Insights from Henley Business School
HRM and the Recession
Professor Chris Brewster and Dr Zella King
Every manager knows the importance of human resources to the successful operation of their business. For nearly every organisation the cost of the people involved in creating their products or providing their services is the largest single element of their operating costs. Less obviously, but just as critically, the people are the only means of doing something effective with the other resources that the business uses.
Recessions affect Human Resource Management (HRM) in paradoxical ways. On the one hand they emphasise the importance of managing this crucial resource in the most cost-effective and efficient manner possible. On the other, they make doing that more difficult. The organisations that come out of the recession successfully will be those that make the right choices in the way they handle this dilemma.
Effective HRM
Making the right choices does not mean managing any reductions in staff numbers more sympathetically and carefully (though that is not to be ignored). It involves focussing on the strategic issues for the business and ensuring that the short-term pressures do not drive out the factors that will be needed in the long-term
The paradoxical position is that cost-effective HRM becomes even more important in the survival situation of a recession than it is in the normal competitive circumstances of growth. But at the same time the immediate pressure on tangible assets and costs tends to drive organisations away from HRM that is cost-effective towards HRM that is simply cost-cutting.A focus on the intangible assets provided by the skills and capabilities of staff and their relationships with suppliers and customers is replaced by a focus on the tangible costs of doing business.Ironically, the trends noted above, that have improved the competitive position of many businesses, are under threat as short-term survivalist thinking begins to dominate longer term success orientations
Whilst Human Resource Management varies from business to business, from sector to sector and with different sizes of firms and, particularly, with the country in which the business is located, our research, conducted across more than 40 countries and covering data from nearly twenty years, shows a number of common and positive trends in the way that HRM is carried out.These include, in terms of the way the subject is managed:a steady increase in the influence of HRM specialists throughout the organisation, but particularly in their early involvement in corporate strategy (in most countries, though not in the UK!)
Evolving HR practices
An increasing sophistication of human resource management practices, in such areas as recruitment and selection techniques, the individualisation of relationships with employees, the use of contingent reward systems (systems in use vary markedly by country but all intended to provide a link between rewards and performance of the individual the group or the company) and increasing amounts of communication to and from staff.
The increasing influence of the HRM specialists, has occurred during a period of highly competitive labour markets where, even in those countries with significant unemployment, the shortages of key skills have been a major barrier to success. Ensuring that the organisation has the talent and competences that it needs to be successful in the long term will, for many organisations, become less important than reducing costs in order to survive in the short term. In such cases, financial controllers will gain influence at the expense of talent managers.
More sophisticated HRM practices give better results for the organisation than cheaper approaches but, under pressure, managers may prefer to take more chances on getting the right people, even if they are still recruiting. The pressures of handling redundancies will force them to spend more time working with the trade unions and less with individuals. Contingent reward systems will take a back seat to reducing the pay bill; and managers may become very parsimonious about the information they give to employees.
It is unlikely that businesses will simply abandon practices and approaches that have been found to be successful. But we are looking at a scenario of job cuts, reduced hiring, a greater focus on cost-cutting and the requirements of short-term survival. In such circumstances, it is easy to lose sight of the need for cost-effectiveness, rather than just cost-cutting, and the requirement for long-term competitive viability as well as short term survival.
Choosing to stick with the existing developments rather than concentrate on cost reduction and survival will not be an option for many in the coming years. The critical thing is to ensure that short-term survival is not achieved at the expense of longer term capability. Ensuring that the organisation gets through the recession with the right people in place; with care being taken of the impact of cost-cutting on "survivors" and with an appropriately motivated workforce will be crucial. Businesses will need to balance short-term survival with thoughtful and coherent HRM strategiesWhen the recession (eventually) ends, the businesses that have got that balance right will be the ones that benefit.