HR In Recession: Its Answer To Black Swan

Published by MBA Skool Team, Published on June 26, 2012

The term “Black Swan” is on many people’s lips, and not just because the lead actress in a movie by that name won an Academy Award in 2011. The term was coined by Nassim Nicholas Taleb, a finance professor and former Wall Street trader, who used the concept of Black Swan events in his book.

A “Black Swan” event refers to a highly improbable occurring event which is impossible to predict, carries a massive impact and its shock value is stunning because people could never conceive of such an event occurring (Keys to Success in Managing a Black Swan Event, Nancy Green, Aon Hewitt, 2011).

Economic downturn or the Recession that occurred in 2008 was a sort of Black Swan Event in terms of the impact and depth it had. It was obviously unforeseeable and no one had predicted such a downturn happening. Various organizations were merely clueless as to how to respond to it. But after the recession there was a need for organizations to be proactive and come out of their silos. They can’t be ignorant and live in a complacent world as the dynamics of the business environment are ever changing.

Just issuing pink-slips to employees and managing layoffs in times of recession won’t help the cause of the organizations. They need to think much more beyond that. A focus, therefore needs to be shifted as to how HR as a function can evolve and become the Black Swan answer to various organizations. Rather than pressing the panic button, HR needs to find alternatives of optimizing human capital.

Temporary staffing or Contractual employment is one concept that is gaining lot of momentum nowadays. Temporary employees are ones which are hired to assist employers to meet workforce demands. They are not on the payroll of the company and are not shown in company’s annual budget. During recession, organizations realized that there is no point in hiring new employees when there are no new jobs only. So, temporary employees were contracted, ranging from 2 to 12 months and then terminated accordingly.  

As temp workers are on payrolls of a third party, the organizations concerned didn’t have to worry about their employment and recruitment. They also saved on the compensation front by eliminating the perks and benefits part, thereby reducing their operational costs. Thus, temporary staffing could help companies to manage their workforce in times of uncertainty and can be an answer to the Black Swan’s ‘unforecastable’ market realities. Temp staffing gives flexibility to the company and allows the firm to focus on its core competencies.

But it is important that people are open to this concept of temporary staffing.  Temporary staffing is generally not perceived as a positive thing and has negative connotations attached to it, especially in the Indian context where job security is a major concern. But the trends are slowly changing with respect to the emerging global market. In fact, the largest employer in the US is a temporary employment organization, Manpower Inc, which has approximately two million temporary workers on its payroll.

In the Indian industry scenario, temping is a gaining popularity, especially in the IT industry. In a country like India, where there is excess demand of workforce, temping can very much be a viable option not only as a short term solution but also as a long term prospect. The contract for temp staff can be extended to permanent if the employee is a good performer and meets the requirements and expectations of the organization.

A very common and easy practice for organizations to manage the ill-effects of recession, is the practice of laying off employees.  But layoffs, generally sets a low morale among the employees in an organization and a sense of job insecurity. Organizations need to figure out innovative ways to resolve this issue. One option, is that instead of laying off the employees, they can be deployed or realigned to different job functions and departments, where demand of workforce maybe less.

A very good example in this case is that of ICICI bank which deployed some of its employees to other departments during recession and then, the next year when market conditions improved, these employees were given bonuses as a reward. So these kinds of measures at times certainly bear better results than just laying off employees during the period of crisis.

Another major learning that various companies could derive from the past recession is the emphasis of performance based compensation. It refers to lowering the fixed base pay and increasing the performance based component of pay.  This laid emphasis on rewarding employees who would eventually perform. Thus by increasing incentive compensation, companies figured out that if employees are only paid for performance, then they can afford to pay them.

Training employees to the unpredictabilties could be another response to Black Swan. This involves giving away the traditional models and the basic assumptions and preparing for the challenges ahead.  The culture of knowledge sharing should be build so that the organization becomes more of a ‘learning organization’. With increased knowledge sharing, it becomes easier for a large number of people to move into a task which upto now was done by a few only.

Organizations can also look forward to recruit people from diverse fields and backgrounds. Having more diverse sets of minds in an organization sparks agile thinking and it makes it much more likely to come up with new innovations and ideas that are required during unpredictable events, such as recession.

With dark economic clouds gathering over the horizon and the probability of an economic downturn becoming more and more intense, its time for organizations to keep themselves prepared to survive in the anticipated tough times and make significant eclectic changes in their HR practices. Broad-mindedness, realistic planning approaches, flexible workforce, diversity, creativity, innovation, quick decision making are ideas that come to mind which organizations should consider while they still prepare to handle a future Black Swan.

This article has been authored by Saurabh Kumar from IMI Delhi.

Views expressed in the article are personal. The articles are for educational & academic purpose only, and have been uploaded by the MBA Skool Team.

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