Bryan Finn, founding partner, Business Economics
The credit crunch is the defining event in the current economic cycle. It began with a housing slump in the US in spring 2007. It then developed into a global liquidity crisis in late summer and resulted in a financial crisis in the UK in the autumn, and a collapse in business and consumer confidence in the winter.
The good news is there are signs that the first phase of the credit crunch is over. But the damage to the prospects for the UK economy and for recruitment markets has been done.
The financial climate for 2008 is now set and it is much frostier than in 2007. The downturn will mean a squeeze on HR budgets and an increased emphasis on the retention of core personnel. Unemployment will rise and skill shortages will ease – although they won’t disappear altogether. Where skill shortages are the result of supply side constraints then these will remain. But skill shortages that grew because of buoyant demand will disappear. The war for talent will continue, but at a reduced level, and talent management will become more focused on retaining key personnel.
Wages growth will be moderate, especially in sectors where bonuses make up a significant proportion of pay benefits will be squeezed as more companies look to cut costs wherever possible and final salary schemes will come under even greater threat as companies seek cheaper ways to fund their commitments.
The squeeze on earnings, especially in the public sector, together with the cuts in benefits, will make wage negotiations more difficult and spark a rise in industrial unrest in those sectors where trade unions still exert influence.
The HR recruiter
Karlien Kloppers, senior consultant, FSS
So far, the credit crunch hasn’t had any major effect on HR recruitment. In fact, employment within the human resources sector is currently at a record level, with companies remaining optimistic about prospects for the year ahead.
Some of the large investment banks have indicated that HR will be busy this year due to growth in graduate recruitment, as well as an increased focus on learning and development – driven by the need to retain in-house talent and to further develop existing employees.
This is a good time for anyone building an HR career, as potential changes in the economy will present a variety of opportunities and challenges. For instance, an unstable economic climate may not affect HR specifically, but it will have an impact on business. We may see companies encouraging global mobility, with UK employees taking up secondment opportunities in emerging markets and foreign staff coming to the UK. HR teams should consider how this emigration and immigration will affect the profession, its workforce and their skills.
The Chartered Institute of Personnel and Development (CIPD) has predicted that job creation will fall in the private sector and there will be continued redundancies in the public sector. If this proves to be the case, the months ahead will be a key period for attracting talent as there could be more skilled professionals on the market.
HR professionals will find it useful to be on top of redundancy best practice, while ensuring that the rest of the workforce remains committed and motivated.
The public sector employer
Sian Thomas, deputy director, NHS Employers
Unstable economies are often characterised by growing unemployment levels, fear of change among employees, and a slowing of innovation and growth in the workplace.
At a personal level, employees may experience a sense of loss of personal security, and worse, a potential breakdown of the family unit resulting from debt and personal crisis as salary levels face downward pressures.
Employers may experience less confident workers, less flexibility, lost productivity and potential downsizing as an extreme result of financial instability generally.
When the going gets tough, HR can be a victim or part be of the solution. In the current uncertainty, HR needs to be working particularly closely with the business – assessing priorities and looking for ways to prepare for potential market downturn, or indeed, new export opportunities as the pound slides. It is a good time to do some workforce planning, keeping an eye on the broader labour market and retain a long-term perspective on organisational health.
In the short term, retention could be a key priority, and where reward is tight, it is a good time to revisit the psychological contract. What do employees value? And might options to buy additional leave, have a more flexible working pattern or development opportunities be acceptable alternatives to increasing the wage bill? Communicating with and involving employees in such discussions helps alleviate unnecessary anxiety and instils a sense of shared urgency in maximising performance.
Performance management processes may need to be revised to encourage line managers to set and review shorter-term goals to match changing strategies as the organisation navigates stormy waters. Extreme cases may call for more radical organisational change, and HR needs to prepare itself for the role it wants to play.
It may provide a good opportunity to undertake an HR skills audit. Identify relevant skills and ensure HR staff are not complacent. They should find ways to monitor morale, to support line managers and teams, to improve communication channels, and to keep themselves up to date.
The talent management technology specialist
Chris Phillips, senior director of international marketing, Taleo
Following recent events in the financial markets, a dark cloud has been cast over future economic growth. At times like these, some might think that this reduces job creation and makes candidates more plentiful, putting less emphasis on talent management. However, smart companies understand that proactive talent management happens regardless of market conditions and that the search for top talent is a continual process.
In leaner times for the domestic economy, organisations will still need to hire. Every workplace has turnover, and many will still be expanding in overseas markets such as China and India.
More candidates applying for each role increases the need for automated systems that identify the best applicants ahead of the competition. Many skills will still be in short supply as the UK workforce ages.
Forward-looking companies recognise that a tougher market can be an opportunity to strengthen their talent pool while competitors face cost pressures, thus emerging even stronger from a downturn.
Ultimately, lower spending means fiercer competition, and talent remains the best sustainable competitive advantage in good times and bad.
Steve Huxham, chairman, The Recruitment Society
The business world will need to be cautious or it could talk itself into a recession. HR directors have a role to play in this. It’s time for them to stand firm against calls from the top for a headcount review and possible recruitment freezes.
Those of us that have seen downturns or blips in the economy in the past know that a recruitment freeze is not the answer. When the market returns – and there’s nothing to suggest this will not blow over in six to nine months – organisations need to know they have the people in place to deal with new business, regardless of the industry or sector. Short-term action, such as looking to put a hold on recruitment, is a dangerous tactic. HR directors should be advising their management teams that a long-term view is more sensible.
Some industries that are already starved of talent should particularly look to the future. Skilled people who are made redundant now could decide to leave the sector completely, leading to an even greater talent shortage when the market eventually improves.
HR directors also need to guard their training budgets. This is another area for short-term and short-sighted cuts in a tight economy. Training and development is essential for staff retention and, given the skills shortage, now is not the time to lose employees to competitors that are continuing to recognise and invest in their greatest asset – people. Now is, however, a good time to invest in building networks and to seek out former employees who will need less time on the learning curve and be ready to hit the ground running when this minor blip is over.