Economic downturn

Identify and critically discuss the impact and responses of HR departments to the current economic downturn. To what extent have these responses been effective? Over the past year a number of issues have arisen with the economic down turn around the world, this report concentrates on the effect that the economic downturn has had on organisations and the reactive measures and initiatives employed by human resources departments in the United Kingdom. It is important that HR departments are aware of the external macro economy so that they can plan sufficiently in which to compete effectively in the free market.

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Human Resources department are playing a significant role in the performance of organisations and implementation of strategies to focus on immediate survival. Although some organisations are in a strategic holding pattern waiting for market conditions to improve other organisations are experiencing stages of rapid expansion and growth. Despite organisations having differences in objectives it is estimated that 74% of companies are reducing costs. (McKinsey, 2009).

Due to this human resource policies must remain consistent and drive forward the need to retain and engage talent so that organisations have a competitive edge when the recession ends. Since the previous recession in 1990 the United Kingdom economy has changed its emphasis away from industry towards service and knowledge-based economy, heavily reliant on the banking sector. In the tougher economic climate. It is vital that Human Resources Management are aware of the external business market so that they can react to changes that occur. It is vital that costs can be controlled and employee skills grown and nurtured for future capacity.

Surplus labour must be streamlined and at times reduced without having a major impact on employee engagement or organisation performance. It is evident that the employees of an organisation are vital to the survival and growth of the organisation through their willingness to deliver their expertise. With the success of the organisation being reliant on people, human resources departments have had to implement strategies which not only support the business objectives in the short-run but also have the correct mix of people capital for sustainable organisation performance in the long run.

“Cost reduction is extensive across all organisations with unnecessary spending being reduced. Compulsory redundancy is viewed as an effective tool in which to reduce organisations costs. ” (Bratton & Gold, 2007). Organisation have been using alternative initiatives in which to reduce costs and retain employees such as re-deployment into other areas of the business, reduced working weeks, flexible working as well as voluntary redundancy and early retirement.

Compulsory redundancy conflicts with the characteristics of the knowledge based economy as it views that people are an organisations’ most important asset. Despite this, compulsory redundancy remains an important tool as organisations streamline their business. “Downsizing by reducing staff numbers is seen by many organisations as a means of improving efficiency, productivity and overall competitiveness” (Cited Cross ; Travaglione, 2004, page 208). During times of uncertainty, compulsory redundancy is relevant to organisations with employees who are performing poorly.

Although a conflict arises with the characteristics of the knowledge economy organisations are required to increase efficiency and productivity in times of uncertainty by encoring high value working. Although compulsory redundancy can play a part in reducing the number of staff and ultimately a reduction in spending, there are alternative methods. If the HR policy of an organisation is pro- active and engaging, then they are more likely to utilise alternative methods of cost reduction than compulsory redundancy these methods can range from job sharing, voluntarily reduced hours or on a wider scale, job evaluation.