Exploring HR issues in the new economic environment



Today every country is facing challenges in the new economic environment. As the world is changing quickly, all organisation whether it is small or big are having HR issues because of the new business challenges. It is very difficult for companies to cope up with current market situation. Recession has affected badly the whole world every industry is having hard time in the market.

According to the National Bureau of Economic Research Recession is defined as a significant decline in the economy which usually lasts for years and affects the industries, employment rate, real income and the whole- retail trade. Many countries like India, Brazil, Russia and China are coming out of recession but still there are so many countries which are struggling due to the recession. As the countries are coming out of recession there has been an abrupt increase in the demand. So every organisation need to think about the new solutions so that they can cope up with the new economic situation. They need to focus on long term solutions as the economic conditions are still not stable. During current economic condition companies are focusing on cost cutting, and they were under- pressure to have the right number of employees in the organisation. But as now situation has been changed and companies are already coming out of recession they need to focus on long term solutions.

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In this assignment we need to discuss that what all things the organisation should do to cope up with current market situation purely on HR perspective.

Human resource management is the system which is used to manage the human talent effectively and efficiently so that the organisations gaols can be accomplished. Different HR activities like selection, recruitment, motivation, training and development, retention are used by organisations to manage the workforce. As the business environment changes the need of the employee and employer also changes accordingly.

To cope up with the current situation, organisation is focusing on cost cutting. Cost cutting can be solution for this problem but it effective for short term only because cost reduction may posses many risks for the organisation. HR manager should always be aware of the risks associated with it.

Human resource Management:

Human resource management is a distinctive approach to managing people who are most valuable assets for the organisation. According to Mayo (2001) workforce is considered as the intangible assets for the organisation as their individual contribution to the organisation is different and variable. There are different HR practices which are adopted by the companies according to their business strategies so that the company can deliver high productivity.

Strategic Human Resource Management:

According to Rothwell, Prescott and Taylor (1998) now a day HR professionals actively participate in organisation's strategic business plan so that it can help the company to attract more people, retain and develop the existing workforce which is essential for the business success in the current market place.

Any resource can be easily obtained by the organisation but the human resource is very difficult to acquire. The sudden or the abrupt change in the environment has made the necessity for the strategic planning for HR.

Change in the economy of the country has direct affect on the employment rate and the workforce requirement for the organisation. When the demand is low companies mainly layoff or fire the employees from the organisation to reduce the overall cost expenditure. But when there is some upturn in the economy or the demand is high company starts hiring people to increase the productivity. But this cost reduction plan works only for short term instead of doing the short term plan every organisation big or small, public or private should focus on long term solutions by making proper HR planning which helps in coordinating different HR practices. Through which organisation can prepare their workforce to handle the responsibility even in crisis.

According to Tony Grudy (1998) HR strategy alone is not an effective strategy. It should be integrated with the organisation strategy so that the human resource may be managed to gain the competitive advantage for the organisation. To have the value and the competitive advantage HR strategy and the organisation strategy should be aligned. Alignment of the strategies means to get the right person with right skills and right capabilities to accomplish the organisation strategy. Without knowing the companies strategy employees cannot work to deliver the output.

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Alignment of HR strategy with organisation strategy

Many countries have come out of the recession and the organisations in these countries are struggling to cope up the market situation they are finding difficulty in making the strategy as the economic environment is changing frequently. As HR strategy is dependent on organisation strategy the company should try to make clear strategy so that the employees could work accordingly for the company's goals.

Issues- all organisations are changing the strategy according to the situation and trying to be innovative so that they can sustain in the market. In this case the employees working get less engaged with the work because they are suited with the old working methods and if company adopts something new to sustain they find themselves uncomfortable to adjust with new methods followed in the workplace.

Solution: the organisation can motivate their employees by involving them in the strategic planning so that employees may feel secured and get ready to change itself according to the requirements.

Vertical and horizontal Integration of HR function:

Different HR functions help the organisation to understand the market trends which directly affect the business of the organisation. According to Rothwell, Prescott, Taylor (1998b:128) the organisation can manage the different practices and develop the plans according to the current trend in the market. Two types of integration are:

Vertical integration: it is the integration of the different HR practices with the organisation culture and the with the business strategy of the organisation.

Horizontal integration: It is the integration of the different HR practices and the policies together.

So organisation weather big or small should to go the basics and try to integrate all its policies together.

HR planning

HR planning is done to get right number of employees in the right place at the right time to get the rapid growth for the organisation. Planning is done to manage the human resource according to the requirement of the organisation and to have the proper alignment of the HR strategy to the business strategy.

Issue- All Organisations struggle when they have inadequate HR planning that is mainly because lack of skilled employees who are unable to implement the organisation strategy perfectly or can be due to the improper utilisation of the different HR functions.

Solution with implications: So for the implementation of the proper HR strategy HR planning should be perfect because it is very critical for any organisation. As organisation is not able to cope with the current situation they should do following things like-

Make flexible HR plan which can be changed according to the ever changing environment.

All the employees of the organisation should be involved in the planning process so that they can feel their importance and contribute to the plan.

Proper alignment between business strategy and the HR strategy.

Plan should be clear so that every employee can understand their role.

This will involve employees actively to contribute for the business and their morale can be raised. But if the employees are not involved than may feel frustrated and demoralised which can directly effect their work. Environment has great influence on both business and HR strategy. For instance Demographics (refers to the study of human population) has great impact on the organisation as it can be seen from the census information that young people population is decreasing as compared to aged (older) people population. It can have the impact on the all organisations as they can waive early retirement. As to cope up with situation organisations downsize the employees by providing the early retirement policy. But if early retirement is waived than it can benefit the organisations by retaining skilled employees in the organisation for long time. It can have negative impact also it will increase the cost of the company in form of costs like- medical cost, pension cost etc.

So to have proper HR planning organisation must analyse the environment properly. If the HR plan is right than it can help an organisation in forecasting the demand of the number employees that organisation required for the specific task and thus they can be managed and evaluated on the basis of their performance.

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There is always problem in Retaining and Resourcing people in the organisation because it's hard to recruit right person for the right job.

Recruitment is the process through which employer sell the job to the employees so that the organisation can have adequate number of the applicants.

Issue- To meet the demand many organisation need to recruit employees.

Solution with implication - To have potential employees in current market situation all organisations can do recruitment through 'Internal Recruitment' this process is used to invite internal candidates (i.e. employees working within the organisation) .

It can be less expensive

Money can be saved from the advertisement.

As employees will take up the post quickly it can save the cost.

Employees will be familiar with the work environment and the organisation culture which will take less time to settle down.

If an employee gets promotion through this recruitment it will be great advantage as it can motivate person to work hard and get committed and engaged with the organisation.

In the same way it can have negative impact also

The number of applicants will be limited.

Workforce can be less diverse as people from outside are not invited.

New talent or more potential employee cannot reach the organisation.

Solution- To save the cost organisation can also recruit people from job centres as - it can produce applicants easily as required for the job.

Job centre also provides free services to the employers.

But the negative impact can be like the centre may produce the people who are not fit or interested for the job. So it can waste time and cost as the organisation will hire a person who is not required.

Issue- In current situation small organisations should retain their potential old employees who are really contributing and working hard for the organisation goals.

Solution with implications - But the issues with retaining the old employees is that they will like to know about their future perspective in the organisation if they are contributing, they will like to have time to time training so that they can enhance their skills and capabilities. But this can be effective for the organisation also if it provides adequate facilities to them than they can become more committed and engaged to the work.


To have efficient employees organisation should train their interviewers so that they can conduct effective selection process and manage the effective interaction with the employees.

As organisations are already struggling to cope up with the new changing environment they must look for more flexible, adaptable and committed employees. The job description given to new employees should be clear so that individual can know the person and the job description. There are several methods which are adopted by the organisation they should try to have effective selection process so that they can save cost in the long run by investing once on the process. But if the selection process selected by the organisation is not an effective one than they can suffer by having inadequate employee for particular job and that be risky for the organisation in current market condition.

The changing nature of work and employment relationships

Due to the change in the economic environment there is change in the work within the organisation which has resulted in the downsizing of the employees (i.e. reducing the number of employees) which has increased unemployment rate. And thus it has a great impact on the employment relationship. 'Employment relationship' is a contractual relationship between employees and employer which provides rights, obligations and responsibilities to both of them. The hiring and the firing of the workforce at the same time have negative effects on the employees and on the whole system. The two main features of the employment relationship are job stability and job security which every employee wants from the organisation.

Solution with implication - So as the work is changing large organisations can flatter their hierarchies which can eliminate some of the jobs and can increase more team work so that they can save cost but it have negative impact like many employees don't feel comfortable while working in flatter hierarchy system and if the system is flattered than many responsibilities are handle by one person only who can get stressed by the work load. And some employees don't feel good when they work in a team because they want self- recognition for their contribution in the work.

International HRM

According to Scullion (1995) IHRM is the human resource strategies, HR functions which firms pursue when they globalize their business. Organisation share the same HR practices but with more responsibilities and it also involves language, culture, economic, political system. When an organisation gets globalize it has to face many HR challenges and the problems. It is very difficult for the employees to adjust with different culture, new social and business convection. And this directly effects the whole organisation. Hofstede (2004) pointed out that the main reason for the conflicts in the organisation is cultural difference between the employees. And most often employees get culture shock which is the state in which employees feel uncomfortable and confused when they operate in totally different cultural environment.

Solution with implications-

So to overcome this organisation should hire those employees who can easily get fit in different countries culture and try to cope up with that.

Employees should be trained and educated about the other culture and social convections

Employees should develop the communicating skills

But the negative impact is - it is very difficult to hire right person for the job.

Employees may feel home sickness and can leave the job if they don't get rewards or any kind of support which they are expecting from the organisation.


Organisation main concern is to attain high performance through employees. To attain high performance they need to give close attention on their employees to motivate them by giving rewards, incentives, leadership, and the work they want to perform. Motivation is the method which can help an individual in delivering high results which is expected from the organisation. Motivation encourages employees to put their efforts and abilities to achieve organisational goal and their own needs.

Two different types of motivation as given by Hertzberg et al (1957) are-

Intrinsic motivation- this is self generated motivation which influences the employees behaviour to act in a particular way it may include responsibility, autonomy (i.e. freedom at the workplace), opportunities for training and developing their skills and abilities.

Extrinsic motivation- this type of motivation which done organisation to motivate their staff to get particular goals from them it may include bonus, increment in the pay, promotion, praise.

Issue with solution and impact-

Different organisation follows different ways to motivate their employees so that can be more productive but as the different organisation are not in a stable status they can motivate their staff by giving intrinsic motivation as they can create an environment in which employee can feel free and work hard for achieving their goal and it has long lasting and deeper effect on individual as it not imposed on them by others.

But it can have negative effects also as individual are different and behave differently some employees don't get recognition or reward for their contribution they feel low and can get de-motivated. Some employees need monitory motivation for their work as that form of reward may be fulfilling thier basic needs. So it depends on every individual.

But at this point of time when organisation is having unstable state they can always motivate their employees by giving them intrinsic motivation and support them so that they work hard.

Rewards are that instrument which can easily control the human behaviour.

Training and development

To cope up with the dynamic working environment employees needs to update their skills and capabilities. So to be effective and to make active contribution to the organisation employees should learn and trained. It can also be a positive motivation for many employees.

Issue with solution and implication-

Every organisation either big or small as they are coming out of recession they should try to retain and improve their skill base by giving them training so that they can cope up with market because effective training will -

provide opportunity to the employees to connect and get engaged with the organisation

this can also increase the knowledge and make them competitive

can help in enhancing the skills and capabilities,

Properly trained employees can make better decision, if employee is given training it can motivate, inspire them to contribute best to the organisation.

But the negative implications are like some small companies may not afford to train their employees and they see training as cost not as investment. But to sustain and gain competitive advantage organisation should retain their employees and enhance their skills this can be long term investment for the organisations.

As many small companies are struggling in the current market situation than rather investing in recruitment process they can retain their skilled employees on the basis of their performance and invest in their training so that they can perform multi task and work for various jobs within the organisation.

Problem with this idea is that it is hard to judge employee and employee may not be ready to go for training and either not ready to take several responsibilities at the same time.

Commitment and engagement

Porter et al (1974), has defined commitment as the attachment and loyalty of an employee for the organisation which can be increased and enhanced by actively involving employees in decision making actions.

According to the institute of employment studies (Bevan et al., 1997) engagement is the positive attitude of the employees towards the organisation. An engaged employees may work for the benefit of organisation to improve the performance.

Different HR practices have impact on the commitment and engagement of the employees towards the organisation. As organisation are downsizing the number of employees so it has effected the commitment and involvement level of the employees because they have fear of losing their job and if they are not involved actively in the organisation they get detached and put less efforts. So to cope up with the current situation organisations should try to involve the employee in the different activities so that can feel secure and work hard for the organisation. On the basis of the commitment employer and employee creates 'psychological contract' which is an unwritten expectations shared between employer and employee on the basis of trust. This contract encourages both employer and employees to have two way communications and create strong sense of obligation between both of them.

As the all big and small organisation are struggling they find difficult to create such kind of contract between them because employee is threatened about the job security and lacks trust towards the employer.


This assignment includes information about how organisation reacts to the current economic condition and how they can align the HR strategy and organisation strategy to cope up with the situation. Organisation should continuously evaluate the environment and act accordingly so that they can make goals which can give them high performance and productivity. The main challenges which are faced by different organisations can be summed as high staff turnover, difficulty in matching the right employee for the demand, high absence rate because of stress, high recruitment cost, unable to manage the HR plan according to the fluctuation in the market. Problem in managing flexible working hours, they need multitasking workforce. So to overcome these problems they are strongly suggested some solutions like they need to support employees for the flexible working hours which can also help in gaining loyalty from them and it can increase their morale. They need to manage and plan the workforce on- demand which can save the recruitment cost. Maintain proper alignment between resources and the organisation needs which can save the business from unnecessary cost and can have effective operations.