hr practices during recession & post recession planning

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Mumbai Business School fostering human capital excellence... HR PRACTICES DURING RECESSION AND POST RECESSION PLANNING Partha Sarathy Guide : Dr. Sunil Rai (CEO, Mumbai Business School)

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Page 1: HR Practices During Recession & Post Recession Planning

Mumbai Business School

fostering human capital excellence...

HR PRACTICES DURING RECESSION AND POST RECESSION PLANNING

Partha Sarathy

Guide : Dr. Sunil Rai (CEO, Mumbai Business School)

Page 2: HR Practices During Recession & Post Recession Planning

2 HR PRACTICES DURING RECESSION AND POST RECESSION PLANNING

Contents:

1. Overview .... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 03

2. Affected HR Processes by the Recession..... . . . . . . . . . . . . . . . . . . . . . . . . . . . 05

3. HR Communication in Recession..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 06

4. Reactions to Recession .... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 07

5. Recovery from Recession..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 08

6. New Staffing Models- Post Recession..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 09

7. Temporary Workforce.... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

8. Managed Services Programs .... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

9. Recommendations.... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

10. Proactive measures while coming out of recession .... . . . . 13

11. Future of HR -Post Recession..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

12. Methodology and References.... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Partha Sarathy

Page 3: HR Practices During Recession & Post Recession Planning

3 HR PRACTICES DURING RECESSION AND POST RECESSION PLANNING

OVERVIEW

The economic crisis of 2008/2009 has touched every industry and profession, radically altering the hiring landscape. Major layoffs, rising unemployment, and lowered profits have reshaped the way workers arehired and fired, and dramatically highlighted the need to rethink workforce planning.Now, the question lingering over the heads of business leaders everywhere is: What will the successful post-recession business look like?

Here, we wanted to find out how what steps they are taking in response to the crisis, howtheir priorities and practices have changed, and what they predict the HR landscape willlook like as the economy recovers.

This study is focus on the following objectives:

1. How HR Processes got affected by Recession?2. What was the Reactions of Recession?3. What HR steps Companies are taking to prepare for Recovery from Recession?4. What are the Envision on post-recovery staffing model?5. What are the Roles of Temporary Workforce?6. What are Managed Serviced Program & its Benefit?

First let us brief about Recession.

A recession is a contraction phase of the business cycle where significant decline in economic activity lasts more than a few months, which is normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.

The current economic recession has hardly spared any country on earth. Rich countries like USA, UK, Germany, Australia, Japan, and Canada almost all the rich countries have got badly hurt from the recession. So, there is no reason to be surprised to know that Indian economy is also getting hurt from the global economic recession.

We conducted primary research among HR and procurement professionals to emerge with a snapshot of how companies have acted and reacted, as well as recommendations on how leaders can take a proactive approach to staffing for the future.Below is a brief overview of the key findings outlined in this report.

Key Findings:

• 62% of companies have laid off employees as a direct response to the economic climate.• 63% of companies are actively replacing low-performing employees with high-performing new hires.• 42%of companies are taking this time to develop workforce plans in anticipation of recovery.• 45% percent of companies will use temporary workers as part of their current and future workforce.• 25% percent of companies anticipate an increase in the size of their IT and Professional temporary staff.

Partha Sarathy

Page 4: HR Practices During Recession & Post Recession Planning

4 HR PRACTICES DURING RECESSION AND POST RECESSION PLANNING

Source: Attitude Measurement Corporation

The above graph shows the changing trend over the Years in all the major sectors which contributes the overall development of the Indian Economy

Partha Sarathy

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5 HR PRACTICES DURING RECESSION AND POST RECESSION PLANNING

Affected HR Processes by the Recession

The recession affects different HRM Processes. Some HR Processes can be affected by the recession very hardly and other processes can be completely immune from the recession impact. The HRM Function has to react very quickly and the response has to include the whole HRM team as all employees have to help the most affected employees to keep the level of the satisfaction.

The organization needs to save the costs and it needs to identify and potential additional source for the cost saving and starting a new growth era. The HRM Function has to prepare a new HRM Vision and a new HR Strategy for the coming period as the cost cutting is not the only way to build a stronger organization fighting with the recession.

The most affected HR Processes are the following:

1. Recruitment - The first HR Process with the change in the recession. The job vacancies are cancelled and the HRM Function should come with a new recruitment strategy. The organization can hire a new set of skills and competencies to strengthen the position of the organization on the market

2. Training – The training are cancelled as it is a quick cost cut. The training can be later focused on more specialized training session and more internal training courses can be introduced.

3. Compensation and Benefits – The department can be asked to bring a new compensation scheme, which will save the costs and motivate employees to be more proactive.

4. HR Front Office – The HR Front Office have to be present at clients all the time as they will need a strong guidance and facilitation during the recession.

The HR Processes are heavily affected by the recession, but the HRM Function has to take this as the opportunity to change and to bring new ideas on the scene. The recession is the best time to design a completely new approach of the organization to its human capital.

Partha Sarathy

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6 HR PRACTICES DURING RECESSION AND POST RECESSION PLANNING

HR Communication in Recession

The HR Function is always responsible for the mass communication to employees in the recession. The HR Function should be responsible for the consistency, transparency and fairness of the crisis communication to employees. The recession is usually not about the good news, but the HR Function has to be the employee advocate and the messages should provide the employees with the clear outlook of the future.

The crisis and recession communication have to be targeted, as not all the employees should receive the same amount of the information. The Sales employees should have completely different details from the Operations guys.

The HR Communication in the Recession is about defined and agreed target groups. The organization cannot publish the details about its business position to all the employees, but some groups of employees have to know more to feel comfortable and more secure.

The HRM Communication is one of the strongest tools for the retention of key groups of employees. The talents and key employees have to receive more information from the organization to keep their own security and their value for the organization.

The organization needs to raise the level of the motivation and the honest communication is one of the best tools for motivation. But the HRM Function has to act as the consultant to make sure, the employees are not de-motivated and frustrated by the amount of messages and the details provided.

The HRM Function has to provide the advice on the communication channels used as not all the messages should be sent via email. The HRM Function is the only function in the organization to have a general picture of the target groups and it can provide useful consultancy in the description of the target communication groups.

The HRM Communication in Recession is about a clear description of the organization´s position on the market, the economic outlook for the next period and about the strategic products and services, which will be the leading the growth in the era after the recession. The employees should know about these topics as they can prepare themselves.

Partha Sarathy

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7 HR PRACTICES DURING RECESSION AND POST RECESSION PLANNING

Reactions to Recession

We found that:

• Companies have been cutting headcount and looking internally to cut costs however possible.• These reactions have created new opportunities, which are fuelling the way companies are preparing for the recovery.• The businesses that emerge from the recession will not be reverting to old ways of doing business, but will be creating something new.

Many companies’ first and most central response has been layoffs—and this holds true across all industriesand company sizes. In many companies, layoffs have been coupled with hiring freezes and salary holds. Reduction in headcount has been such a central tenet of most companies’ response to the recession that roughly three times as many companies have reduced headcount as have turned to lowered wages (22%) or reduced benefits (18%), the second and third most common responses.

Source: Attitude Measurement Corporation

The above graph shows the Layoffs in the Total Workforce of Major IT Companies across various verticals at different locations

Partha Sarathy

Source: Veritude

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Recovery from Recession Layoffs and cost-cutting have been dramatic, but for many companies that reactive stage has come to an end. They have pruned their expenses and employee base, and are now looking to build the foundations for recovery.One of the key factors influencing this shift is the radically changed hiring atmosphere that has resulted from pervasive layoffs.The post-crisis hiring market is one in which many of the challenges that were associated with the “War for Talent” have virtually disappeared. Three out of five respondents report that there are more qualified candidates so hiring has become easier, while nearly half found that candidates are more open to negotiating terms of employment (42%) and are more likely to accept offers (40%).On the flip side, this flood of qualified candidates also has drawbacks: 29% of respondents report that it’s harder to identify the right person to hire because there are more unqualified applicants and 25% report that it’s more difficult to hire talent that is currently employed elsewhere. Other observations included less resource in recruiting departments and more time being spent vetting applicants. Regardless of these drawbacks, the increase in available talent has prompted companies to better prepare themselves for recovery.Especially at the micro level, HR leaders are taking advantage of the favourable labour market to reshapetheir workforce and proactively position the company for post-crisis success.HR leaders also reported new cross-training initiatives designed to prepare employees for future needs. These initiatives are designed to maximize the value of every head, and to prepare for the end of the recession by crafting a more flexible and agile workforce.In this way, leaders are creating lean, focused workforces in which every employee is as productive and cost effective as possible. They are maximizing their performance at current spending levels, micro engineering higher performance into the system to create a workforce that can rebound and step up when the economy recovers.

In our qualitative research, we have found a widespread new emphasis on succession planning and, especially, right-sizing. Companies are engaging in cross-functional planning to proactively create workforce processes and structures that will allow swift and rigorous expansion as needed, while still maintaining the focus on cost control, headcount minimization, and maximizing the value obtained per employee.

HR is looking across the enterprise in a systematic way and putting the right people in the right places. It is actively moving to redistribute headcount to where it’s needed and where it has the greatest business impact.For these HR professionals, it is crucial that they move beyond instituting short, reactionary changes and examine workforce composition that will benefit the business for the long-term. These leaders are expected to drive workforce conversations with their counterparts in other business functions, ask the bigger picture questions and propose new staffing models that offer more flexibility, cost-savings and a competitive edge.The development of new workforce composition models goes beyond understanding where companies may have been able to trim costs or gained efficiencies, and then putting in place temporary “fixes” to survive the recession. It requires a macro-level understanding of what the company has really learned and what changes will make lasting business impacts—are the right types of workers in the right positions? Should we use more temporary staff in more traditional roles? Are my partners really helping me save money or gain efficiencies?

Partha Sarathy

Source: Veritude

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New Staffing Models- Post Recession

This business process engineering is more than just a stop-gap or a temporary fix. The crisis has created a whole new mode of hiring and staffing, and companies aren’t going back to their old ways of doing business.In fact, only 3% of those polled plan to revert back to their pre-recession staffing model. Instead, companies are creating new models of staffing. 22% are undergoing a complete restructuring for the future. 25% are planning to retain their current recession time model. And 38% are developing a new hybrid model, using elements of both their pre-crisis structure and their current recession model.

Source: Veritude

Companies are retaining the values of recession staffing—cost-conscious introspection, real process engineering—but refitting them for better times. They will seek to retain the benefits of the recession model(lower cost, more effective cost benefit, running lean), while building capacity and flexibility for good times ina new, more focused way.The new, stripped-down recession workforce is a launch pad for the recovery model—a foundation for building something new and more effective, more robust, and more flexible.

Partha Sarathy

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10 HR PRACTICES DURING RECESSION AND POST RECESSION PLANNING

TEMPORARY WORKFORCE

The temp workforce aligns with another key post-crisis value—that of putting the right people in the right place at the right time. The ability to “try before you buy” with a temp worker is valuable not only at a micro level (getting the most cost effective talent in key roles), but also in business process engineering. Right-sizing the business can be vastly simplified by adding contingent workers to the mix—especially if used in concert with atemp-to-permanent strategy.

The Changing Role of Temps in the New Workforce

As the economy improves and business starts to rebound, companies will employ temps to fill gaps inthe restructuring—but with discretion, and often not in the same ways that temps were used before.Instead, companies will be deploying contingents in more targeted, specialized ways, to complete specificprojects or fill specific needs. For example, one in four companies anticipate an increase in the size oftheir IT and Professional contingent staff. The rise in demand for specialized temps reflects the new focus on clear cost benefit. In the emerging post-recession workforce model, it’s all about maximizing the values of every personnel spend— and the way contingents are deployed will reflect this focus. Temps can be a fundamental part of this re-evaluation of how work gets done.This is particularly true today, as we have found that the temp worker value proposition has improved sincethe crisis. One in five executives report that the high unemployment rate has resulted in more qualified people temping, reducing hiring risk and increasing the value of temporary workers to business.

Source: Veritude

Partha Sarathy

Source: Veritude

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Managed Services Programs

As companies seek more specialized temps with more rigorous cost/benefit demands and risk controls, their staffing practices are changing to help meet these needs. New models demand new partners and new structures.In particular, the currently prevalent model of working with multiple temp agencies is estimated to declinein the coming two years, as companies move toward consolidated models—in particular, ManagedServices Programs (MSP), which are estimated to increase.An MSP is an external staffing provider, with on-site presence, that conducts all aspects of sourcing, screening, hiring, on-boarding, and managing contingent staff. These programs offer unique values and benefits, many of which are the values most prized by leaders preparing for recovery: consistent terms and costs, specific knowledge and expertise, higher-value candidates at lower risks.An MSP delivers increased value and consistency from temps, providing known value, known spending,and a known candidate pipeline. This advantageous cost-benefit ratio and reliable value delivery is one ofthe cornerstones of the emerging new model of post-recession staffing.

Partha Sarathy

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Source: Veritude

Recommendations

We have assembled the following action points to help your company ensure that it is being proactive, positioning itself for recovery, and taking advantage of the new values in the marketplace.

1. Create and communicate a plan for your post-recovery workforce.

When the economy recovers, the most successful companies will be those that neither revert to old ways nor retain their recession-time ways of doing business. Instead, develop a staffing model that combines the virtues of both your pre-recession model and your current model. Use the stripped down recession model as a launch pad for building capacity in a rigorous, cost-conscious way.

Partha Sarathy

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2. Scrutinize and improve your hiring and staffing processes.

When business is booming, you rarely have the opportunity to seriously scrutinize the foundationalprocesses of the business. Take the opportunity now to examine your staffing practices at every level. Arethey as efficient as possible? Are they scalable? How can you maximize the value created for the company? Look for ways to cut costs and improve profitability in the present, but always keep an eye on the future: build processes that are robust enough to provide company value through the economic recovery. Proactive work done now can bear fruit for many years to come.

3. Reassess your staffing partners in light of your new goals.

In today’s environment, shared history isn’t enough— every partnership and vendor relationship has to beabout how they can help position you for the future. Re-examine your vendor relationships, and look for potential new partners—particularly those that can offer demonstrated value, understanding of your industry and culture, and the ability to think proactively about the post-recession landscape. Also look for ways to get extra value from existing partners: engage with them, invite them to collaborate on solutions, and enlist their expertise to solve specific problems.

4. Look at how to use contingent workers most effectively.

The contingent workforce offers a set of specific values that are especially advantageous in thistransitional economy. As you reappraise how work gets done in your company, understand the valuetemps provide and how they can be integrated as an essential component of your workforce planningfor the future. Rethink how your company has traditionally deployed temps, and understand theemerging needs that temps can address. Locate those places where the flexibility, clear valueproposition, and expertise that contingents provide can have the biggest business impact in the future, and deploy your temps with precision.

5.Investigate effective ways to manage your new workforce.

Single-point sourcing can be a critical partner for maximizing value throughout recession andrecovery: it increases alignment, provides more consistent value, and can provide more qualifiedspecialists to meet specific needs. An MSP provides a scalable, reliable pipeline of talent, plus the metricsto manage them for maximum value and a hands-on approach that ensures consistent value.

Proactive measures while coming out of recession

Companies

Initiate relations with their preferred vendor and provide them with transparent hiring plans so that they can be prepared for your requirement and not your competitors

Start early that there is ample of highly skilled resources available in the market and are vulnerable about their next move

Communicate your hiring plan with the junior most person in the HR team as soon as possible and ask them to take corrective actions don’t wait for the economy to get back on track

Come up with innovative pricing model to pay recruitment agency , something like an pay per performance and not a captive commitment to a particular agency

Partha Sarathy

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14 HR PRACTICES DURING RECESSION AND POST RECESSION PLANNING

Try using social media for attracting talent which save tons of commission being paid out to recruitment agencies.

Re-negotiate the contractual terms with your vendors; this is the right time to negotiate to your advantage.

Recruiting Agencies

Start building relations with the client and spend quality time understanding their future hiring plans. Try connecting and profiling your candidate base and keep them engaged in discussion about their

future move, this will help you refresh your database and have them ready for the word as per the hiring plans for your client

It’s the right time to get into newer sectors as virtually there has been very little interaction between client and their so called preferred vendors over last 6 to 8 months so this leaves a room for you to foster a relation. Beware your competitors might be reading this as well

Explain your recruiters about the near future and how they need to be smart and be prepared for the upswing.

Try using social media to attract passive talent

Future of HR - Post Recession

In the wake of governance issues, executive compensation blow-back and other negative news, HR cannot remain functionally the same as the market and economy recover.

We see HR changing fundamentally at both the executive and employee level in these ways:

Executive Level

• HR will have a seat at the executive table, possibly as a CEO of a Fortune 100 company. If not in the chief executive seat,then definitely as a chief officer whose opinion is valued and desired.

Partha Sarathy

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15 HR PRACTICES DURING RECESSION AND POST RECESSION PLANNING

• HR will take a more prominent role in corporate governance, possible as a chief integrity officer, enforcing the exercise of proper control over compensation and bonus packages and use of corporate funds in other appropriate ways.

• HR will become a trusted coach to senior executives – perhaps the sole voice willing to tell the CEO when he’s going in the wrong direction.

Employee Level

• HR will drive the effort for global team building and collaboration, ensuring unique cultural differences are honored and respected.

• HR will take full ownership of directing talent organization and distribution to create high performance workforces for strategic success.

• HR will adjust to generational change requirements as Generation Y becomes ever more prominent (e.g., changing annual performance review to ongoing feedback format with 360 degree elements).

Difficult times are often the seeding bed for innovation and positive change – the explosion of the PC in the early 1980s, the explosion of the internet in the mid 1990s. I believe this recession will weed out the bad habits, complacency and ignorance that has kept HR from achieving its true purpose in guiding and directing a company in the most powerful way – directly through its people.

Methodology

We conducted a two-step market research program, including quantitative research among HR and Procurement professionals, and qualitative research among the same target.

All our respondents came from companies of at least 2,000 employees, with an average company size of 12,200. All were directly involved in HR and hiring decision-making, with 80% in HR, 18% in Procurement, and 2% in Finance.

Partha Sarathy

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References

Attitude Measurement Corporation.

"The future of human resources: Forging ahead or falling behind?" Human Resource Management, Vol. 36,

"Technology, Community, and the Practice of HRM." Human Resource Planning, Vol. 25,

"New HR roles to impact organizational performance: From 'partners' to 'players'." Human Resource Management, Vol. 36,

"The strategic HRM debate and the resource-based view of the firm". Human Resource Management Journal, Vol. 6,

Human Resource Management in Projectified Firms: Organization and Logics. Paper presented at the EIASM Workshop, Paris, France.

"A resource-based view of human resource management and organizational capabilities development." International Journal of Human Resource Management, Vol. 13,

"Building theories from case study research". Academy of Management Review, Vol. 14,

"Human Resource Management and Industrial Relations." Journal of Management Studies, Vol. 24,

"Human resource management and performance: a review and research agenda". International Journal of Human Resource Management, Vol. 8,

HRM and performance: achieving long-term viability. Oxford: Oxford University Press.

Partha Sarathy