The Global Meltdown: An HR perspective
As the sub-prime crisis assumes a worldwide scale, many dimensions related to human resources gain centre stage. In line with this thought, this interview with Vasanthi Srinivasan, an Associate Professor in the area of Organizational Behaviour and Human Resource management at Indian Institute of Management, Bangalore attempts to delve deeper into the impact of the sub-prime crisis on the overall structure and culture of organizations with special emphasis on the policies for people and performance management. Further, this work aims at answering questions which currently perplex and affect Indian organizations and the Indian labor market.
What role do you think could faulty HR practices have played in the current financial crisis?
We have to do some soul searching when large institutions collapse. And this soul searching must be done at multiple levels, economic and regulatory. At the corporate level, HR practices are intended to keep track of both performance and compliance with regulations. We need to question the kind of incentive structures prevalent in today’s organizations as it is well known that high variable pay can influence individual behavior in the short term.
Since the concept of bailout plans completely goes against the idea of efficient markets correcting themselves, what is your opinion on government intervention?
We should examine the reasons for employees having a short term orientation for self-benefit instead of a long term orientation aligned with organizational goals. In my view, two terms which generally get left out while managing organizations are character and ethics. What characterizes human behavior is our ability to demonstrate ethical conduct. So far organizations have focused on growth but not on sustainable growth. We need to revisit some of our practices and eliminate oversight to make our growth sustainable in the long term.
I think this is an ideological issue. This issue involves the role of markets, market players and regulations in the market. When we look at global trade, we see that each country is in a different state of development as it is seeking the right blend of localization and globalization. As the US government intervened in the market mechanism through its bailout plan, it sent a clear message that there is indeed a role for government in the economy. This meltdown has brought bad news for an entire sector thereby forcing the government to protect people’s interest through intervention.
Do you foresee any salary restructuring happening at the global level? As less frequent hikes represent a challenge before HR managers in retaining employees, what practices can HR managers adopt to handle this issue?
At present we are clearly seeing a tightening of the belt. This can range from no increment to across the board salary cuts. Companies are withholding offer letters, promoting sabbaticals and reducing travelling expenses. Entire spectrum of managing costs is being employed by organizations. We may see severance as the next step.
What will be the short term and long term impacts on the Indian labour market in the wake of the financial meltdown coupled with the political shift in the US?
Right now, it is easy to retain talent given the market uncertainty. People know that it is not worth leaving an organization in these times. This should be treated as an opportunity by HR managers to revamp their practices, think in fundamentally different and innovative ways. They should try to create new workflows, promote process innovation and knowledge management.
The impact has been felt at multiple levels – the corporate as a whole, the employees and finally the entire society. The impact on multinationals is very unambiguous. The recruitment freeze has started, followed by a reduction in increments. There is some amount of restructuring happening and severance would be seen then.
All export oriented sectors have a double whammy – a suppressed demand and the currency fluctuations. One of the sectors badly hit is the garment sector and the handicraft sector. They are huge revenue grossers. In Thirupur, the industry has switched to a two shift operation. They have 60-70% women employees. The entire household suffers as these women are retrenched. Such factors have gone unnoticed. A lot of jobs that have been impacted are in the unorganized sector. They are neither legislated nor regulated.
The real people who are getting affected are these garment workers who work for the contractors in the supply chain. None of us have been either looking at or highlighting these job losses in the supply chain. There are a number of sectors which are affected or will be affected. But unfortunately, only a handful of them have drawn the attention of the media and the nation as a whole. Think about jobs such as housekeeping or cab drivers. The impact of the financial sector on the Indian labour market is opaque. On the outside, it doesn’t appear to be significant. But when you start unraveling it, the impact becomes visible.
How can HR managers in India tackle these issues?
I have three pieces of advice for the Indian corporate. First, treat this as an opportunity and not a problem. Find new and different ways of doing things. Secondly, step out of the traditional mindset that people have the least priority in our organizations as we have too many of them. Today, it is important to realize that people will continue to be a critical resource and it is up to you to find ways to keep people engaged and loyal.
Ma’m, you mentioned that the recent turn of events should be considered an opportunity and not a problem. Can this be an opportunity to change the way Indian firms are structured? Will Indian firms taken any action in this direction?
Thirdly, when the economy recovers, ensure that the organization remembers its learning from this experience. Learn to maintain a stability and balance and do not get lost in the euphoria of growth. It is important to realize that the strength for the good times comes out of those bad moments. The memory of organizations is very short. The challenge lies in keeping this memory going.
Right now, what can be seen is the pruning of the organizational structure rather than fundamental alteration. I believe this is not the right time for organizational restructuring. Some organizations are removing structural inefficiencies by keeping one reporting manager for many sub levels and merging levels or functions. This can further lead to closure of some functions and integration of departments, but a fundamental overhaul of the structure is unlikely. However, if there are cost inefficiencies, organizations may completely remove a layer, but I don’t see that as an explicit outcome of this crisis.
Will it also make the public sector companies revisit their practices?
The public sector, for some years now has already been revising its practices. There has been a recruitment freeze in PSUs. Besides this, they have outsourced many of their non-core activities. They may do some additional tightening and cost reduction but they have been headed in the direction of improving human resource practices for a very long time.
Given that a large percentage of the low skilled graduates in India are employed by BPOs, do you expect a surge in the unemployment rate in the country?
For instance, they have introduced the Voluntary Retirement Scheme and have stopped refilling positions after retirement to limit their staff figures. I can’t see a separate discourse for the public sector companies as I can see it for the private sector. The well-performing PSUs have been thinking and working on employee friendly practices for quite some time. I can’t see any obvious impact of the financial meltdown on the issues related to human resources.
In India, we have always reported the underemployment and unemployment rates together. In a country where there is such a significantly high rate of underemployment, it is very difficult to assess the impact of the financial meltdown on the unemployment figures, also because the absorption is primarily in the unorganized sector. The second issue to be addressed is whether the unemployment of the urban educated masses will increase.
Will the concept of outplacement1 work in the growing Indian economy?
Interestingly, I am not seeing as yet a significant amount of reduction in the BPO sector. Till today, there is not a single story of hundreds of people in a BPO losing jobs. A lot of BPOs are removing buffers and bench. They are very proactively trying to ensure that they have to lay off the minimum number of people. And lastly, if you see, the contribution of this sector to the Indian economy and as a percentage of the entire workforce of India is very insignificant.
Yes, I think it will definitely work well. Outplacement is meant to help the employees manage and handle the exit process well. There are different elements of outplacement and organizations practice it in different forms. For example, they could give the employee one month’s notice along with the severance pay for one or more months. Organizations may also counsel employees on the kind of job opportunities that they can get outside or they can give them reference letters. Some of these services leave the employee with a good feeling that their company is willing to vouch for them.
It is not about finding a job for the employee. The purpose is to make the transition process smooth and help him connect with a network of people. This makes the exit less painful. I believe that outplacement is something that large organizations must follow as an HR practice. People deserve the same amount of dignity, respect and care at the time they are made to leave the organization as they get when they are hired. It is an endorsement to the company’s value system.
The developments in the wake of the economic crisis call for a change in outlook and realignment of HR policies to focus them towards sustainable growth. At the same time, there is a lot to learn from the current circumstances. HR managers should consider this as an opportunity to improve processes and ensure that they remember their learnings from this experience. People are the key assets of any organization and it is in the interest of a company to adopt employee friendly policies and show due respect and care towards them.
From the interview
"We need to question the kind of incentive structures prevalent in today's organizations as it is well known that high variable pay can influence individual behavior in the short term. We should examine the reasons for employees having a short term orientation for self-benefit instead of a long term orientation aligned with organizational goals"
(On role of faulty HR practices in bringing about the current financial crisis)
"This should be treated as an opportunity by HR managers to revamp their practices, think in fundamentally different and innovative ways. They should try to create new workflows, promote process innovation and knowledge management."
(On policies which HR managers can adopt to tackle this challenge)
"The impact of the financial sector on the Indian labour market is opaque. On the outside, it doesn’t appear to be significant. But when you start unraveling it, the impact becomes visible."
(On the impact of the financial crisis on the Indian labor market)
"Learn to maintain a stability and balance and do not get lost in the euphoria of growth. It is important to realize that the strength for the good times comes out of those bad moments. The memory of organizations is very short. The challenge lies in keeping this memory going."
(Message for Indian HR Managers to help them sail smoothly in these troubled times)
Industry and Academic Opinion
"If you have a choice between a 10% wage cut and laying off 10% of the work force, why on earth would you choose the latter?"
Peter Cappelli, director of the Wharton Centre for Human Resources
"Markets for efficient organizations work only when they are allowed to correct and punish mistakes and mismanagement.... Some of the current examples of very large government bailouts are setting bad precedents for the future."
Eric Orts, a Wharton professor of legal studies and business ethics
"Downturns provide opportunities to gain market share, acquire weaker companies, and strategically recruit and retain top talent to position for the recovery"
Vasanthi Srinivasan is an Associate Professor in the area of Organizational Behaviour and Human Resource management. Her areas of interest are Performance Management; Team based Human Resource Management systems and International Human Resource management.
She has a Bachelors degree in Commerce from Bangalore and a Post Graduate Diploma in Personnel Management and Industrial Relations from XLRI, Jamshedpur. She worked with Wipro Limited before getting her Fellow in Management (doctoral degree) from the Indian Institute of Management, Bangalore. Prior to joining IIMB, she worked as a Human resource management consultant for four years.
The process of facilitating a terminated employee's search for a new job by provision of professional services, such as counseling, paid for by the former employer. The purpose of outplacement activities is to assist separated employees in coping with the pressures of termination while helping them to seek new employers