Mitigate Recession On Multinational Companies Business Essay

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Generally, a recession means a slowdown in economic activity and usually means lower employment rate, tighter credit, falling business profits, and depressed sales overall (National Bureau of Economic Research 2010). Normal reaction of consumers when they lose confidence in the economy is the saving of their spending thus the sales of the business decline (Bohlen et al. 2010). Though, Multi-National Corporations (MNCs) have more resources than national companies at their disposal to help deal with the problems, they have more complicated contexts from their scales of operations: One solution that MNCs can use to cope with crisis in one host country may not be applicable in the others. Not to mention worst case scenario such as the 2008 global-recession that hits many of their market countries at once (Kiviat 2009). 4

How can HR help to mitigate the impact from recession? 6

To evaluation how HR might help the MNCs during recession, I propose we look at the HR policies and practises through business cycle model that has three phases - Revise, Reconfigure, and Re-launch. Revise is when the managers revisit their processes to assess whether there will be a need for change when taking into account of the impact of recession. Reconfigure is the rearrangement or new design of the processes that are aligned with downturn business imperatives. Last, Re-launch is the introduction of the new process to the organisation: This includes some minor adjustments as well as control function to ensure that the new processes are effective and be able to deliver value. To better understand from HR perspective, in the following sections I will explain each phase in the Cycle model and give examples of how core HR functions could be dealt with in each phase as shown in the figure below (see the complete relationship between Cycle model and core HR function in the appendix). 6

Revise 8

MNCs' managers should start first by revisiting their business, making sure that their assumptions and perceptions to the business environment before the recession still hold. A good example here is the case of ZARA, the fashion store: For the pre 2008-recession period, the most important activity in the company's value-chain was the outbound logistics, bringing products as fast as possible to the market. However, during the recession, customers slowed down their purchases. For ZARA, focusing on obtaining raw material at a lower price as well as driving the operation cost low to gain more margin and stressing on marketing and sales to attract customers to spend might replace outbound logistic as the most important activities. Looking back to HR, if the business environment requires the change in the pivotal points or activities (Boudreau 2007), HR may need to relocate the workforce to respond to the shift in business focus. Now let's explore some important aspects of this Revise phase through core HR functions. Here the focus is on how HR could discover where it needs to change. 8

Reconfigure 10

The recession gives rise to protectionism of host countries securing more jobs for local people, to less demand of some particular markets, or to higher cost in global networks to compensate for the loss of customers. This step of the framework is the reconfiguration of the HR process that companies devise to transfer their resources through the national borders as well as reshuffle of the business process to appropriately cope with the economic downturn. 10

Re-launch 11

After the Reconfigure of the resources, now the business as well as its HR functions is ready to re-launching itself in the context of receding demand of the customers. The focus of HR policies in this phase is on how can organisation control and ensure that the new processes are embedded as well as how well employees adapt with the unfamiliar business territories especially in the case of transferee to the new reconfiguring-assignments. 11

Appendix 14

Bibliography 17

Q: How might human resource policies and practices be used to mitigate the effects of the recession on multinational companies? Discuss with examples.

Implication of recession on human resource management

Generally, a recession means a slowdown in economic activity and usually means lower employment rate, tighter credit, falling business profits, and depressed sales overall (National Bureau of Economic Research 2010). Normal reaction of consumers when they lose confidence in the economy is the saving of their spending thus the sales of the business decline (Bohlen et al. 2010). Though, Multi-National Corporations (MNCs) have more resources than national companies at their disposal to help deal with the problems, they have more complicated contexts from their scales of operations: One solution that MNCs can use to cope with crisis in one host country may not be applicable in the others. Not to mention worst case scenario such as the 2008 global-recession that hits many of their market countries at once (Kiviat 2009).

There will be a need for pay-restraint as budgets fall. There may well be recruitment hold-up and job losses. The ability to attract and retain workers when times are tough is very crucial to business survival. Companies will have to focus on rewarding outstanding contributions. In these turbulent times, there are many aspects that HR policies and practices could help MNCs to mitigate the impact from recession to help the company not only to crawl though the recession, but also become even stronger after the downturn.

How can HR help to mitigate the impact from recession?

To evaluation how HR might help the MNCs during recession, I propose we look at the HR policies and practises through business cycle model that has three phases - Revise, Reconfigure, and Re-launch. Revise is when the managers revisit their processes to assess whether there will be a need for change when taking into account of the impact of recession. Reconfigure is the rearrangement or new design of the processes that are aligned with downturn business imperatives. Last, Re-launch is the introduction of the new process to the organisation: This includes some minor adjustments as well as control function to ensure that the new processes are effective and be able to deliver value. To better understand from HR perspective, in the following sections I will explain each phase in the Cycle model and give examples of how core HR functions could be dealt with in each phase as shown in the figure below (see the complete relationship between Cycle model and core HR function in the appendix).

Figure 1 The Cycle model and core HR functions

Revise

MNCs' managers should start first by revisiting their business, making sure that their assumptions and perceptions to the business environment before the recession still hold. A good example here is the case of ZARA, the fashion store: For the pre 2008-recession period, the most important activity in the company's value-chain was the outbound logistics, bringing products as fast as possible to the market. However, during the recession, customers slowed down their purchases. For ZARA, focusing on obtaining raw material at a lower price as well as driving the operation cost low to gain more margin and stressing on marketing and sales to attract customers to spend might replace outbound logistic as the most important activities. Looking back to HR, if the business environment requires the change in the pivotal points or activities (Boudreau 2007), HR may need to relocate the workforce to respond to the shift in business focus. Now let's explore some important aspects of this Revise phase through core HR functions. Here the focus is on how HR could discover where it needs to change.

First, from HR function of Recruitment and Retention, HR should revise its workforce portfolio; identify which skills and staffs should the company keep, recruit, or lay-off by aligning with the business strategy according to Best fit or the contingency approach (Sparrow and Hiltrop 1994). The cut may not be a good solution since the research shows that the heavily-cost-cutting companies during the downturn have the lowest probability-21%-of pulling ahead of the competition when times get better. That is one of the easiest ways out that show the immediate impact on the cash flow, where managers' performances are measured. Managers can't be totally blamed for doing so as Peter Drucker put it, "What get measured gets done" (Drucker 1954). However, companies have to look for new hiring again to fill those positions sacked and this may require many years to train as tacit knowledge is transferred with the personal as well as the learning curve-effect that requires time to accumulate. However, This doesn't means that doing the opposite will be the right cure for the recession since the research also shows that businesses that boldly invest more than their rivals during a recession don't always fare well either. They enjoy only a 26% chance of becoming leaders (Gulati et al. 2010). Again, even though managers would prefer not to reduce staffing levels, the economic reality is that reductions in demand have forced unpleasant decisions, including eliminating programs and layoffs. According to many suggestions from researches, companies that master the delicate balance between cutting costs to survive today and investing to grow tomorrow in many function areas do well after a recession. HR needs to justify the situation, to want extent it should cut as well as to what extent it should hire.

In addition, with the data of employee skills on hands HR could help the company assessing its competitive advantages that could fit to operate in this economic down-turn environment. Moreover, the business may struggle with the resistance to change from the employees who fear that changes may be adverse or permanent after the recession. HR can help to identify change agent, key person to help drive transformation or change program. Furthermore, overseeing function of Performance management as well as Compensation, HR could play a crucial role in revising current performance measurement and rewarding scheme to identify the gaps with performance required by new business shift. Understanding such gaps will help HR and the company to design new behaviour management program as well as compensation package to reinforce and motivate the employees to obtain the new set of intended behaviours.

Reconfigure

The recession gives rise to protectionism of host countries securing more jobs for local people, to less demand of some particular markets, or to higher cost in global networks to compensate for the loss of customers. This step of the framework is the reconfiguration of the HR process that companies devise to transfer their resources through the national borders as well as reshuffle of the business process to appropriately cope with the economic downturn.

First, from HR function of Resources (workforce) analysis, after the Revise phase, if the company believes that the new business direction is required. The company may need to reconfigure, moving its resource to match with business strategies and new direction. HR needs to make sure that it appropriately allocates the right people with the potential to develop the skills in the newly focused areas required by the company. The good example here is IBM case. There were fewer clients in banking industry as the recession hit, IBM's HR look at the resource analysis portfolio and instead transfer majority of the idle resources specialized in banking industry to work in energy segment because both industries have overlapping knowledge in term of functional competency, financial management. MNCs such as IBM with clients in many industries have advantage over national companies in term of client options.

In addition, HR must make sure that the employees still receive proper trainings to obtain the skills for their newly assigned jobs even with the constraint of the cost from the recession. The example here, again, is the IBM case, instead of previously outsourcing some trainings to its partners off-site, IBM reconfigured and instigated new training plans to have its own senior consultants train the junior team members. Also HR had to reformulate the job description, the performance evaluation criteria, as well as compensation basis to incorporate the training as one of the senior members' tasks. This is once more the good example of HR involvement in helping company reconfigure its process to help coping with the recession. Again, in this step, HR policies are very crucial to the survival of the company during recession. Besides coaching, through this process company may be able to identify the top talents for the challenging post in the future.

Re-launch

After the Reconfigure of the resources, now the business as well as its HR functions is ready to re-launching itself in the context of receding demand of the customers. The focus of HR policies in this phase is on how can organisation control and ensure that the new processes are embedded as well as how well employees adapt with the unfamiliar business territories especially in the case of transferee to the new reconfiguring-assignments.

To control, HR needs to make sure that it keeps its eyes looking for anti-change agent that discourage transformation. By communicating with the employees through its relation program, HR can reinforce common understanding with the employees of whom some may be discouraged by the change. To make the program more effective, the HR must ensure that it design the program to communicate both at the corporate venue as well as at a more personal, e.g. group or even personal level. The good example here is what Jack Welch did to GE as a CEO during the 1981-recession. He recognized the need to change and thus set up the team of executive to lead transformation. He personally communicated with the employee once a month to ensure that everybody understood and committed to the change. He also eliminated the anti-change agent to ensure that all the efforts are a must rather than optional (Tichy and Sherman 2005).

Moreover, as the company cruises through this change, the HR must make sure that the effort put into the company during this crisis is recognise, probably through intrinsic reward if the cost of extrinsic one is the concern of the company. If the employees believe good performance will be instrumental in bringing the desired reward, this can act as the motivation for the employee to perform (Rollinson, 2008).

Conclusion: after recession

During the recession, some might lose their job, while others had to leave their old familiar tasks and started to learn new skills and worked in new assignments that were best for the business. Many people had to work double hours, one for themselves and the other half to train the new comers. However, when the business returns to normal, the landscape or the playing field might rebound back to the same old day or change completely to different directions. The implication for HR manager: "they have to revisit their HR processes again - with the cycle repeatedly starts from Revise, Reconfigure, and Re-launch."

The dynamic in competitive environment makes it so hard for MNCs to sustain their successes. The managers can always come-up with new strategies. The technology may introduce new powerful IT system. The fast changing world may bring about new business ideas that require the changing in all business processes. However, the hardest part of dealing with these changes is to have people in the organisation understand the importance, adopt or change themselves, and ready to take advantages of these changes. It is very challenging as well as complicated for HR managers of the MNCs to introduce the change and design how to adapt to their people. This is why few companies are success. However, if done right, successful MNCs can use this complexity to create sustainable advantages that are hard to copy by their competitors. Maybe during this recession period, more than any other, is the time when the firms should recognised their HR as companies' competitive advantages. It is the time when MNCs need their people to perform at their best as well as need HR policies to play the most crucial role in bringing the full potential out of the best resources any companies could have as Larry Bossidy, the ex CEO of Honeywell once said, "At the end of the day, you bet on people not on strategy" (Tichy 2002).

Appendix

Revisit

Reconfigure

Re-lunch

Recruitment and retention

- Revise staffing portfolio; identify which skills / staffs should the company keep, recruit, or lay-off by aligning with the business strategy

- Fair lay-off policy

- New recruitment that fits with reconfigured business direction

- Ensure that the retained employees understand the importance of lay-off

- Ensure that new hires can quickly adapt to the team

Administration of personnel files and legal documents

- Ask question "Is there any administration process that is not effective and incurs cost?"

- Redesign, roll-out, and inform employee about the new process

- Ensure that employee align with the new process

Organizational design and development

- Help analyse current organisational structure and design to justify the best allocation of current resource

- Redesign or restructure organisation in term of allocation of resources and skills

- Communicate to employees the importance and changes for new organisation structure, work culture and climate, to gain buy-in and increase effectiveness

Business transformation and change management

- Identify change management agent, key person to help transform or change

- Gather change agent to plan for transformation

- Encourage transformation by consistently communication to gain understanding

- Keep looking for anti-change agent

Performance and behaviour management

- Revise current performance measurement processes to identify the gaps with performance that may be required by new business shift

- Design new key performance or behaviour index, if needed, that fits with new business requirements

- Make sure that new evaluation scheme is transparent and fair

- Install new performance driver to encourage new behaviour

- Communicate with employees about new process

Industrial and employee relations

- Revise relation plan to employee as well as to public

- Design the new relation plan, if needed, that correctly depicts the new business direction and value to employees

- Ensure that the new relation plan is constantly communicated

Resources analysis

- Analyse the data of workforce to assess skills required by new business changes

- Reconfigure the resource to match with business strategies and changes

- Monitor the performance and assess whether the new skills or personal will be required to help cope with the change

Compensation, rewards and benefits management

- Review motivational tool, technique, and rewards

- Design new motivation, compensation, and reward plan, if needed

- Make sure that new compensation scheme is transparent and fair

- Instigate new motivation, compensation, and reward plan to stipulate new behaviour

- Communicate new system

Training and development

- Review current training and development program

- Design new training program that encourage the sharing of knowledge that align with the business need to minimise the cost, e.g. online learning as well as internal coaching program

- Encourage learning and coaching behaviour that could be tied with performance evaluation and rewards

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