Everybody knew that 2009 was going to be grim, but did HR rise to the challenges posed? Guy Sheppard asks the experts to give their end-of-term reports on a profession reschooling for recovery.
At the beginning of this year, three acknowledged experts from the worlds of academia, economics and workplace policy gave their views about how HR should cope with 2009. Then, the economy was in crisis and, for many in the profession, the need for short-term survival could have overridden their belief in tried and trusted practices. The experts warned against this, predicting the recession could be a great opportunity for HR to shine.
HR steps to recovery
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Nick Holley (pictured below left), executive director of Henley Business School’s HR Centre of Excellence, has completed six months’ research into how the recession has impacted on the profession, and what support it should give business during a recession.
Lessons not learned
He found the most depressing part of interviews conducted among a cross-section of 25 organisations was how little they had learned from the previous recession. “There were a number of people who found the question a revelation; they were so busy that they had not stopped to reflect,” he says.
Holley believes a core characteristic differentiating the HR functions that have responded well to the recession is “the ability to learn and constantly move forward rather than repeat mistakes again and again”. Other characteristics include flexibility in the face of change, coherence so that everyone is pushing the same agenda, and the discipline to follow through initiatives in a focused and cost-effective way.
“One of my observations is that the HR functions that are thriving and surviving are the ones that are focused almost entirely on the needs of the business, rather than HR fads that are not necessarily focused on those needs.”
Holley’s original prescription for coping with the recession was for HR “to be incredibly close to the business”, perhaps postponing long-term initiatives to ensure survival in the short term.
But he stresses this does not mean abandoning long-term thinking in the process. “One of the things I have noticed is that HR needs to be incredibly schizophrenic. If it does not respond to the short-term needs, it will have no voice and credibility.” At the same time, he believes the profession needs to ensure that the values and “moral compass” of the organisation are retained.
Will Hutton (pictured below right), executive vice-chair of The Work Foundation, is impressed with the level of flexibility shown in the workplace. “I do think, looking around the economy, you have got to say the number of innovative responses to this very severe recession, such as wage freezes and sabbaticals, has been extremely good.”
He says HR has been “bloodied” and has come through quite well, pointing to the removal or decline of ‘Spanish practices’ as examples of this. “You have to say: ‘hats off to them’.”
The John Lewis Partnership, Sainsbury’s, Tesco and Rolls-Royce are among the companies singled out by him for particular praise. “Where people have put in the spadework beforehand, trying to create a good working environment and investing in workplace relationships, they have reaped dividends.” For Hutton, retailing, business services and car manufacturing have done well, while transport and telecommunications have tended to suffer.
He finds the contrast between British Airways (BA) and Japanese car makers based in the UK illuminating. At Honda in Swindon, for example, workers have voted for a 3% pay cut over 10 months, but Hutton says BA’s demands for wage cuts have not been handled well. He argues that the car makers are reaping the rewards of treating their staff well, but for BA, achieving the cuts it needs is proving very difficult indeed, because “they have come late to the party”.
He adds: “I think this recession has shown that there is absolutely no substitute for employee engagement and for HR and line managers to come up with customised, localised deals that make sense to the local workforce.”
Impressed with IT
Holley is impressed with IT sector companies such as Cisco and Oracle, saying their HR functions have gained respect for getting the basics right and for employing people who approach their profession in a very commercial way.
Shell is also praised. “The company put a lot of effort into developing the commercial skills of its HR people. It’s their ability to be a really challenging partner with the business rather than sitting in an HR box reacting to what is going on.”
When Bryan Finn (pictured left), economist and founder of consultancy Business Economics, gave his forecast, he said the implications for recruitment were “profound and disturbing”. He urged organisations to think ahead to when the recovery started, warning against disbanding entire departments because it would take years to reacquire the skills and experience needed to run them.
His impression now is that this was avoided and that HR and business generally reacted sensibly to the downturn. “They are not cutting everything but thinking: ‘Where can we be more efficient and effective?’. People have not panicked – they have knuckled down.”
He believes the UK economy has followed the pattern that he and other economists predicted. “We were looking at a very bad first half of the year, and then for that to stabilise in the second half. It is a little bit early days, but it does look as if things are stabilising.”
Finn says a narrowing of the annual drop in house prices has been very important for the economy because so much of people’s wealth is tied up in their homes. He adds that the latest consumer and business confidence information is now showing “small negatives rather than the massive negatives that they showed before”.
He would be surprised if the recovery did not start in the third quarter of 2009, but points out that the trajectory may not be continuously upward. “While there is an accepted definition of when a recession starts, there isn’t one for when a recovery starts. You have to wait a while and then look back to be able to see successive growth.”
Hutton predicted that widespread layoffs and retrenchment would help make 2009 one of the most challenging years for HR since the Second World War. He feels his warning was justified, pointing out that the fastest fall in GDP since 1945 has been recorded, as well as the biggest quarterly rise in unemployment in the three months to May.
But he concedes that the economy has stabilised faster than anticipated. “One good thing that has happened is the extraordinary bounce in the stock market since the summer. I did not think that would happen until 2010.”
Holley says his research highlights how the impact of the downturn varied enormously, not only from business to business, but within larger organisations, from business unit to business unit as well. “For some it has been life-threatening and for others it has been totally irrelevant.” As a result, he says, the recession has lots of different meanings to different people in different organisations.
Finn believes the status of HR has been enhanced by the recession. “Generally, the impression you are getting is that people are reacting sensibly to looking at budgets, and the cost of people budgets are a huge part of that.” Continued investment in training by many companies helps reinforce this view.
But Holley is wary of talking about a general rise in HR’s status. “Too often, I see HR and other professions driving the agenda of their profession rather than the agenda of business. What I’ve seen is HR functions within businesses raising their profile and gaining respect and credibility when they’re worried about the business itself rather than HR.
“The goal shouldn’t be ‘how do I get to the top table’, but ‘how do I make a difference to this business’.”
Key challenges for 2010
- Finn says the challenge for HR is to think carefully about who they will need over the next year. “It means putting their teams together and getting the best people in rather than wait and risk losing them to their competitors. Now is the time they can get good people.” He predicts that the recruitment market will not start to pick up until the first or second half of next year. “You need economic growth of 2.25% or 2.5% before recruitment starts to go positive. The recruitment market will continue to fall until you get back to the long-running average growth in the economy.”
- Hutton says the outlook remains uncertain. “I think the best we can hope for is a bounce and then not much follow-through. The worst is a ‘w-shaped’ recovery, where we slide down again and there is a long, anaemic recovery.” He is adamant that 2011 and 2012 will be disappointing for the economy. He advises businesses to focus on their strengths, build a sense of purpose and look for “ultra-flexibility” in their working practices, adding that early, tough action will be necessary. “Don’t expect the economy to lift you off.”
- For Holley, the key for HR will be an ability to focus on the reality of each individual business because the recession affects them in so many different ways. “You have got to get down to the micro rather than the macro. Above all it is about how do we help business generate profitability, how do we retain our best people, and how do we continue to increase motivation and engagement of our people and the ability of our managers to help that.”