Challenges_of_Human_Resource_Management_in_a_Depressed_Global_Economy

CHALLENGES FACING HUMAN RESOURCE MANAGEMENT (HRM) IN A DEPRESSED GLOBAL ECONOMY Introduction Among the prominent features and effects of the current global economic crises is the collapse and closures of world leading financial institutions and manufacturing industries; some of whome are, by the scope of their operations, regarded as multinational corporations. (MNCs) Local companies, irrespective of their organizational sizes are also affectedas some of them too either colapse or close-down. For others, who neither colapse their size and scope of operations nor close-down, various management and administrative decisions are taken with a view to significantly reducing their cost of operation. One of the immediate reasons often given by such ill-fated organizations (beyound the larger global economic and financial crises) is their inability to sustain their usually very large work force or their inability to keep remunerating even the smallest population of labour required to keep them in business. The ensuing economic and financial crises has also forced businesses to adopt very tight operational financial budgets part of which adversely affected staff remuneration and other related expenditures. Consequently, colapsing companies; who can still manage to run their organizations skeletally lay-off a significant percentage of their work force while those who virtually liquidate or close-down lay-off all their entire staff. Others who neither reduce labour force nor lay-off their entire staff have embarked on salary-cuts, reduction or nonpayment of special allowances, reduction, suspension or outright stopage of various human resource development programmes and projects like training etc, reduction or stopage in recruitment of new employees and the overstretchin of existing labour both in time and task. As the current global economic depression stretches on, HRM scholars and practitioners, and indeed stakeholders in both the private and public sectors have been woried on the challenges these consequences pose to the sustainability of organizational productivity at both the private and public sectors. Nonetheless, as we observed above, it is safe to hypothesize that the fundamental challenge posed by the global economic crises is broadly that of a crises of 'corporate finance.' Our understanding of corporate finance is here defined as the process of income, revenue, investment or fund generation by the corporate organization and the process of expenditure of same both for profit (in the case of business organizations) and nonprofit (in the case of most public or governmental organizations). Also we assume that there are strong linkages between corporate finance and human resource managemen such that an alteration in the former will induce corresponding changes in the latter. Although little has been done in terms of literature on this subject, scanty articles dot the internet and local dailies; providing basically general analysis of specific cases which are more often than not those of the developed economies. Masahiro Abe and Takeo Hoshi, (2004) provides a comprehensive study on the relationship between corporate finance and HRM using selected Japaneese private companies as case studies. Masahiro Abe and Takeo Hoshi pointed out that corporate finance and HRM are two prominent aspects of the process of corporate governance. According to them, "When one takes these broader views of corporate governance, it becomes clear that a system of corporate governance consists of various sub-systems. For example, corporate governance certainly includes institution that governs the relation between managers and financiers (including both shareholders and creditors). In addition, corporate governance also includesthe system of human resource management, which controls the relation between management and labor. Other institutions that regulate the relation between managers and other stakeholders, such as customers, suppliers, and sometimes local community in general, are also parts of corporate governance." As Aoki (2001) points out, the various aspects of corporate governance are not combined randomly. Corporate governance is a system in the sense that these various sub-systems are integrated to reinforce each other. For example, financial arrangement that heavily relies on the market for corporate control in disciplining the managers may work better with human resource management that puts less emphasis on firm specific skills and on the job training than an alternative that stresses firm specific skills that are acquired on the job. Jackson (2004) find close correlation between the corporate finance and labor management practices at country level. Some studies examine the linkage by comparing different firms within a country. For Japan, for example, Ahmadjian and Robinson (2001) find that the firms with high foreign ownership and low bank ownership are more likely to downsize their workforce. Also using the firm level data from Japan, Abe (2002) finds that the firms with close main bank ties adjust their employment only slowly. Although none of the literatures cited above relate their discussion to any trend of economic depression, (whether local or global) their observations that corporate finance impacts significantly on HRM validates our hypothetical assumptions. Further more, their acknowledgement of local and foreign sources of finance provides necessary justifications to assume that economic depression of whether local or global magnitude will inevitably cause a shrink in income, revenue or fund generation by corporate organizations; meaning that less finance will be available for expenditure on all corporate activities including HRm. In the succeeding sections of this paper, we provide conceptual definitions of the two major concepts: human resource management and global economic depression respectively. While avoiding the temptation to limit the scope of HRM to the notion of unemployment, (as contained in most available literature) we provide explanations to demonstrate the relationship between the global economic depression and the challenging task of HRM. Finally, we raise suggestion as to how HRM practitioners in particular can overcome any challenges posed by economic depression. Global Economic Depression In economics, a depression is a sustained, long-term downturn in economic activity in one or more economies. It is a more severe downturn than a recession, which is seen as part of a normal business cycle. Considered a rare and extreme form of recession, a depression is characterized by its length, and by abnormal increases in unemployment, falls in the availability of credit, shrinking output and investment, numerous bankruptcies, reduced amounts of trade and commerce, as well as highly volatile relative currency value fluctuations, mostly devaluations. Price deflation, financial crisis and bank failures are also common elements of a depression. (Wikipedia encyclopedia 2009) There is no widely agreed upon definition for a depression, though some have been proposed. In the United States the National Bureau of Economic Research determines contractions and expansions in the business cycle, but does not declare depressions.[1] Generally, periods labeled depressions are marked by a substantial and sustained shortfall of the ability to purchase goods relative to the amount that could be produced using current resources and technology (potential output).[2] Another proposed definition of depression includes two general rules: 1) a decline in real GDP exceeding 10%, or 2) a recession lasting 2 or more years.[3][4]. Although the Panic of 1837 was an American financial crisis, it was the first of all forms of economic depressions in the modern age. It was built on a speculative real estate market [7]. The bubble burst on May 10, 1837 in New York City, when every bank stopped payment in gold and silver coinage. The Panic was followed by a five-year depression[7], with the failure of banks and record high unemployment levels. (Wikipedia Encyclopedia, 2009) The Long Depression, known at the time as the "Great Depression", was the first of all known global depressions. It lasted from about 1873 to 1896. [6] It affected much of the world and was contemporaneous with the Second Industrial Revolution. Another significant depression was that which occured in the 1920s. Also known as 'the Great Depression', it affected most national economies in the world throughout the 1930s. This depression is generally considered to have begun with the Wall Street Crash of 1929, and the crisis quickly spread to other national economies.[5] Between 1929 and 1933, the gross national product of the United States decreased by 33% while the rate of unemployment increased to 25%. The probable causes of the Great Depression include the loose money policies of the US Federal Reserve and the misallocation of capital based on easy and inexpensive credit. A long-term effect of the Great Depression has been the departure of every major currency from the gold standard. The current global economic and financial crisis of 2007–2009 had been noticed since 2000 when series of economic problems surfaced during the latter part of the year. This period is regarded as 'the Late 2000s recession.' However, the actual impact indicators of the current global crises began in July 2007[1] when a loss of confidence by investors in the value of securitized mortgages in the United States resulted in a liquidity crisis that prompted a substantial injection of capital into financial markets by the United States Federal Reserve, Bank of England and the European Central Bank.[2][3] The TED spread, an indicator of perceived credit risk in the general economy, spiked up in July 2007, remained volatile for a year, then spiked even higher in September 2008,[4] reaching a record 4.65% on October 10, 2008. In September 2008, the crisis deepened, as stock markets worldwide crashed and entered a period of high volatility, and a considerable number of banks, mortgage lenders and insurance companies failed in the following weeks. A common claim during the first weeks of the financial crisis was that the problem was simply caused by reckless, sub-prime lending. However, the sub-prime mortgages were only part of a far more extensive problem affecting the entire $20 trillion US housing market: (Wikipedia encyclopedia, 2009) the sub-prime sector was simply the first place that the collapse of the bubble affecting the housing market showed up. The ultimate point of origin of the great financial crisis of 2007-2009 can be traced back to an extremely indebted US economy. The collapse of the real estate market in 2006 was the close point of origin of the crisis. (Fratianni, M. and Marchionne, F. 2009). The failure rates of subprime mortgages were the first symptom of a credit boom tuned to bust and of a real estate shock. But large default rates on subprime mortgages cannot account for the severity of the crisis. Rather, low-quality mortgages acted as an accelerant to the fire that spread through the entire financial system. The latter had become fragile as a result of several factors that are unique to this crisis: the transfer of assets from the balance sheets of banks to the markets, the creation of complex and opaque assets, the failure of ratings agencies to properly assess the risk of such assets, and the application of fair value accounting. To these novel factors, one must add the now standard failure of regulators and supervisors in spotting and correcting the emerging weaknesses. (Fratianni, M. and Marchionne, F. 2009). For many months before September 2008, many business journals published commentaries warning about the financial stability and risk management practices of leading U.S. and European investment banks, insurance firms and mortgage banks consequent to the subprime mortgage crisis. (Evans-Pritchard, Ambrose (2007-07-25), (Torbat, Akbar E. (2008-10-1), (The Economist Newspaper Limited). 2008-05-22) and ((The Economist Newspaper Limited). 2008-05-15) Beginning with failures caused by misapplication of risk controls for bad debts, collateralization of debt insurance and fraud, large financial institutions in the United States and Europe faced a credit crisis and a slowdown in economic activity. (Bajaj, V. (November 20) and (The Independent (November 6, 2008) The crisis rapidly developed and spread into a global economic shock, resulting in a number of European bank failures, declines in various stock indexes, and large reductions in the market value of equities (Norris, Floyd (2008-10-24)and commodities. (Evans-Pritchard, Ambrose (2007-07-25) Moreover, the de-leveraging of financial institutions further accelerated the liquidity crisis and caused a decrease in international trade. World political leaders, national ministers of finance and central bank directors coordinated their efforts (The Financial Times, September 18, 2008) to reduce fears, but the crisis continued. At the end of October a currency crisis developed, with investors transferring vast capital resources into stronger currencies such as the yen, the dollar and the Swiss franc, leading many emergent economies to seek aid from the International Monetary Fund. (Landler, Mark (2008-10-23) and (Fackler, Martin (2008-10-23). We summarize the causes of the global financial crises to include: activities of central banks, Commodity bubble, Sub-prime lending, Deregulation, Over-leveraging, credit default swaps and collateralized debt obligations, Boom and collapse of the shadow banking system, Systemic crisis and the Growth of the housing bubble. The general and most prominent implication of the current crises has been a global liquidity crises; (also knwon as 'cash crunch') resulting in the inability of financial institutions to sustain themselves and to provide adequate financial support to other economic and business activities at both domestic and international levels. Similarly, several investors lost their funds as a result of the global crash-in values of equity stocks; discouraging investors confidence in company equities which would have served as alternative source of financial capital for businesses in the event of rapid financial failures among financial institutions. Human Resource management (HRM) Human resource management (HRM) is the strategic and coherent approach to the management of an organization's most valued assets - the people working there who individually and collectively contribute to the achievement of the objectives of the business.[1] The terms "human resource management" and "human resources" (HR) have largely replaced the term "personnel management" as a description of the processes involved in managing people in organizations.[1] In simple sense, HRM means employing people, developing their resources, utilizing, maintaining and compensating their services in tune with the job and organizational requirement. Its features include: Organizational management Personnel administration Manpower management Industrial management[2][3] But these traditional expressions are becoming less common for the theoretical discipline. Sometimes even employee and industrial relations are confusingly listed as synonyms,[4] although these normally refer to the relationship between management and workers and the behavior of workers in companies. The theoretical discipline is based primarily on the assumption that employees are individuals with varying goals and needs, and as such should not be thought of as basic business resources, such as trucks and filing cabinets. The field takes a positive view of workers, assuming that virtually all wish to contribute to the enterprise productively, and that the main obstacles to their endeavors are lack of knowledge, insufficient training, and failures of process. HRM is seen by practitioners in the field as a more innovative view of workplace management than the traditional approach. Its techniques force the managers of an enterprise to express their goals with specificity so that they can be understood and undertaken by the workforce, and to provide the resources needed for them to successfully accomplish their assignments. As such, HRM techniques, when properly practiced, are expressive of the goals and operating practices of the enterprise overall. HRM is also seen by many to have a key role in risk reduction within organizations.[5] Synonyms such as personnel management are often used in a more restricted sense to describe activities that are necessary in the recruiting of a workforce, providing its members with payroll and benefits, and administrating their work-life needs. So if we move to actual definitions, Torrington and Hall (1987) define personnel management as being: “a series of activities which: first enable working people and their employing organisations to agree about the objectives and nature of their working relationship and, secondly, ensures that the agreement is fulfilled" While Miller (1987) suggests that HRM relates to: ".......those decisions and actions which concern the management of employees at all levels in the business and which are related to the implementation of strategies directed towards creating and sustaining competitive advantage" HRM financing is one other prominent aspect of corporate management. HRM Practitioners are often required to adopt the most 'cost effective' management approaches to the delivery of workable HRM policy to their organizations. In today’s economic situation, cost cutting may be the best strategic stance and direction a business can take. The role of the HRM in this situation is has a paramount importance. On one hand, "his simplest role is probably communicating clearly to the rest of the organization about this program, and or educating them on its importance in business survival. More so, it has the responsibility of training employees on various processes and practices cost cutting schemes." http://www.blogcatalog.com/blogs/hrm-business-practices-and-notes/posts/tag/finance+manageme nt/ On the other hand, "the HRM is expected to lead strategically in cost cutting campaigns. Workforce planning and organizational ‘streamlining’ are very critical in this respect, because they both contribute greatly to organizational cost effectiveness and only for temporary financial relief to the business but in the long haul." http://www.blogcatalog.com/blogs/hrm-business-practices-and-notes/posts/tag/finance+manageme nt/ When the organization’s hierarchy is audited or assessed, resulting in reduction of line supervisors and/or manager, these are not only reduction in payroll expenses but could also encourage self-managements, initiatives, and multi-skilling of the orphaned reorganized units. This results into having more multi-skilled, more productive, more flexible, more confident, less supervised, and more efficient employees and organizational units. Especially, when these efforts are highlighted, recognized, and/or rewarded. In the end, these ultimately result in immediate as well as long-term cost cutting and productivity improvements. Global Economic Depression as a Challenge to HRM From the foregoing, we have variously incinuated the implications of the current global economic depression to the general life of any business and/or corporate organization. We have also identifed the particular implication that it has on HRM; being a prominent aspect of corporate governance. At this point, for the purpose of reiteration, we only neet to indicate that with out finance, no organization will survive. all organizations need finance to procure all factors of economic production and activities: land, capital, labour and interprenur. While the interprenur takes the initiative to start the organization and even after securing land and other forms of capital he still requires labour to operate (work) on the land and use the capital in the most effective and efficient ways possible. With out labour, there can't be life in any organization. It is through labour that organizations realize their objectives. This is why the success or failure of any organization depend largely on the quality of labour it has. In the face of tremendious improvement in the quality of knowledge and skill available to labour, organizations strive to shop for labour staff who are reachly endowed. Organizations attempt to induct staff to suit their work standard through series of training. They also seek to retain these staff in order to maintain stability and save cost of labour. Organizations also strive to induce (motivate) their staff through various social and economic welfare packages so as to stimulate better performances under little or no supervision. These processes of staffing is highly dependent on several factors one of which is the state of the organization's finances. In the current situation of global economic crises, organizations have been comfronted with limited sources of loanable and investable capital. They have also had to contend with dwindling sales and productivity as financial institutions and stock markets experience serious financial crises; and as the purchasing powers of people generally falls below minimum levels. While several business and public organizations have completely closed down, those who still manage to continue operations have had to adopt very tight financial policies that will drastically reduce spending in all spheres of corporate endeavours. Consequently, HRM, being a major corporate process have had to contend with significantly poor funding to carry out all its functions. Often times, interprenurs, despite the negative global financial situation, still place high expectations on their managers and staff to deliver high productivity. HRm practitioners, have, in the light of tightening HRM budgets, had to contend with the challenges of sustaining high productivity with out continuous staff training, withdrawal or reduction in welfare insentives, delays and/or reduction in regular salaries, reduction in labour force, making choices between cheap poorly skilled staff and expensive high quality ones as well as over-stretching existing staff in time and task. Remedies to the Challenges of Human Resource Management in the Face of Global Economic Depression Ask anyone if employee development is important and you'll hear, “Of course!” Ask if identifying high-potential employees is important and you'll hear the same response. But ask many organizations about their employee development plan for 2009, and you’ll learn they have backed off considerably because the economic crisis is constraining resources for employee development. However, in the face of these crises, employee development remains the only alternative for HRM practitioners in both the private and public sectors. Since more hands can't be recruited, adopting the best knowledge and skills required to enhance a 'cost effective' corporate governance culture is inevitable. Employee Development and Business Competition When we constrain employee development, we constrain the ability of the business to successfully compete. The good news: In a resource-restrained economic crisis your competition is likely shrinking its product and employee development. The bad news is if you do the same you lose a powerful opportunity to gain the market share your competitors inevitably leave on the customer’s table. Maximizing Resource Investment requires Employee Development Aberdeen Research conducted a timely study in 2008. The results show that best-in-class organizations employ three strategies to maximize resource investment: increase employee engagement, align employee developmental processes with organizational objectives and focus existing human resources assets on employee development. Aberdeen reports 33 percent of best-in-class organizations comprehensively address their employees and that employee engagement is the driving factor for success of these businesses. The paradox of growing the organization for the future while protecting it in the present affords human resources leaders the powerful opportunity for engaging in the business of the business and making the case for employee development. Create conversations in the executive suite that acknowledge the reality: An organization’s capability is directly related to the collective capacity of its employees to innovate and execute. Human Resources Drives Leadership Development Human resources managers must engage executives in developing comprehensive strategies for leadership excellence at all levels that drives business innovation and excellence of execution. Quickly advance the conversations to identify the two or three most powerful employee development approaches. These should consume minimal incremental resources while resulting in rapid employee development. For example, how do human resources professionals lead in order to drive innovation up the organizational hierarchy' Or what is required to create an environment of reasonable risk taking for the business' What are the best approaches for driving effective employee development and succession planning for key tactical positions' How can you expand a high-potential employee’s span of control or key job requirements for business growth while fostering leadership development along the way' The objective is to focus employee development energies on leadership processes that position the organization to out-compete the competition. Aligning Employee Development with Business Goals Little is more powerful in the organization than a strategic human resource focus. It maximizes the organization’s resources, aligns employee development with business objectives and engages the energies of the workforce in the success of the business. With clarity of developmental strategy and focus, the human resources executive’s role shifts from the traditional management of developmental resources to providing executive mentors guidance and assistance. Human resources mentors engage with high-potential employees in key roles on business-critical projects. In the process, human resources executives are preparing other leaders to provide outstanding mentoring. External resources to these executive mentors can provide a high return on investment. Coaching that enables the executive to mentor leadership development across the organization becomes a long-term investment. It is a force multiplier, enabling the faster executive development and delivery on business goals as a byproduct development. Employee Development Requires Conversation What conversations are currently occurring in your organization relative to strategic employee development' If few to no employee development conversations are occurring, how can you catalyze them' If employee development conversations are occurring but are not focused on the strategic, how can you reward the effort while redirecting the energies' If the organization has a strong employee development process in place, how can you drive executive engagement in investing most in those with significant short-term gain and high overall ROI' What can you do to get the process of employee development started' REFERENCES http://www.nber.org/cycles/recessions_faq.html http://www.infoplease.com/ce6/history/A0821657.html http://www.economist.com/finance/displaystory.cfm'story_id=12852043 http://businesscycles.info/recession-definition/ http://www.english.uiuc.edu/maps/depression/about.htm Outliving a long depression, money.cnn.com http://www.politonomist.com/history-of-economic-recessions-00273/3/ Retrieved from "http://en.wikipedia.org/wiki/Depression_(economics)" Wall Street Journal. 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