Implication Of Recession On Human Resource Management Commerce Essay

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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 multinational 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 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 might need to relocate the workforce to respond to the shift in business focus. Now, I will explore this Revise phase through some examples of core HR functions: how they could discover the areas that may need to change according to the business alteration (see the complete relationship between Cycle model and core HR functions in the appendix).

First, according to Best fit approach - HR should be aligned with the business strategy and competitive environment (Sparrow and Hiltrop 1994) -, even though managers would prefer not to reduce staffing levels, the economic reality of reductions in consumer demand might force unpleasant decisions, including eliminating programs and layoffs (Gulati et al. 2010). The cut is one of the easiest ways out that show the immediate impact on the cash flow, where business performances are measured. Managers cannot be totally blamed for doing so as Peter Drucker put it, "What get measured gets done" (Drucker 1954). What HR should do is to stress to the business the consequence of the lay-off. The company has to look for new hiring to fill those positions sacked and this may require many years to train new personnel as tacit knowledge is transferred with the personal as well as the learning curve-effect that requires time to accumulate (Lam 2010). Besides, this could have an impact on company's public relation. HR must ensure that business already take this view into account: how the company is going to communicate to the public and employees the justification of laying-off its people. For example, my sister who works in Nokia told me that, during recession, the company tried to reduce the cost through the using of more teleconference meetings and reducing the use of expatriates rather than laying-off because Nokia's HR aware of the hidden cost of training new recruitments after the recession has passed as well as its public appearance to the public.

Additionally, with information of evaluated performance of employees on hands, HR could help the company justify whom the company should keep or let go, if job cutting is unavoidable. Moreover, with the data of employee skills, HR could also help the company assess its competitive advantages that could fit to operate in this economic down-turn environment.

Furthermore, the business may struggle with the resistance to change from the employees who fear that changes may adversely affect on current situations. HR can help identify change agent, key person to help drive transformation or change program. HR could also play a crucial role in revising current performance measurement and rewarding scheme 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.


The recession gives rise to protectionism of host countries securing more jobs for local people or to less demand of some particular markets (Moore 2010). The company may need to reconfigure, moving its resource to match with business strategies and new direction through reshuffling of people or adjust some processes to help company cope better with the economic downturn.

First, if the company believes that the new business direction is required. HR must 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 my own experience with IBM. The demand from US and EU clients that requires company service in banking consulting segment during the 2008-recession hit significantly declined. IBM's HR looked at the resource analysis portfolio and instead transferred these idle resources to work in Asia instead where impact from recession was less pronounced. Some banking consultants were even transfer to work in energy industry instead. This is possible because both industries have overlapping knowledge in term of functional competency, financial management. Though, this gave rise to expatriate costs, it did prevent IBM from laying-off more people. With the help of HR, MNCs such as IBM could better deal with more protectionism from some host countries or with less demand of some particular markets.

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 as well as provide recorded trainings through online access for worldwide staffs. To make such reconfigure more effective, IBM's HR also reformulated 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. Besides tightening on cost, through this process, the company may be able to identify the top talents for the challenging post in the future.


After the reconfigure of the resources, now the business as well as its HR functions is ready to be rolled-out to the organisation, re-launching 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 HR can help employees adapt to the unfamiliar business territories especially in the case of transferee to the new reconfiguring-assignments.

To control, HR can help identify change agent as well as keep 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 designs 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 regional team of executive to lead transformation throughout the world. 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 were 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 under this time of budget constraint. 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, adapt 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 is the time when the firms should recognise 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 1 Relationship between Cycle model and core HR functions




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

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