Recession ahead- What does an HR do?

Published by MBA Skool Team, Published on January 02, 2012

Currently the whole world is facing plenty of risk in the economic front, including global supply disruptions following the multiple disasters in Japan, sovereign debt problems in Europe, budget gridlock in the U.S. It follows China’s inflation, oil rate hikes, conflict in the Middle East and frequent earthquakes. It creates instability and uncertainty. Some studies suggest that these are going to create double-dip recession. This recession will impact organization’s financials which in turn affect the employees in terms of lay-offs, cost cutting. And we can see this is happening in some of the organizations.

What should a HR do in recession

What does organization do?

The recession creates financial problems for organization. Then there will be a need for pay restraint as the budget falls. In response to this most of the organizations announce recruitment freeze, job losses and various ways of cost-cutting. Training budgets will be deci­mated, health insurance will become self paid and pension schemes closed - leaving HR professionals with a huge task keeping employees motivated.

Need of HR

There is need for HR to provide leadership to the business in the turbulent times. To attract and retain talent becomes a major concern for HR. Companies will have to focus on rewarding outstanding contributions - those people organization cannot afford to lose. They need to see an increased emphasis on talent management. All I want to say "HR is vital to an organization in a recession. If you want to survive, then you have to keep your best people.”

What should they do?

Economic cycles of slowdown and recession followed by recovery and expansion appear to be a fact of life now. When faced with an economic slowdown or recession, many companies focus exclusively on downsizing. They basically focus on preserving cash.  We have seen that many companies take an arguably myopic approach that results in taking out too much talent. And perhaps they miss opportunity to use the downturn to recruit top-flight talent for areas of strategic importance.

The talent going out the organization will create a great loss. The first sign of this deterioration will be on customer services, both internal and external. It is not only the person that exit from the organization, all the contacts, competitive advantage, information, strategies and value exit. The elimination of key leaders because of financial constraints can also lead to a certain level of organizational dysfunction.

HR strategies to make organization prepare for recession

Organization is still in expansion phase after 2008 recession and we know that recession may come again which will create financial crises in organization as well as in our life. Organizations should just not jump into the layoff instead management should follow the different strategies as shown in the diagram. Some of the HR strategies and practices are described below:

HR strategies for recession

1. Obviate layoffs with creative strategies

Layoffs should not be the first way to handle the financial crises; HR should consider alternative ways to save money while still saving jobs. HR should try to keep employees along with the organization and away from your competitors during the tough economic times. This can be only achieving by motivating them and aligning them with the organization. HR should align employee’s personal goals with the organization goals, so that they can see their career and future growth. HR can think of various ways according to organization’s functions and requirement, some are mentioned below:

  • A hiring freeze constitutes a mild form of downsizing and reduces labor costs in the short term. Some firms continue to hire new employees while cutting jobs at the same time. For example in its latest attempt to fight rising jet fuel costs and a weakening U.S. economy, American Airlines imposed an immediate hiring freeze on management and support staff.
  • Organization can have mandatory vacation which requires employees to use their accrued vacation days or mandating that individuals take a number of unpaid vacation days during a certain time period.
  • Organizations sometimes resort to a reduced workweek. This may translate into the reduction from 40 to 35 or fewer hours and thereby reduce the short-term payroll expenditures. Employees will also be able to spend more time with their families.
  • Reducing or abolishing overtime pay for employees can be a technique for reducing operational costs in the short term. Firms may decide on an across all the employees.
  • Organizations can also cut pay of the selected categories only for example non-management, blue-collar employees, or salaried employees, etc.
  • Compensation’s variable quotient can also be increased. The employees will feel connected with the organization. As a company policy, HR can increase the variable quotient of the pay which can be link with the company’s profit or share price etc. It will decrease the employee’s salary when the recession will come and will give them assurance that it will again rise when the company will have profits.

2. Keep Them Motivated and Busy

During lean times, employees need to be kept occupied and busy. This is the best way to keep them concentrated on the business at hand. HR’s role in an organization is to provide means and ways of improving employees’ effectiveness and thereby increasing organization’s productivity. This will increase their knowledge about the company’s products and services and rejuvenate them to resume work with higher confidence and faith.

  • Organization should prepare for the upturn rather than focusing on organizational cuts, they should build resource strength which in turn will increase competitive advantage. Organization’s executive should analyze the core areas where there is more requirement of investment as well as the more concerned area where individuals are perhaps not doing well. According to the Vision and Mission of the organization, the high performers can be associated to work towards market development and R&D. Organization should motivate employees for innovation which will help organization to have a competitive edge as well as help in employee’s career growth.
  • Organization should go for talent management. They should check and differentiate the high, average and low performers of the team. It will help them in performance measurement, training, job rotation, internal movements and lay-off. To reduce training cost, high performers can be send for training which will instruct and educate others after training. This data will also help in job rotation, low and average performers can be assigned to other job of their interest to get 100% utilization.
  • Internal movement is the best way to engage people in work and retain them. It will reduce hiring cost as well as increase the competency and skills of the employees which will also help them in career growth.
  • Organizations should start training and coaching to arm their staff with the skills they need to work effectively, if they don’t have the knowledge in place to succeed in their role, their motivation and confidence levels will remain low.

3. Nurture strong relationships with open communication

  • Listening to the employees is very important especially during such testing times. It’s said that recession are the perfect times to forge new connections and strengthen long standing relationships both internal as well as external. Since the employees are high on vulnerability, the HR needs to listen to the grievances of his employees in order to nip any potential problems in the bud.
  • Employees should be encouraged to give in their views and feedback regarding organizational policies for their better and faster implementation.
  • A wide variety of communication mechanisms such as town hall meetings, CEO and senior management addresses, staff consultation forums, focus groups, regular email briefings, face-to-face communications and communications with unions, etc. can also be used.

4. Creating Goodwill and enhancing brand value

Such times can also be exploited by the organizations to create good will and increase their brand value. During these times market is full of uncertainties and flooded with rumors regarding job insecurities, layoff, huge salary dips etc. which create negative image of the organizations and hit their brand value hard. By doing away with things these organizations can actually turn such odds in their favor.

Before or at the time of recession, it is the management’s duty to keep everyone focused and encourage open communication. Additionally, organizations should be aware that younger members of staff who have joined the workforce recently may not have ever worked through difficult markets. They find themselves in an unfamiliar, and perhaps scary, situation. Mentoring and buddy schemes are a great way of overcoming these issues and can allow employees to share knowledge and experiences to hopefully diffuse any worries that may be present.

The above steps will enable HR to hold their team together during a recession, and will even make bond between all of you stronger. Your employees should be motivated enough to stick to you during tough times and put in the extra effort required for your business to come out of the storm unscathed.

This article has been authored by Anshika Srivastava and Gargi Karnatak from IMI, Delhi

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