Impact Of Economic Recession On Human Resource Planning, Flexibility And Recruitment Strategy

Liverpool John Moores University

Impact of Economic Recession on Human Resource Planning, Flexibility and Recruitment Strategy

Submitted By: Tom Jacob

Course Name: Module Name: Module Code: Submission Date: Submitted to:

Master of Business Administration Managing Resourcing Strategy MGTPDM006 May 2009 Ron Bray Page 1 of 6

Contents Introduction Human Resource Planning

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Reassessing the demand for work force Retraining and relocating work force

Flexibility of the Workforce

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Numerical flexibility Functional Flexibility Temporal Flexibility Reward Flexibility Locational Flexibility

Recruitment Strategies Conclusion Reference

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Introduction In the present day and age, most organizations consider their employees (human resource) to be their most valuable assets. HRM can be defined as the management of people in such a way that HR can in itself be a source of competitive advantage (Price 2007). A prominent approach to HRM is the Harvard model, also known as the soft approach, which stresses the “human element”. This school of thought argues that individuals, in right circumstances, can be creative and proactive, values which can be used to the advantage of the firm (Anthony, Perrewe & Kacmar 1996). Google, one of the biggest success stories of the present decade can be viewed as a prime example of this approach. According to Google (2009) this means “each employee is a hands-on contributor” to the success of the company. Pinnington & Edwards (2000) argues that when organizations react (E.g.: Cutting Cost) to changes in external environment, it will reflect in its’ HR policies. This can be new employment patterns and/or a shift in employee-employer relationships (Sparrow & Marchington 1998). This report tries to understand how an economic climate of recession impacts an organization’s planning, flexibility and recruitment strategy. As belts tighten and budgets get slashed, it is imperative that an organization gets it HR strategy right so that it can retain its’ best and recruit the finest in the market. If played right, recession can be advantage to an organization as far as its HR is concerned.

Human Resource Planning Human Resource Planning is the process of analyzing and identifying the needs for and availability of human resources so that the organization can reach its objectives (Bramham 2000). This is done by forecasting demand and supply of workforce and thereby identifying the strategic gap. It is important to understand that winning strategies will take a long term view of things. In a recession, the demand for work force will be low and the availability will be high. This means that the bargaining power is with the employers. This shift of power can be clearly seen when the normally resilient Union of American Workers relinquished its’ right to strike at Chrysler LLC (Bloomberg 2009)

Reassessing the demand for work force In a recession, the demand for the products and, in turn, the demand for the workforce will go down. The current automobile industry can be taken as an example. Ford, the car makers have axed 2,000 white-collar staff (Telegraph 2009). But, as this lay-off will reduce overheads in the short term, it may result in much heavier long-term costs. In the next boom, the company will lose money on hiring and training new employees. In Ford’s case, the reactive HR policy will lose them money in the long run. This also shows the importance of demand forecasting using techniques like trend analysis. Toyota is one of those companies who have not been forced to let its workforce go. Recession presents an opportunity for companies to let go of ‘deadwoods’ and/or expensive labour in their workforce. An option for companies is voluntary redundancies. Corus Steel Page 3 of 6

just announced that it aims to achieve 2500 job losses through voluntary redundancies in UK (BBC 2009).

Reassessing the supply of work force Many companies are using the recession as an opportunity to hire skilled personal (from potentially larger pool) on the cheap. The Wall Street Journal (2009) reported that Microsoft is hiring 3000 people even in these troubled times. This shows that the company is arming itself for a boom which will follow the recession. IBM Corp., AT&T Inc., Yahoo Inc. and Time Warner Inc. are among the companies who are adding to their workforce. Peter Cappelli, director of the Centre for Human Resources at the University of Pennsylvania's Wharton School comments that rather than retraining and relocating underused workers companies are discovering that restructuring is faster attained by laying off and hiring.

Retraining and relocating work force Retraining and relocating the work force can bring considerable productivity gains to a company, as emphasized by UPM Raflatac when they announced that opportunities for relocation within UPM as well as retraining will be provide to their current staff, in wake of reports that they are planning to shift their production facilities to China (Graphic Repro 2009). This will also add to the flexibility of the workforce.

Flexibility of the Workforce Peter Dickens (2004) notes that organizations with flexible workforce can react efficiently to any environmental changes, with Toyota given as an example for a cross-trained and multifunctional workforce (Liker & Hoseus 2007). This allows Toyota “to ride the ups and downs of market without laying off permanent employees.”

Numerical flexibility In the times of recession, numerical flexibility will give companies an alternative to expensive redundancies. Temporary employees, especially, are easy to dispense off if not required. As temporary and contract workers are used for peripheral jobs, it will not affect the core business. Legal & General, the insurance company was able to lay off 260 part-time and temporary workers without incurring serious redundancy costs. It is also noted that this didn’t directly affect the company’s activities (Guardian 2009)

Functional Flexibility It is critical that the core employees of a company are functionally flexible so that in a recession, they can take over other jobs if and when the company lay-off its temporary and contract workers. McDonalds is an excellent example as they train their staff on all kinds of work which will arise in McDonalds at the Hamburger University (aboutmcdonalds 2009). ASDA Superstores in UK is also a good example for functional flexibility through job rotation. Companies should also strive for functional flexibility through job enrichment (vertical) and enlargement (horizontal). Page 4 of 6

Temporal Flexibility If a company has a work force which is flexible in terms of time, it will be an advantage. This will mean that the company can use its workforce to suit its production. Honda pays its workforce a minimum wage if they are out of work (Swindon Advertiser 2009). This means that the company retains the work force without a big overhead at difficult times.

Reward Flexibility This type of flexibility will mean that the workforce will be rewarded for their excellent performance which will lead to better profits for the company. Most financial institutions offer its employees some sort of reward for excellent performance. Fujitsu have a long history of using performance related pay (McKenna 2000)

Locational Flexibility Locaional flexibility will lower the expenses for the company in the recession. Non core activities can be relocated to call centres as done by the ‘3 Mobile UK’ who have switched their customer service to India (Three 2009). Many companies now use technology to create virtual conferences where the employees are at different parts of the world, but attend meetings virtually. This can save the company on travel and organisational costs.

Recruitment Strategies The recruitment strategy of a company will be one of the first things to change during a recession. As recession can create a sudden abundance of technically proficient and experienced candidates for every job, it is imperative that the top level management knows the gaps in the current human recourses and recruit as necessary. The focus should be on the recruitment white spots in the organization. It is also noted that the recruitment marketing should be kept at the suitable level (hrmadvice 2009). It would be beneficial for the company to look at medium to long term prospects and set the recruitment strategy accordingly. Recruitment managers should be able to analyze trends and predict demand in relation to the desired position the company looks to achieve when it comes out of recession. This is evident in Microsoft’s recruitment strategy where they are hiring highly skilled people for its’ online services (Wall Street Journal 2009). The same article notes that Boeing is adding 106 employees to its defence arm. Finally, any company who recruits in recession should be prepared to be inundated in applications. This might stress the HR department. It might be wise to use a recruitment partner or to completely outsource HR function in recession. This will allow the company to retain focus in its core activities.

Conclusion Human Resource Planning, flexibility and recruitment strategies will respond to external environment. In recession, cost considerations will dominate the HRM strategy. But Human Page 5 of 6

Resource Planning and recruitment strategies should consider the long term prospects as well. Right planning and recruitment strategies will take advantage of the recession and arm the company with the best of the newly available talent. This will also be an opportunity to shed the deadwoods in the company. This will enable the company to better position itself when the economic climate becomes favourable again.

Reference                

Price, A. (2007), Human Resource Management in a Business Context, London: EMEA Bramham, J. (2000) Human Resource Planning, New York: Beekman Books Inc Pinnington A. & Edwards T. (2000), Introduction to Human Resource Management, Oxford: Oxford University Press Sparrow P.R. & Marchington M. (1998), Human Resource Management: The New Agenda, Pitman: London Anthony W. P., Perrewe P. L. & Kacmar K. M. (1996), Strategic Human Resource Management, Orlando: Harcourt College Brace Publishers Dickens, P. (2004) Society & nature: changing our environment, changing ourselves, London: Wiley-Blackwell McKenna, F.E. (2000), Business psychology and organisational behaviour: a student's handbook, New York: Psychology Press http://www.google.co.uk/corporate/culture.html http://hrmadvice.com/blog/2009/01/19/recruitment-strategy-recession/ http://www.telegraph.co.uk/finance/newsbysector/transport/2792902/General-Motorslooks-at-more-redundancies.html http://news.bbc.co.uk/1/hi/business/7850596.stm http://www.three.co.uk/Home http://online.wsj.com/article/SB124198904713604533.html http://www.graphicrepro.co.za/asp/news_long.asp?nid=13409 http://www.guardian.co.uk/business/2009/may/12/legalandgeneralgroup-insurance http://www.swindonadvertiser.co.uk/news/4363385.Honda_workers_set_for_pay_cuts/

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