Liverpool John Moores University

Impact of Economic Recession on

Human Resource Planning, Flexibility
and Recruitment Strategy

Submitted By:
Tom Jacob

Course Name: Master of Business Administration

Module Name: Managing Resourcing Strategy
Module Code: MGTPDM006
Submission Date: May 2009
Submitted to: Ron Bray
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 Contents
Introduction 3
Human Resource Planning 3
Reassessing the demand for work force
Retraining and relocating work force
Flexibility of the Workforce 4
Numerical flexibility
Functional Flexibility
Temporal Flexibility
Reward Flexibility
Locational Flexibility
Recruitment Strategies 5
Conclusion 5
Reference 6

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 Introduction
In the present day and age, most organizations consider their employees (human resource)
to be their most valuable assets. HRM can be defined as the management of people in such
a way that HR can in itself be a source of competitive advantage (Price 2007). A prominent
approach to HRM is the Harvard model, also known as the soft approach, which stresses the
“human element”. This school of thought argues that individuals, in right circumstances, can
be creative and proactive, values which can be used to the advantage of the firm (Anthony,
Perrewe & Kacmar 1996). Google, one of the biggest success stories of the present decade
can be viewed as a prime example of this approach. According to Google (2009) this means
“each employee is a hands-on contributor” to the success of the company.

Pinnington & Edwards (2000) argues that when organizations react (E.g.: Cutting Cost) to
changes in external environment, it will reflect in its’ HR policies. This can be new
employment patterns and/or a shift in employee-employer relationships (Sparrow &
Marchington 1998). This report tries to understand how an economic climate of recession
impacts an organization’s planning, flexibility and recruitment strategy.

As belts tighten and budgets get slashed, it is imperative that an organization gets it HR
strategy right so that it can retain its’ best and recruit the finest in the market. If played
right, recession can be advantage to an organization as far as its HR is concerned.

Human Resource Planning

Human Resource Planning is the process of analyzing and identifying the needs for and
availability of human resources so that the organization can reach its objectives (Bramham
2000). This is done by forecasting demand and supply of workforce and thereby identifying
the strategic gap. It is important to understand that winning strategies will take a long term
view of things. In a recession, the demand for work force will be low and the availability will
be high. This means that the bargaining power is with the employers. This shift of power can
be clearly seen when the normally resilient Union of American Workers relinquished its’
right to strike at Chrysler LLC (Bloomberg 2009)

Reassessing the demand for work force

In a recession, the demand for the products and, in turn, the demand for the workforce will
go down. The current automobile industry can be taken as an example. Ford, the car makers
have axed 2,000 white-collar staff (Telegraph 2009). But, as this lay-off will reduce
overheads in the short term, it may result in much heavier long-term costs. In the next
boom, the company will lose money on hiring and training new employees. In Ford’s case,
the reactive HR policy will lose them money in the long run. This also shows the importance
of demand forecasting using techniques like trend analysis. Toyota is one of those
companies who have not been forced to let its workforce go.

Recession presents an opportunity for companies to let go of ‘deadwoods’ and/or expensive

labour in their workforce. An option for companies is voluntary redundancies. Corus Steel

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 just announced that it aims to achieve 2500 job losses through voluntary redundancies in UK
(BBC 2009).

Reassessing the supply of work force

Many companies are using the recession as an opportunity to hire skilled personal (from
potentially larger pool) on the cheap. The Wall Street Journal (2009) reported that Microsoft
is hiring 3000 people even in these troubled times. This shows that the company is arming
itself for a boom which will follow the recession. IBM Corp., AT&T Inc., Yahoo Inc. and Time
Warner Inc. are among the companies who are adding to their workforce. Peter Cappelli,
director of the Centre for Human Resources at the University of Pennsylvania's Wharton
School comments that rather than retraining and relocating underused workers companies
are discovering that restructuring is faster attained by laying off and hiring.

Retraining and relocating work force

Retraining and relocating the work force can bring considerable productivity gains to a
company, as emphasized by UPM Raflatac when they announced that opportunities for
relocation within UPM as well as retraining will be provide to their current staff, in wake of
reports that they are planning to shift their production facilities to China (Graphic Repro
2009). This will also add to the flexibility of the workforce.

Flexibility of the Workforce

Peter Dickens (2004) notes that organizations with flexible workforce can react efficiently to
any environmental changes, with Toyota given as an example for a cross-trained and
multifunctional workforce (Liker & Hoseus 2007). This allows Toyota “to ride the ups and
downs of market without laying off permanent employees.”

Numerical flexibility
In the times of recession, numerical flexibility will give companies an alternative to expensive
redundancies. Temporary employees, especially, are easy to dispense off if not required. As
temporary and contract workers are used for peripheral jobs, it will not affect the core
business. Legal & General, the insurance company was able to lay off 260 part-time and
temporary workers without incurring serious redundancy costs. It is also noted that this
didn’t directly affect the company’s activities (Guardian 2009)

Functional Flexibility
It is critical that the core employees of a company are functionally flexible so that in a
recession, they can take over other jobs if and when the company lay-off its temporary and
contract workers. McDonalds is an excellent example as they train their staff on all kinds of
work which will arise in McDonalds at the Hamburger University (aboutmcdonalds 2009).
ASDA Superstores in UK is also a good example for functional flexibility through job rotation.
Companies should also strive for functional flexibility through job enrichment (vertical) and
enlargement (horizontal).

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Temporal Flexibility
If a company has a work force which is flexible in terms of time, it will be an advantage. This
will mean that the company can use its workforce to suit its production. Honda pays its
workforce a minimum wage if they are out of work (Swindon Advertiser 2009). This means
that the company retains the work force without a big overhead at difficult times.

Reward Flexibility
This type of flexibility will mean that the workforce will be rewarded for their excellent
performance which will lead to better profits for the company. Most financial institutions
offer its employees some sort of reward for excellent performance. Fujitsu have a long
history of using performance related pay (McKenna 2000)

Locational Flexibility
Locaional flexibility will lower the expenses for the company in the recession. Non core
activities can be relocated to call centres as done by the ‘3 Mobile UK’ who have switched
their customer service to India (Three 2009). Many companies now use technology to create
virtual conferences where the employees are at different parts of the world, but attend
meetings virtually. This can save the company on travel and organisational costs.

Recruitment Strategies
The recruitment strategy of a company will be one of the first things to change during a
recession. As recession can create a sudden abundance of technically proficient and
experienced candidates for every job, it is imperative that the top level management knows
the gaps in the current human recourses and recruit as necessary. The focus should be on
the recruitment white spots in the organization. It is also noted that the recruitment
marketing should be kept at the suitable level (hrmadvice 2009).

It would be beneficial for the company to look at medium to long term prospects and set the
recruitment strategy accordingly. Recruitment managers should be able to analyze trends
and predict demand in relation to the desired position the company looks to achieve when it
comes out of recession. This is evident in Microsoft’s recruitment strategy where they are
hiring highly skilled people for its’ online services (Wall Street Journal 2009). The same article
notes that Boeing is adding 106 employees to its defence arm.

Finally, any company who recruits in recession should be prepared to be inundated in

applications. This might stress the HR department. It might be wise to use a recruitment
partner or to completely outsource HR function in recession. This will allow the company to
retain focus in its core activities.

Conclusion
Human Resource Planning, flexibility and recruitment strategies will respond to external
environment. In recession, cost considerations will dominate the HRM strategy. But Human
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 Resource Planning and recruitment strategies should consider the long term prospects as
well. Right planning and recruitment strategies will take advantage of the recession and arm
the company with the best of the newly available talent. This will also be an opportunity to
shed the deadwoods in the company. This will enable the company to better position itself
when the economic climate becomes favourable again.

Reference
 Price, A. (2007), Human Resource Management in a Business Context, London: EMEA
 Bramham, J. (2000) Human Resource Planning, New York: Beekman Books Inc
 Pinnington A. & Edwards T. (2000), Introduction to Human Resource Management, Oxford:
Oxford University Press
 Sparrow P.R. & Marchington M. (1998), Human Resource Management: The New Agenda,
Pitman: London
 Anthony W. P., Perrewe P. L. & Kacmar K. M. (1996), Strategic Human Resource Management,
Orlando: Harcourt College Brace Publishers
 Dickens, P. (2004) Society & nature: changing our environment, changing ourselves, London:
Wiley-Blackwell
 McKenna, F.E. (2000), Business psychology and organisational behaviour: a student's
handbook, New York: Psychology Press
 http://www.google.co.uk/corporate/culture.html
 http://hrmadvice.com/blog/2009/01/19/recruitment-strategy-recession/
 http://www.telegraph.co.uk/finance/newsbysector/transport/2792902/General-Motors-
looks-at-more-redundancies.html
 http://news.bbc.co.uk/1/hi/business/7850596.stm
 http://www.three.co.uk/Home
 http://online.wsj.com/article/SB124198904713604533.html
 http://www.graphicrepro.co.za/asp/news_long.asp?nid=13409
 http://www.guardian.co.uk/business/2009/may/12/legalandgeneralgroup-insurance
 http://www.swindonadvertiser.co.uk/news/4363385.Honda_workers_set_for_pay_cuts/

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