees or at the senior level (Khakti). Benefits, in most organisations, impact key stakeholders in a variety of ways. Senior-level managers, lower-level managers in the hierarchy, employees and their immediate families are impacted when benefits structures are altered or benefits offerings reduced. In difficult economic conditions, a reduction in employee benefits created by uncertain economic conditions and new business strategy could impact employee motivation to perform or their perceptions of workplace and lifestyle security. A recent survey of nearly 500 HR managers indicated that 53 percent of today’s organisations are actively trying or considering new benefit strategies solely as a result of the economic recession (Hain-Cole, 2009). Benefits appears to be one of the most fundamental methods of changing HR policy and process to recognise cost reduction and with such a high volume of today’s companies reviewing benefits, employees’ psychological needs must be taken into consideration in order to have a benefits-focused strategy work successfully. Self-esteem and how the employee identifies with the organisation and its culture are significant predictors of motivational outcomes and willingness to provide superior effort to the business’ goals. When benefits reduction strategies or other cost cutting activities begin at the organisation, turnover ratios can begin to notice an increase as employees leave the organisation in favour of new job opportunities. “Employee turnover represents a practical problem to an organisation in terms of lost talent and additional recruitment and training costs” (Loi and Hang-Yue, 2006, p.102). Therefore, turnover rates should be a considerable strategic consideration for the human resources professional because of the burdens it imposes on the organisation both financially and in terms of lost human capital which can contribute to competitive edge and business innovation. High turnover stemming from employees who no longer feel job security in a tumultuous organisational environment impacts all key internal stakeholders and, if the loss of talent is significant, can lead to breakdowns in organisational efficiency and productivity. Therefore, in tough economic times, especially considering that HR managers and strategists are accused of failing to identify the softer issues of HR related to employee engagement and psychology, the method by which cost reduction is addressed and coordinated must take into consideration the possibility that turnover rates, therefore higher costs to the business, will be an outcome. Iskat and Liebowitz (2003) offer that maintaining a sense of employee job security is the best opportunity to ensure employee commitment to meeting organisational objectives. This can be accomplished by promoting managerial support and continuing to provide training to employees who have not been displaced due to cost-reduction efforts in the organisation. Because employee downsizing is often an HR reality in recessionary environments, the need to rebuild existing employee morale becomes more paramount for the strategic leader. “Survivors need to see that their former colleagues were let go in an ethical way and that the employer has shown support in helping them move on their career” (Cornerstoneresults.com, 2001, p.1). From the HR perspective, downsizing which is not handled in a way which appeals to the softer needs of the employee can lead to “an organisation poisoned by mistrust” (cornerstoneresults.com, p.2). In the study of human resources, trust for both the organisation and for peers and managers are key predictors of employee willingness to provide superior effort in job roles and project teams. Poor downsizing which does not come with an appropriate explanation of the decision can lead to diminished perceptions of job security and could lead to higher turnover rates. “Bosses often reason, incorrectly, that staff will be motivated just by the virtue of the fact that they still have a job” (Bashford, 2004, p.44). Negative perceptions related to job security can be created in any employee who is at will and not bound by employment contracts. When downsizing is a strategic obligation of the human resources practitioner, engagement with the surviving employee population is a necessity to avoid long-term problems with performance and organisational culture. Another survey conducted by Watson Wyatt Worldwide, indicated that employees plan to “jump ship” at the end of the recession in pursuit of new salary and job role opportunities (Hansen, 2009, p.14). There appears to be a trend in this difficult economic environment where employees are often conducting behind-the-scenes searches for new job opportunities and are waiting for the recession to end in order to enhance their job incentives post-recession. This has significant strategic implications for all key stakeholders within the organisation, from the senior level to the subordinate level. At the HR level, diminished organisational loyalty and intention to leave could create problems internally at the financial and human capital levels, imposing a much higher burden on organisational structure. It also seems that employees are not leaving their organisations in the midst of this crisis because many other organisations have implemented dramatic hiring freezes expected to last through at least 2010 (Fox, 2009). This gives the HR strategist ample time, then, to try to instil a sense of loyalty in existing employees in an attempt to avoid defection after the recession ends. Strategy is often about looking at the long-term business picture, and since employees are somewhat stuck in their job roles due to other organisations’ ceasing hiring, HR managers can respond with training and development, coaching and mentoring, or any other number of motivational strategies to ensure better employee retention and achieve competitive success. The global economic crisis also creates new opportunities when the human resources manager and strategist begin looking for cost reduction: outsourcing. Outsourcing can be a worthwhile objective in multiple business areas from consultancy through internal production in a product-focused organisation. Outsourcing represents a type of business change which requires the contribution and acceptance of many different internal stakeholders. In today’s businesses “people seem to be overloaded with many change initiatives overlaying one another, causing an almost constant level of confusion” (Kenton, 2005, p.47). However, after conducting an internal analysis of the business, the human resources manager may realise that many redundancies exist in the business or the internal culture lacks the specific expertise and talent needed to survive during difficult periods where sales have declined or costs continue to rise within the value chain network. Outsourcing different activities could represent a cost savings which is significant if the new outsourcing change is planned and coordinated properly, therefore even though confusion can be a potential organisational outcome of change policies, it is still an effective method to streamline internal costs during recessions. Depending on the nature and scope of the outsourcing objective, the key stakeholders affected include managers, employees and even external business clients involved with the outsourcing objective. “Faced with uncertainty in the organisation, people are prone to believe the worst and are more willing than at other times to listen to the naysayers and merchants of doom” (Bones, 2009, p.19). When an existing employee, in the midst of cost-reduction efforts to improve business sustainability during tough economic times, has witnessed layoffs, outsourcing, or job role consolidations within the business this again creates negative perceptions in relation to job security or the potential longevity of their own career with the organisation. In organisational and HR studies, appealing to employees’ needs for belonging and the interpersonal dynamic with peers and managers often shape how an employee views themselves as a contributor to the organisation. Under Maslow’s Hierarchy of Needs model, a valid psychological model, an employee requires the development of social belonging before higher concepts such as self-esteem can be considered and developed (Morris and Maisto, 2005). During tough economic periods, negative peer sentiment about job security, the organisation, or simply the external environment are likely discussions which occur between peers in generic, inter-office communications. In order to sustain a competitive edge, a business requires a well-developed, collaborative, and socially-motivated workforce dedicated to meeting organisational goals. When negative peer discussions begin to erode the effectiveness and stability of the organisational culture, the strategic implications are intense for the HR manager. Therefore, the human resources professional must work to counter negative peer commentaries by illustrating that the business still values their position and will work to help develop their career path in the organisation. This is a psychological strategy for the HR manager, however ensuring that organisational unity and coherence exists is a short-term objective to attain long-lasting, strategic goals. Managers must also understand the internal dynamics of organisational processes so as to make them more efficient and effective during times of sales declines or rising costs in the value chain caused by the global recession (Reilly, 2009). In an effort to reduce costs, human resources managers can cut back on training programmes which require significant financial and labour investment to ensure they are carried out effectively and in a way that is relevant to business needs. In exchange, a lower-cost internal practice known as knowledge-sharing can be a short-term investment to build a stronger competitive workforce and also remove some financial burden from the short-term human resources budget. Knowledge sharing can make use of company intranets or extranets to keep employees continuously aware of policy and process changes, thus appealing to their sense of belonging within the organisation. Making use of daily or weekly intranet communications from HR managers regarding new change policies or strategic analyses of existing human resources functions can close the gap between divisions in communications. The goal is to send the impression to employees that they are still vital members of the organisation and also enhance the relationships between the HR division and the employee population. Using simple communications tools as a means to successfully ride out the economic storm and also building a stronger organisational culture is one strategic opportunity which satisfies budget restrictions as well. Finally, the poor economic climate has created changes in how companies use their performance management systems to elicit rewards versus punishments based on outcomes related to their individual contribution. These systems generally are used to identify strengths and weaknesses in employees and set a specific reward outcome which can be attained through their performance efforts and goal attainment. Small-scale rewards, such as earning free cafeteria vouchers for successful project development (or similar low-cost rewards) could be the motivating force needed to keep employees satisfied during difficult economic periods. Where many organisations provide only annual bonuses based on yearly performance management results, the addition of new, exciting internal rewards for small scale accomplishments will likely give all stakeholders a new incentive to work to high expectations in this economic period. In terms of strategy, the senior-level administrators, employees, and even the external stakeholder (the consumer or client) are affected with better quality customer service as well as a motivated, contented workforce. Long-term HR strategy should be highly concerned with rewards systems especially when it was previously identified that many employees intend on jumping ship after the recession and are already affected by peer sentiment and diminished job security. Inserting new performance-based rewards for small-scale job accomplishments does not strain the HR budget significantly and appeals to employees’ basic psychological needs in the process. Conclusion Today’s global economic crisis has created new opportunities for redesigning the human resources function within businesses to recognise opportunities for cost reduction whilst still maintaining competitive advantage in multiple business areas. In almost all business scenarios, key internal stakeholders are affected as the human resources professional begins to restructure or redevelop existing HR policies and procedures. The key is for today’s HR managers to recognise that employees are not, typically, highly motivated in uncertain organisational environments and their basic psychological needs are always on the forefront of the employee consciousness, reinforced by peer sentiment at the interpersonal level. It is imperative for the HR manager to remain focused on building a stronger organisational culture and also satisfying strategic objectives for cost-savings whenever possible. This proverbial juggling act for the HR manager represents even more job responsibilities, however this is highly important to remain a successful business, both internally and externally, after the recession has ended. This requires a human resources manager with considerable strategic ability to recognise how to reach long-term results using short-term human resources strategies. At the heart of the economic crisis is internal business change at the HR level and meeting employee needs is a fundamental aspect of coping in tough business conditions at multiple levels. References Bashford, Suzy. 2004. The Survivor Syndrome. Human Resources, London. June, p.44. Bones, Chris. 2009. Stop HR from self-destructing. Human Resources, London. January, p.19. Cornerstoneresults.com. 2001. Rebuilding Workplace Morale after Downsizing. Viewed 19 Oct 2009 at http://www.cornerstoneresults.com/reflib/knlgebk/hr_gen_rebuild_morale.htm Fox, Adrienne. 2009. The Big Chill. 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