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With the economic downturn now in full steam, most HR departments already have their damage limitation strategies in play. These will differ according to a number of factors, particularly cash reserves. But even rich organisations have been forced to rationalise, and invariably cut back on, their spending.
HR experts warn there are both good and bad ways to go about this. Good implementations will see productivity and employee engagement suffer very little as a result of the cutbacks. But mistakes can prove very costly at a time when any additional costs - whether they are measured in terms of dollars or lost opportunities - can have a much heavier impact on the overall organisation.
The costliest mistakes can even sideline a business for the much longer term, or worse. It's these kinds of errors that HR needs to stridently avoid in this crucial stage of the economic cycle. Experts warn that many organisations have already proceeded down the wrong track. They say HR needs to think carefully about its current cost-saving strategies in order to survive. That's particularly when it comes to the following five errors of judgment; they're far more common than many businesses would like to believe.
Poor communication
With every downturn comes staff cuts at some businesses. But more importantly, every downturn creates the anxiety of expected staff cuts, even within financially sound organisations. If HR is not able to calm those fears, they can spill over into more tangible areas. Job insecurity often leads to reduced morale, which can be seen through reduced enthusiasm and engagement levels. And that means lower productivity, more mistakes, and more pressure in what is already a tough business environment.
Nurhana Jamaludin, Manager, Human Capital, Giant Hypermarket, believes communication is vital, even when things are going well. The food retail industry may not be in as dire straits as other industries, but all workers are aware of the wider problems in the economy.
"We cannot remove that fear in them," she says. But the multi-formatted retail group works hard to communicate its position throughout the organisation. By keeping people informed, largely through face-to-face sharing meetings and training sessions, the Dairy Farm Group, Giant's parent brand, is able to minimise the confusion and maximise the engagement levels of its workforce.
Having open communication channels between staff and managers also helps the company cut costs in non-job related areas. "There's a lot of communication about prudency at the moment," Jamludin says.
For organisations already stuck, poor communication can be an inexpensive thing to correct. NC Prakash, Senior Manager, Rodhe & Schwarz Systems and Communications, says by acting now to involve and engage the workforce, a wider range of recession-fighting strategies become available. "Involving our people and major stakeholders can mean that if and when we need to make a tough decision, it can be done with depth," he tells HRM. "With good communication, it is not difficult for employees to agree to organisation-wide cost containment approaches, including salary and bonus reviews."
External communication, to potential candidates and referrals, is also often neglected. "As employer branding initiatives are seemingly the hardest to measure, they tend to be early casualties of a downturn," Prakash says. He says some HR professionals think employer branding is all about long-term, high profile, and expensive marketing strategies. But branding can take place through existing media to great effect. "The brand and communication channels in which it is disseminated can also be a valuable tool for leaders to connect with employees and also provide the vision and progress updates that are so desperately needed in times of uncertainty," he says.
Cutting back on training and development
There's a well known adage that HR students are taught in their earliest semesters. Two managers are discussing the learning options for their staff when one asks: 'what happens if I spend money on training my people and they then leave?' The wiser leader comes back just as quickly with 'what happens if you don't train them... and they stay?'
The issue takes even more relevance during an economic downturn. Of all the possible mistakes HR can make, experts say reducing the quality and impact of training programmes is the most fatal over the long term. By ignoring development needs when times are tough, not only does retention become a significant issue, but those staff that stay loyal to the company will be less skilled than those at the opposition that maintains training efforts.
Jamaludin says training is one area that her organisation won't cut back on. But the focus areas will change to those that are most closely linked to the company's ongoing performance. "We're being mindful of what is really pertinent at this time," she tells HRM. "Service training must continue. Work Skills Qualification training must continue. And product learning must continue."
Prakash agrees. "Learning and development is also shifting from pure career development to leveraging people and know-how (including technology) to programmes with direct links to revenue generation," he says.
Not stepping up
There is a definite cost to any organisation when staff with the right ideas and knowledge are not heard or able to voice their ideas. That can often be the case with HR. It provides a bridge between managers and their workers and is often the function with the most complete understanding of both sides. When times get tough and leaders look to get the most out of every asset, HR needs to get involved.
Prakash says this isn't just about HR professionals making a career move. "HR is in a perfect position to look at the strengths of the workforce and take that knowledge to the management," he says. "(It) should provide insight during the times when tough decisions need to be made."
It's not just HR's knowledge that should be driving it toward the C-Suite at this time. Prakash says the function also has important skills in change management and strategic execution that organisations will need to rely on. "The capability to execute successful change and transformation strategies make the HR professional exceptionally valued," he says. "For example, knowing how to link change to the strategic needs of the organisation will minimise employee dissatisfaction and resistance."
Knee-jerks
Whatever happens in the downturn, it's likely that labour costs will need to be reduced: somewhere, somehow. Even comparatively wealthy organisations will be able to see benefit in fine-tuning their wage spends.
In past recessions, corporate leaders have called on HR to initiate blanket workforce-wide measures. Ideas like automatic retrenchments, across-the-board salary cuts or rigid hiring freezes were the norm as recently as 2003. These knee-jerk reactions appeared to be the painful but necessary solution to bad economic news.
But unless the receivers are already knocking on the door, organisations do have time to think creatively about where and how any cuts are applied. And HR can save much money, productivity and heartache if it considers a strategic mix of options, then carefully implements the game plan. It needs to work with both present-day savings and future productivity in mind.
Eileen Ang, HR Manager, Royal Plaza on Scotts, says retrenchments are only being considered as a last resort. Instead, the hotel has moved to re-assign workers away from affected parts of the business. Front-desk workers, for example, have joined the food and beverage ranks while guest numbers are down. Ang says an added benefit of this is the flexibility it creates for brighter times. "The staff are being cross-trained in service operations," she says.
While many organisations will consider salary reductions, care needs to be taken to remain competitive in the labour market. Ang says the Royal Plaza has decided to forgo any increase in salaries at this time.
Cutting salaries or retrenchments are not necessarily mistakes, but experts warn they should be done on a case-by-case basis, rather than across-the-board. Good quality performance management systems are essential when it comes to such precision. Michael Drawhorn, Managing Principal, Malaysia & Singapore, with international researcher Towers Perrin, says accurate measures help to justify those unpleasant decisions. "Organisations that get (performance management) wrong at any time are going to have a problem," he says. "But it's worse during an economic down-cycle when you've got to make choices about how you reward and engage people. If you don't have the performance management infrastructure to do that properly then that gets translated into decisions that are either incorrect, or correct but perceived as wrong."
Forgetting retention
It's true that HR is all about the people. But sometimes those values can get set aside in the rush to complete some of the necessary transformations that are taking place in the downturn. The unemployment lines may be lengthening but HR needs to remember that real talents are still prized.
Stephen Tjoa, Executive Director of HR, KPMG, says any costs saved from ignoring retention will bite back over the longer term. "It is short-sighted to take one's focus away from retention," he tells HRM.
"Organisations must continue to invest and develop their key talents. It is even more important to do so during such challenging times as we need our best people to help us through the turbulence."
Once that storm has ended, organisations need staff that are ready, willing and able to take advantage of the new business opportunities. If retention efforts have lapsed during the downturn, staff could instead be looking for the first available exit.
"Our goal is to be equipped and prepared for the upturn as we believe that having the best talents is critical to effectively ride the waves during these difficult times," Tjoa says. "More importantly, it gives us the advantage of having a committed and high performing workforce when the environment is once again positioned for aggressive growth."