Economic downturn and the global financial crisis



With the advent of global financial crisis hitting hard almost all over the globe and affecting both domestic and multinational companies, the period of economic downturn has influenced the corporate and human resource strategies of every organisations (Hay Group, 2009). Personnel and labour costs being one of the significant expenditures in most companies, is often the immediate target for cost cutting as part of the austerity measures of companies in crisis. Reduction in manpower headcounts, benefits or freezing of compensation increase will have an adverse effect on the workforce. This circumstance demoralises the people within the organisation especially those who are excellent performers that contributes much to the realisation of overall company objectives and goals.

As in the case of the world-class retailer, TESCO, a vulnerable economic situation forced the company to accommodate strategic changes in both external and internal environment. Human resource management is the main target of internal environment of the company to turn the crisis into opportunity by adopting and applying the HR theories and practices into its strategies.

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The attention of this report is to draw out some theoretical concepts and principles of Human Resource Management along with the critical analysis in the case of TESCO. In depth implications, comparative analyses, elaborations as well as conclusion and recommendation will be presented towards the end of this report.


TESCO is UK's biggest private employer having more than 470,000 employees dispatch globally. The giant retail company is operating in 14 countries including China, Japan, Turkey and United States in line with its international expansion strategy to diversify and grow business (TESCO 2010). Its expansion approach was made possible through a combination of acquiring new stores and customer based and centred adaptation process. Relative to the expansion and growth of the firm is the growth in the workforce. In order to complement the organisational thrust of TESCO, it needs to keep highly flexible and well-trained staff that responds to the needs of their clients of both in store and non-store functions and operations.

Constant improvement in the employees' knowledge, skills, attitudes and job satisfaction is vital in the sustained growth of the company; TESCO strategizes its human resource management approaches. With the economic downturn being experienced by companies like that of TESCO, maintaining quality human resources is an uphill battle. Human resources are the common casualty in recession among of which is the reduction of essential trainings and career development activities. Others may resort in cutting benefits and other incentives (Boston Consulting Group 2009). As Tesco diversify and expand its business, it is necessary for the company to hire the right people in the right place at the right time (Torrington, Hall, and Taylor 2008: 51).

Discussion: The HRM Theories and Practices Applied by TESCO

Balain and Sparrow (2009) suggested that employee engagement is a dynamic process in human resource management whereby well motivated employees will be able to contribute to the overall objectives of the organisation or company by advancing the company interest and its clients at all times. Such type of engagement is a form of payback for trust and investment made by the organisation in its manpower and human resources. Under austerity measures, employee engagement will be a concern wherein the effort and commitment of the employees to perform well although adverse economic condition is critical and vital to the survival of the organisation. It is therefore necessary for the companies to focus on the alternative or and benefits or intangible rewards to achieve or maintain higher level of employee commitment and engagement to the company.

Sutherland and Canwell explained that monetary incentives are merely short-term motivation. In order to sustain and complement the growth of the company despite the global economic downturn, non-monetary incentives is important, it includes job enlargement , job enrichment, job rotation, and appraisal (Sutherland and Canwell 2004: 189).

TESCO are aware that they needed manpower that is motivated, flexible and well-versed of the customer needs. Considering the existing financial limitations in human resource development, the company motivates employees through non-monetary benefits such as increasing their knowledge base, skills and job satisfaction cost effective hands on training programs along with timely recognitions and minimum rewards (The Times 100, 2011).

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TESCO believes that motivated human resources will be able to work extra miles and maximise output. This therefore creates efficiency at work thus, reducing cost of labour. It will also require lesser supervision as each individual tend to take pride of their respective work. It is also expected that well motivated employees are more focused, shows greater loyalty to the company, less absenteeism and are less likely to get involved in industrial movements or conflicts (The Times 100, 2011)

With limited financial resources poured out in developing manpower skills, TESCO resorted to the utilisation of various motivational theories. Among of which is the Taylor's Motivation Theory developed by Frederick Taylor in 1911 which advances the premise that people worked for monetary benefits as the prime motivation (Accel 2010). This theory was interpreted by TESCO through their Employee Reward Programme which primarily offers comprehensive financial package for excellent performer and highly productive employees (The Times 100, 2011). However, the company highlighted on the non-monetary benefit riders of the package. Among of the motivating factors that was implored by the company was to target the prevailing lifestyles of the employees and offer benefits that suits their needs. Also the company emphasised that it is more rewarding if employees exhibit their love for work and their satisfaction to be of service to customers being next to none(do not understand????).

According to Elton Mayo who develop motivation theories at work in 1930's explained that motivation at work will be catalysed by internal and external factors such as good communications, teamwork, interest in others, active participation in decision making process and promotion of total well-being (Envisionsoftware 2009). This theory emphasised that people are far more motivated at work when they are more valued and having a degree of make informed choices and recognising their social needs. This concept has been applied in TESCO by promoting an effective communication process whilst ensuring utmost employees participation (Beardwell and Holden 2001: 190-1).

Figure 1: TESCO 360 degree feedback: the Personal Development Tool

(The Times 100, 2011)

Besides, Tesco implemented the self-development tool called 360 degree feedback regarding Mayo philosophy. The tool aimed to help employees and their managers to understand strength and weaknesses in order to provide the suitable trainings. This has been manifested by the company's policy for managers to communicate one-on-one to its employees. Line Managers are regularly conducting team meetings and follow up on their target goals and performances. Company communication instruments are being published regularly even to the daily basis which highlighted the value awards of staff who accomplished something for a day as a means of recognising achievements (The Times 100, 2011).

Figure 2: Maslow's 'Hierarchy of Needs at TESCO

(The Times 100, 2011)

Another popular theory widely used in motivating people and organisation is the Maslow's Hierarchy of Human Needs which was presented in the pyramid of essential human needs. The theory explained that people are motivated to work when their basic needs are being met through their works. After their physical and physiological needs are being meet, they tend to work hard to meet their social needs and their self-fulfilment needs which challenges their innate creativity and challenges their interests. The theory suggests that the hierarchy of needs continue to be achieved from one level to another (First-level-leadership 2011).

Figure 3: Tesco's Employee Reward Programme

(The Times 100, 2011)

At TESCO, people are being provided with competitive rates of pay, essential facilities for favourable working conditions, and lifestyle rewards for boosting the motivation. Employees in Malaysia, for example, received the minimum salary 30% higher than its poverty base line. Moreover, people in several countries such as Thailand will get extra benefits such as discount club card, life insurance, house loans, and share ownership (TESCO annual Report and Financial Statement 2010). In terms of security needs, the company assures security of tenure through their written contracts as well as the provision of pensions and other social benefits.

Figure 3: Performance Management of TESCO using Steering Wheel with KPIs

(TESCO annual Report and Financial Statement, 2010)

On top of these basic needs, the company provided the Steering Wheel that supported individuals and group to work in a team and use Key Performance Indicators (KPIs) as a measurement of the progress (Corporate Responsibility Report 2009). To ensure that all employees are valued, TESCO are emphasising self- respect, respect for others and a conscious recognition of employees accomplishments (The Times 100, 2011).

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TESCO considered their employees as the greatest asset (TESCO annual Report and Financial Statement 2010). The company therefore maintains the competitiveness and people capabilities adopting the concept of "Talent Planning" process to help each employee to achieve his/her potential. The talent planning can be defined by Pilbeam and Corbridge as "the systematic attraction, identification, development, engagement / retention and deployment of those individuals with high potential who are of particular value to an organisation (2010: 100-103). TESCO also applies "Succession Planning" process to pursue the future needs (TESCO annual Report and Financial Statement 2010). Those employees are always given due recognition of their skills and talents. Opportunities are being to fulfil their self-actualisation needs through continued training programs that fast track capacity developments of staff to reach their ultimate career goals.

Figure 4: Herzberg's Motivation Theory at TESCO

(The Times 100, 2011)

Frederick Herzberg presented that to better understand the factors that motivates manpower to work, there should be comprehensive understanding of the work environment. He argued that other than monetary benefits and incentives, people are motivated to work with the favourable working hours and environment. This also includes work responsibility, achievements and recognitions, personal and professional growth also motivates people to work (NetMBA 2010). In Tesco, employees are being provided with conductive working environment, appropriate compensation and timely communications. People are being given opportunities and necessary support to be recognised on their excellent performance and work outputs. Staff are being delegated and actively involved in the decision making process such on matters of the types of rewards even to the kind of foods on the menu and the strategies to increase sales (The Times 100, 2011)

International Human Resource Management (IHRM) is key strategic management for multinational companies. It can be explained that IHRM concerns the management of different people in different geographical areas and environment (Scullion 2005: 4-10). IHRM is an important role in the period of austerity. Most multinational companies have been trying to find the new market place to reduce the risks by diversify their market places. TESCO generates competitive advantages over its competitors by strengthening human resource training and development team world-wide. TESCO Academy hubs were located in

South Korea and the UK as the training centres. TESCO also upgrades human resource team by setting up Tesco Foundation Degree in Retail delivered and awarded by Manchester Metropolitan University (TESCO annual Report and Financial Statement 2010). This aimed to increase potential and capability from knowledge sharing in terms of both business and human resources, especially cultural differences around the world (Armstrong 1999: 79-82).


Strack et. Al (2009) explained that there is a great danger for companies to drastically cut their workforce in line with its austerity measures as an immediate response to economic downturn. Companies may find the abundance of talent and human resources at present finding it easier to cut down the number of employees to reduce manpower cost and survive in the industry. However, this step should be the last recourse. Companies should look at recession as an opportunity to recreate and innovate their human resource management approaches. They should maintain the principle that meagre resource would not mean leaner workforce.

Leonard D'Costa and Murali Aiyer (2009) reiterated that managing the adverse impact of economic downturn to the human resources of the company should be fully understood. Drastic measures such as austerity that are made as a quick reaction to the crisis should not be considered as always positive and final. Instead Human Resource Managers should take enough courage to be resilient and take enough amount of courage to be innovative and influence leaders with a long term strategies that will address the problem. Leaders of most companies should realise that there is no one size fits all or quick fix approach in keeping human resources viable under a severely austere environment. All solutions must therefore be creative and sustainable.

It is always a tough challenge for companies to improve the engagement of their employees and ensure their commitment to work and be productive. Austerity measure will surely freeze or even minimise monetary benefits in order to keep the company afloat and retain its people at work. However, the quality of the workforce might deteriorate as they tend to lose their prime motivations. It should therefore be cautiously handled and managed. It is also observed that austerity measure is not a significant factor in TESCO's experience as it is a huge organisation where human resources development is well funded activity. However, its existing practice and motivational approach where non-monetary incentives and benefits are given emphasis and highlighted is believed to work well in an austere environment.


As in the case of TESCO, it is clear that motivating employees does not always mean monetary benefits. It proves well that employee-employer relations should be strengthened at times of recession especially within an austere environment. As this report highlighted, it is clear the various management and motivational theories can be fully adopted and utilised to implement human resource management programs that will offer non-monetary benefits as motivating factors to employees. This shows that people at work can still be mobilised and motivated in various innovative ways.

Austerity measures therefore creates and opportunity for companies and human resource managers to be more innovative and creative in crafting strategies that will keep its people and the company going. TESCO's human resources motivational approach is a concrete example that people can still be productive and motivated at work even under very limited resources. All it takes is to highlight on the non-monetary benefits that a company is capable of providing to its employees. It is necessary for the human resource managers to magnify the various needs of its employees that can be supported or provided in a non-monetary form or at least at a minimum cost. Whilst it is inevitable for the company to incur cost in implementing human resource programs, but it is far more affordable and sustainable if it is in a non-monetary form of motivating people.


Based on the case study cited in this report, TESCO used various motivation theories to ensure the viability of its human resources. The company clearly elaborated on the non-monetary benefits of its employees to keep them motivated and committed at work. The company goes beyond the realisation that money is all it takes to keep people going. As exhibited in TESCO's interpretation and implementation of various theories, it showed there are several ways of motivating people to get engaged with the company and eventually become committed to their works.

The various theories applied by TESCO and implemented with the corresponding programs as manifested in the company's workforce planning showed that people can be motivated holistically. Human needs are splendid and these can be a good source or reasons of their motivations. It is in this context that the herein theories were able to work at TESCO's motivational human resource management approaches. Each theory complements each other. There is no single theory that perfectly works on its own. It is therefore recommended to suit the theory or theories to be used in the company's existing policies and capacities to sustain the changes and or innovation in line with the austerity policy.

The TESCO approach is highly commendable even to those companies not as big as it is. The company's interpretation of the theories and approaches being used can also be made by those companies who wanted to keep the dynamism and vibrancy of its human resources in an austere environment. Small companies could even reinvent its existing human resource policies to apply motivational theories that suit their recent situation. However such measure should be complementary to the organisation capacity and ability to implement and sustain.

Finally, companies and human resource managers should realise that the perspective on the workforce being composed of people and money is not an absolute motivating factor to keep people going to work. It should therefore look at people holistically not just as an economic being but as socio-cultural and political individual whose motivation is not anchored only on its economic gains. With this, innovative motivating factors can be utilised and responsive human resource development programs will be implemented.