Impact Of Global Economic Crisis On Hr Strategies Business Essay

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The global economic crisis has brought to the forefront of the business organization the concepts of viability and survival. This paper seeks to specify in the first section areas of reactions in the organization. In the second section, it deals with the challenges and opportunities for the future to keep the organization on right track in tough times. In the third and final section HR strategies are discussed which are relevant in times of crisis. 

I Areas of Reaction in the Business Organizations 

The Global Economic Crisis has very serious dimensions as it has impacted the world economies in total. The Global impact of the current crisis may be outlined as under: 

* Open economies like USA, UK turning protectionist leading to tight visa and outsourcing norms. 

* Massive job cuts in USA, UK, Japan by major companies. 

* Adverse impact on exports and deferred capital expenditure. 

* Slowing down of industrial output and corporate profits, finally resulting into lower GDP rate. 

* Rise in Non-Performing loans that would make the banks cautious in funding. 

* Much more stressful environment for employees. Well managed companies like Toyota and Microsoft also have been substantially affected by the economic downturn, individual consumers have lost confidence and spending has come to a halt. According to Prof.Nouriel Roubini, "This is the worst financial crisis we had since the Great Depression" The crisis is not v-shaped rather it is U-shaped as is shown in the figure 1 


The world is in the middle of a U. It is almost a year and half into recession and the fall in output is going to continue, the job losses and the recession could last up to the end of 2010. 

As a result of Global Economic crises, three reactions in business organizations are worth discussing. 

1. Corporate Reaction for viability. 

2. The employee Reaction for Survival 

3. Human Resource Reaction for Adaptability in Recruitment, Training and Institutional Learning. 

Corporate Reaction for Viability 

* The immediate response to Global downturn by most business organizations has been to take immediate initiatives to conserve cash, reduce costs and improve efficiency. 

* The fundamental goal is not to maximize profits but to remain viable or to maintain current market share. 

* The efforts for viability include focusing on core activities, developing contingency plans, refining Just-in-time delivery of raw materials and final products i.e. shortening the supply chains, wringing costs out of every element of production, discarding or extending the use of every corporate asset. 

* The planning horizon is abbreviated. 

* Every corporate function that does not obviously contribute to positive cash flow is halted. 

* Previous corporate, decisions, plans and methods may be repudiated. 

* Corporate executives must define reality, and then intentionally clarify the future focus, priorities and plans of the company. 

* For viability, new plans must have room for innovation which provide opportunities to grow more rapidly than competitors and to influence ultimately the direction of the industry. 

* The foundation of useful corporate plans is honesty, realism and transparency. 

The Employee Reaction for Survival 

The current global recession has created a much more stressful environment for employees and must be handled effectively by managers and HR officials to help the organization to achieve its business objectives. Employees on account of crisis are struggling with number of new stressors such as: 

Loss of Laid-offs: Employees may be struggling with loss of laid off colleagues. These colleagues were part of their workplace social network as well as carrying part of total workload. 

Stress: Besides the experience of loss, employees may be struggling with heightened stress due to the impact of the recession at work or at home. 

Workload: With colleagues let go and less people to carry the workload and work-life balance. 

Demotivation: During times of uncertainty, gossip can take an incredible toll and leave employees distracted and demotivated as they worry about what might happen. 

Financial Problems in Household Life: The global recession had dire financial consequences for many people. They may be struggling with debts that can't be paid off, or loss of income due to one or both partners losing their job. Some may find that they now need to support more than one household when extended family members lose their income. In many cultures the loss of income will affect an individual's social status and be considered extremely shameful. 

Conflict and Intolerance: In times of stress tension run high and, in a diversified workplace, that may mean that increased insensitivity to differences. Even if this is not tolerated in the workplace, the individual may be experiencing negativity outside of work which spills over into the workplace performance. 

Mergers and acquisitions: During a recession, the number of mergers and acquisitions tends to go up as companies seek to collaborate in order to survive. The consequences in the workplace are amongst others fears of layoffs, culture clash between the two organizations, ongoing change and reorganization, perhaps a need to relocate and leave friends and extended family behind in order to stay employed. 

Human Resource Reaction 

In times of economic disorder or turbulence, corporate world shifts from excess to essential from routine and comfort to one of survival. This focus often requires designing new priorities, relationships and strategies. To ensure the business organization to survive in tough times and in the future, human resource must play a new and expanded role in employee recruitment, corporate organization, training and institutional learning. 

Employee Recruitment: In times of constraints, the purpose of recruitment is not quantitive but qualitative and innovative, expansion, enlarging the company's capabilities and vision. 

Corporate Organization: Although employee roles are rigidly and permanently defined with clear cut responsibilities in larger business companies, yet in crisis the human resources are tasked with developing, initiating and assessing the appropriateness of the organizational structure which can make effective changes to remove corporate silos, enhance international communications and speed up the development and release of new products and services that are valuable to customers. After defining the focus, priorities and plans of the organization, next important step is educate and train the employees consistently and efficiently about the plans and the role of each employee in attaining organizational goals. There is need to train the employees to develop new and mutually profitable relationships with customers. The managers will need HR support and training to attract, engage and retain innovators, communicate effectively, negotiate effectively, motivate team building and to deal with gossip, worries and anxieties. 

Institutional Learning: The companies which succeed during economic downturn are those that develop effective institutional learning system. For learning systems to be effective, internal barriers to communication must be eliminated and new non-traditional alliances are developed both internally and externally. This would enable the organization to share the new ideas acquired by employees. 

II Challenges and Opportunities 

The economic turmoil has created many challenges for the future for the companies. 

* Severe economic downturns often provide substantial clarity about the historical internal maneuverings of the corporation or company. 

* Sometimes hidden or thought to be in consequential activity is suddenly thrust on to centre stage. 

* Another big challenge for the business organizations on HR front is to improve effectively the stressful environment caused by the downturn for the employees. 

* HR will need to support leadership and management to handle stressors so to keep the staff engaged and motivated. 

* For long-term success, employers will not to avoid bargain hunting by hiring top performers for less than they are worth. 

Despite many challenges there still exists opportunities for those who seek to be engaged in the process of building and strengthening of the organization. These employees should seize the opportunity to prove their extraordinary value to the organization. The human resources may record its value to the organization by refining policies and procedure related to hiring, adopting new ways focusing employees' efforts on new corporate priorities and plans. 

It should however be noted that there is need to understand both on the part of the management of business organizations and employees that there is always hope. There is always light at the end of the tunnel. That is the trouble-sum recession must end and revival must begin. 

III HR Strategies Consistent with Recessionary Trends 

The professionals in the HR and corporate fields must step up and strategically lead the people associated with organizations. They must embrace change and ambiguity so that all the employees may view the tough times from a positive perspective. Some of the perceived best practices in managing human resources with positive impact on business performance through leadership, accountability and transformation are discussed as under. These practices are drawn from the experience of Doug Burgam the Vice President and historian of Microsoft Business Solution. Burgam in his study on Gold Rush in 1990's found that the most of the people who were searching for gold lost their lives or at least their livelihood in search of the quick, instantaneous fortune. History revealed the unlikely profit went to the people who were selling the shovels the rakes and other mining supplies. The lesson is simple that is "don't let the blurring reflection of gold, of promised quick fixes and dazzling success blur your vision; always look for the true opportunity in every circumstances. The HR strategies those are consistent with recessionary trends are- 

The Need to Change, to Lead and to Embrace the opportunities at Hand: The most business organizations in all countries of the world are surrounded by investors, politicians, professionals and line workers who seek to invest less and to earn more i.e. insatiable greed which has led to misapplication of economic resources. 

To alter the downward spiral of the economy there is need to change our attitude as leaders our commitment and actions as per the situation and to embrace the opportunities that emerge during tough times without fearing the consequences. The inability to acknowledge reality and embrace change is thus the cause for failure to sustain adversities on the part of the organizations. 

The Need for Evaluative Mechanism for Observation, Correction and Change: The research conducted by Wharton School of Business Professor, John Paul Mac Duffie and Stanford Professor, Jeffrey Pfeffer reveal that for US auto industry, an inability to adapt and change is one of the biggest obstacles. The research of Mac Duffie revealed that lean production systems utilized by auto manufacturers of countries other than USA were more productive, cost effective and resulted in fever defects than mass production system used by US auto manufacturing firms. The auto firms in USA according to Mac Duffie are rigid. They lack observational mechanism. 

Professor Jeffrey Pfeffer too offered similar statement as was given by Mac Duffie. Jeffrey pointed out many companies fail to build the mechanism for observation, correction and change. He quoted that Toyota is a unique example for its best practices in management of quality and productivity and that other auto manufacturers have been slow to adopt Toyota's strengths. 

It is only when the companies succeed in introducing evaluative mechanism for correction and change, they are more successful than their rigid, less responsive, and less effective counterparts. 

Living within One's Means: It has been noticed that the companies in the pat have been spending liberally over and above their available resources. This equally applies to human resources as well. The bankers in USA continued to lend beyond what was judicious, ignoring falling house values and basic credit rules. The governments too have been spending beyond their means in most countries. We must change the mindset that just because someone is offering you availability to cash does not mean it is prudent to spend beyond one's means. 

HR Managers Need to be Strategic Leaders Instead of Administrators: Traditionally 

HR managers' focus less than one-third of their time on strategic HR activities. The majority of their time is spent on managing the day-to-day traditional activities. Latest research shows that when HR professionals transform their roles and act strategically, improvement is seen in overall organizational performance as profitability, net sales per employee, employee retention and attitude customer retention rates and the rate of return on assets improve. For creating strategic leadership following HR strategies and activities are required. 

* Introduce model learning and leadership development by cultivating and improving analytical and strategic business skills. 

* Enhance and expand educational opportunities for the employee. 

* Create evaluating environment that rewards effort, initiative and talent. 

* Provide clear job descriptions that support overall organizational goals and objectives. 

* Transfer the role from administrator to an internal consultant for advising other corporate executives on leading and developing their subordinates 

Develop Leaders within your Organization: It is generally observed and the researchers too conform to the observation that the employees leave the organization because their managers fail to lead and that the leaders come from outside. Research also shows that the negative impacts of a manager and employee turnover are highly correlated. To reverse this tendency there is need to develop leaders from within the organization. 

Empowerment of Employees and Focus on Performance: M. Buckingham and C. Coffman in their research in USA in 1999 concluded that the success of both the managers and their organizations lies in the culture of employee empowerment and focusing on their successful performance. The employee empowerment and performance oriented strategy would certainly ease the tension of both the employees and the organizations that are struggling to deal with economic crisis.

Support and Promote a Balanced Lifestyle for Employees: In order to ensure positive contribution from the employees, the leadership is required to support and promote balanced lifestyle for employees. It implies developing a culture that fosters overall growth of the personality of the employees. This involves taking care of health and entertainment aspects of employees beside the productivity enhancement activities. Efforts must be made by the leadership that the family lives of the employees are comfortable. 


It is concluded from the above discussion that global economic crisis has far reaching implications for the business organizations, employees and human resource management. The severe economic downturn has brought to the forefront many challenges and opportunities as well. The HR department can play a remarkable role with its revised HR strategies which are consists with adverse economic circumstances. US President Barack Obama has very rightly pointed out that "while exuberant bailouts and strategies are currently proposed, what may be the most urgent need is for leaders to adopt a transforming, revolutionary leadership posture that inspires CEO's, managers and employees to think and act differently in difficult times". 

To meet any eventuality caused by global economic crisis, we need to adopt preventive and promotional health approach to economy which is need oriented. We need good governance at all levels of operation in the economy starting from those at the international level (World Bank, IMF, and WTO) to those governing social & economic relations in the family and the neighborhood to minimize the impact of the new economic reality of the global economic crisis. 

As professionals in human resources and corporate fields we must lead the people of the organization and embrace change and ambiguity with a positive perspective. The crux of the positive HR practices is to develop all individuals within an organization to be active, participating contributors and leaders. The best HR strategy in difficult times is to develop each person to be efficient, effective, challenged and satisfied.