“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.
For example, to avert compulsory redundancy organisations in the automotive industry utilised a range of measures in which to reduce labour costs. Vauxhall introduced the concept of ‘down days’ where during times of low production, shorter working weeks were conducted. Vauxhall paid their workforce their salary, and still offered overtime when appropriate. However, their predominant method for efficiency saving was by banking hours so that once production increased; employees could return to work and carry on with work as normal. Similar performance management initiatives have been implemented by both Honda and Toyota who closed their production lines for a period of time until there was demand for their services. This provided an opportunity for government intervention and the commencement of the scrappage scheme to increase demand. Vauxhall’s UK workers face a two year freeze in a bid to save £265m. Employees across the United Kingdom will not receive their regular increase which comes on top of a 5% pay cut and 10% cut in overall working hours which were implemented six months ago. (HR Magazine, 2009)
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.
In the telecoms sector, organisations such as BT have streamlined their business and reduced the overall size of the workforce by eradicating contractor and temporary staff. Although redundancy remains a potential threat to the engagement of employees, by preserving existing roles and retaining existing BT Staff, greater job security and confidence was created amongst employees (Source: Material taken from the CIPD Research insight document ‘Organisational responses to economic challenge). Employee engagement is vital for all organisations as their committed effort and knowledge will support the organisation to meet their objective. (Organisation response to Economic challenges, 2009) “Those not made redundant, may experience effects such as guilt, lower motivation and commitment mistrust and insecurity.” (Cited Thornhill, 1997).
During cost saving exercises, individuals who continue to be employed may have little job security and motivation. Frequent communication with employees is imperative with confidence low in the external business market, communication and consultation can result in employees giving suggestions to management regarding increased productivity and reduction in costs. It also reminds employees that their opinions are sought and valued by Senior Management. However, the most important aspect of communication is honesty. If feedback is not given regularly or consistently, it is pointless. Staff would rather be told that there haven't been any developments rather than not receiving any information at all as it can create a feeling of mistrust.
Performance management is viewed as one method in which to improve employee engagement and can help to focus individuals and teams. “To gain employee commitment which is central to the achievement of positive organisational outcomes such as high quality goods and services which are at the heart of organisational performance” (Cited Guest, 2000, p289). Through continuous appraisal, line managers are aware of substandard and high value performance. By having performance management, organisations are able to identify training needs and retain staff through engagement. Unlike in previous recessions, organisations have not cut back on training and development as it is viewed as a business critical need in which to build a long term sustainable performance. Although training and development has not been sacrificed as a result of cost cutting, it has bee targeted at managers and individuals where there is greatest potential.
Training is viewed by HR professionals that continued investment in individuals will give the organisation a greater competitive advantage in the long-run. With cost cutting being implemented, organisations have had to review rewards and benefits. Training and development has been seen to provide individuals with further commitment to the organisation although training has been limited to management and director level in technical skills and leadership management. National express are an organisation who have been affected by the economic downturn and have been forced to make redundancies of approximately 750 staff, although there is likely to be more redundancies to follow. (Dan Milmo, (2008), Guardian, 27-Feb-2009). With the threat of further redundancies and with a nervous workforce, National Express have continued to train and develop their managers. With the redundancies the organisation is aware that they are losing key talent and as such are training their managers in ‘recruitment behaviour’ so that when the recruitment freeze ends, they can recruit and promote the best managers. In addition, National Express has recently opened three training academies in the past two years giving them a total of five training academies within the United Kingdom.
The human resources policies and initiatives implemented have been based on the short-run and long-term aspects and benefits.
Human Resources departments in the car manufacturing industry were not only the first to react to the economic down turn but have also placed themselves in a strong competitive position in the long-term. Although the UK economic down turn continues, it was hoped that recession would end in the latter stages of 2009 and be in positive growth like other countries such as France and Germany. However, recent statistics indicate that this is not the case and the UK remains as the last major economy to remain in recession.
In the short-run, organisations have had to reduce costs and maintain the productivity of the organisation through the engagement of employees. Any changes which have been made since the downturn will have a direct impact on the culture of the organisation and their sustainable organisation performance in the future. Japanese auto companies have led the way in producing smaller, more fuel efficient cars which have been purchased by an increasingly cost conscious consumer. Honda and Toyota’s large investment in research and development have been successful with the first mass market hybrid vehicles. When the recession ends, Japanese companies will be in a strong competitive position than when it began.
Initiatives employed by organisations during this current time of uncertainty will no doubt play a significant role in the organisations’ long term culture. Providing the initiatives are communicated with staff and continue in the long term even after the end of economic downturn, organisations will not only have a strong internal culture but also a sustainable organisation performance.
References
Textbooks:
Gold, B. &. (2007). Human Resources Management: Theory and Practice. Palgrave Macmillan: Basinstoke: Palgrave.
Mckenna E. & Beech N. (2008) Human Resource Management A concise Analysis. Second Edition. Prentice Hall/Financial Times: Essex
Price, A. (2007) Human Resources Management in a Business Context, third Edition, Thompson: London
Torrington, D, Hall, L. & Taylor S (2002) Human Resources Management, fifth edition, Prentice Hall: Essex.
Huczynski A & Buchanan A (2001) Organizational Behaviour: An Introductory Text, fourth edition, Prentice Hall: Essex.
Journals & reports:
Research insight (2009), Organisation response to Economic challenges. Chartered Institute of Personnel Development.
McKinsey Global Survey Review (2009) Economic conditions snapshot.
Interviews:
HR Trends (2009) John Philpott, Jackie Orme, Alex Wilson, Liane Hornsey, CIPD Podcast
Websites:
HR Magazine, Debbie Hearnden (15 October 2009) Vauxhall's UK workers face two-year pay freeze Available from: ) Date accessed 01 November 2009
Guardian.co.uk, Danmilmo (27 February 2009) National Express chief comes out fighting as recession grips railways. Available from: Date accessed 01 November 2009
