Tackling the economic crisis - has HR learned from the past?

Talent engagement as a way to sustain business continuity and help organisations recover faster from the downturn

 

• HR priorities: downsize, but keep talent engaged
• Changes in the talent mix: internal talent identification and strategic hiring
• Changes in HR initiatives: talent engagement and talent development in strong focus
• Conclusion: HR has learned from the past

In March and April 2009, Hudson conducted a survey of over 500 HR and business leaders in more than 30 countries worldwide to explore how HR priorities and challenges have changed during the global economic downturn. Hudson’s study indicates that during this current economic crisis, the focus is not only on cost cutting through right-sizing, but also on talent engagement, talent development, and the retention of talent key to the organisation’s success.

 

Executive summary

Key findings:

• 'Right-sizing' – or getting the balance of the number of employees to volume of work right – is the top HR focus for organisations globally. However, hiring of newly available key talent and talent development programmes are also in strong focus in all markets.
• Between 2008 and 2009, there has been a clear shift in HR priorities from talent attraction to talent engagement, organisational development and people development - talent engagement is now the second highest HR priority.
• Organisations are using complex approaches to tackle the downturn by combining HR initiatives that focus not only on cost cutting, but also on the development and engagement of their talent. Their approaches send a nuanced signal in a gloomy environment.

 

HR priorities: downsize, but keep talent engaged

Over the course of the last 12 months, the priorities of HR professionals in major organisations across the globe have changed significantly. Unsurprisingly, right-sizing is a top priority in each region surveyed, but it is a positive sign of growing HR maturity that this instinct to restructure and downsize (see below) is balanced by an increasing focus on talent management in its many and various guises.

Our perspective:

• Companies must be careful not think in a linear way about reducing headcount (1st priority, mentioned by 36% of businesses across Europe); rather they need to take a close look at which people should stay.
• The results of our study show a high importance placed on talent engagement (2nd priority, mentioned by 23% of businesses across Europe) which could mean that many organisations understand that purely linear decisions are not the smartest way to proceed.
• The next phase of the crisis may see HR leaders placing even more emphasis on organisational development (3rd priority, mentioned by 18% of organisations across in Europe) and people development (4th priority, 17% of business in Europe) as organisations become aware that they have lost critical skills or re-deployed people into new roles that they do not yet have the appropriate skills to fulfil.
• Consequently, companies should attempt to reassess their talent mix sooner rather than later and focus their attention on top performers, high potentials, and 'irreplaceable' employees.
• Some organisations are maintaining headcount but the challenge is finding sufficient work for employees. We are seeing a number of companies investing in competency development programmes to make available time more productive.

 

Changes in the talent mix: internal talent identification and strategic hiring

Organisations across all regions are decreasing staffing levels in an effort to stay afloat. The recession has resulted in a global average of 79% of companies operating headcount freezes in 2009 up from 22% in 2008. Similarly, between 60% and 81% of organisations, depending on region, reported that their HR strategy now incorporates downsizing. An immediate reaction by many companies was to cut contractors as a way to stem discretionary spending. Initial knee-jerk tactics, such as ending contracts and freezing recruitment, were followed by more comprehensive cost-cutting strategies resulting in redundancies. Interestingly, a percentage of respondents in all regions still plan to increase staff. This can be explained in part by some sectors are still hiring and by the fact that 59% of organisations in Continental Europe and as much as 70% in the UK & Ireland are planning to make some strategic hiring of newly available key talent. It is also worth mentioning that internal talent assessment is a key focus in 2009 for as much as 61% of European companies.

Our perspective:

• As companies reduce staff, key talent becomes available and sought after. Where they have an opportunity to secure exceptional talent due to market circumstances, we have seen hiring freezes thaw.
• The depressed market sees organisations preying on competitors' highly skilled and experienced talent, who are difficult to recruit during better economic times. Companies need to address how to retain and engage this talent once on board.
• Star performers are, however, often staying put, because they are uncomfortable moving to an organisation that is unknown to them.
• Organisations have the opportunity to cull less effective employees from their work force while retaining an efficient organisation. A certain level of turnover can be beneficial for companies – the challenge is, of course, finding the correct level. This strategy can easily become counter-productive if handled badly.

 

Changes in HR initiatives: talent engagement and talent development in strong focus

After redundancies have been made, managers are likely to find themselves in more pessimistic work environments, while managing larger teams and additional functions with more tasks. As a result, organisations have been more resourceful in carrying out their HR initiatives. These include a strong focus on measures accompanying cost cutting initiatives, such as outplacement (up to 81% of organisations in continental Europe, vs. only 74% in the UK & Ireland and 50-71% in other regions of the world, which could be explained by the difference in legal frameworks). Other areas in strong focus include talent development programmes (66% of organisations across Europe)

Our perspective:

• It is important to consider that how exiting employees are treated during layoffs directly affects the engagement and mindset of those who remain. If a company reduces staff in a heartless manner, those who are left behind will feel even more anxious and will remember the treatment of their colleagues when economic conditions improve.
• While job security is more important than it was before the downturn, the question is how long will these people stay once the economy picks up?
• There is the belief among managers that employees will simply be satisfied to keep their jobs during tough times. However, job security is only one aspect of the psychological contract and employers must fully examine all facets to understand how to best engage their talent.
• In a downturn, the two-way deal between employer and employee takes on a different dimension because parameters such as job security or social atmosphere acquire a higher level of importance.

 

Conclusion: HR has learned from the past

We are seeing a learning effect from past crisis: organisations now realise that talent engagement is key and the challenge is the retention of their key people. These are as important as the right-sizing exercises. The economic recession will be followed by a talent crunch crisis. Businesses must recognise that short-term initiatives need to be balanced with longer-term thinking in order to guarantee continuity – and success on the other side.

Some organisations are taking into account that in order to secure the continuity of the organisation they should hang onto and invest time and energy in the retention of the most critical talent groups. We urge more businesses to follow this example.

A word of warning: we have found that many organisations look at retaining talent as their first challenge, then consider moving on to trying to engage all staff. In our view, this process should be reversed. If organisations invest in engaging their talent, performance will increase and retention will be a natural consequence. Engagement should always be a top priority for HR – but in difficult economic times, talent engagement becomes crucial for organisations wishing to endure.

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