Global economic conditions have gone from bad to worse in a hurry. Human Resources professionals are shifting their focus to adapt to the new situations and challenges that companies are facing in the people management area.

The European Commission report about workforce states that, “The slowdown has started to affect the labor market as well, which has performed very well in recent years. The labor market situation is expected to deteriorate sharply next year. Employment is expected to increase by a meager ¼ million jobs in the EU and ½ million in the euro area over the period 2009-2010, compared with the 6 million new jobs that were created in 2007-2008 in the EU. As a result of the decline in employment, the unemployment rate is expected to increase by about 1 percentage point in the next two years, to some 8 percent in the EU and 8.75 percent the euro area by 2010, with increasing differences across Member States”.

The consequence of this slowdown

European car manufacturing companies such as Nissan and Renault, much like their US and Japanese counterparts, have decided to reduce the number of employees they have in their production lines in order to adjust to the drop in demand. It has been announced that reductions in headcounts will be made on a temporary basis as predictions show a slow recovery for most economies by 2010 . Many of these companies’ vendors will consequently need to reduce their production levels as well, thus having to adjust their staff to the new lower production demand. Huff, Pirelli and TNT among others are affected by this domino effect.

And this trend is visible not only with the European car manufacturing companies, but also with other European manufacturers, like Burberry and Marie Claire, who have decided to close some of their factories and offices around the world. The same trend is also noticeable across other industry verticals in Europe such as pharmaceutical (MSD España) and chemical businesses, construction companies, bike manufacturers, financial entities, etc.
In addition to dismissing employees, firms are also offering special severance packages for those employees interested in leaving the company voluntarily. Additionally, companies are offering pre-retirement packages for those near the age of retirement.

The questions which arise in this connection are: How can businesses chose which employees to let go through one of these redundancy programs? Should it be understood that ‘good performers’ will not be allowed to opt for these types of programs while the ‘low performers’ will be able to leave and receive the package? How can companies make those ‘good performers’ stay in the business, feel motivated and loyal to the organizations?

Voluntary termination plans need to be defined very thoroughly and carefully. Any such plan should ensure that the key people for the business do not feel attracted by the possibility of leaving the company but at the same time, do not feel penalised for not being able to apply for the package on offer. Managers and HR professionals need to ensure that the internal communication within the organization is designed and divulgated to achieve this aim. The communication will be also need to be different for those employees that will be affected by the voluntary termination plan and those that the organization wishes to retain.

In addition to the risk of losing key employees, massive dismissals may also mean a great loss of know-how. Specific succession and development plans should be defined prior to the start of the restructuring process. These plans should ensure that termination of the most experienced people and specialists does not cause a loss of knowledge that could be critical to the business. Several companies have experienced their customers changing service providers, once key professionals who were managing the relationship, moved to other companies.

Are companies doing what is needed to overcome this situation? Are they really taking the right actions in line with their business strategies? What happens with the loss of knowledge capital when the employees leave? How are companies communicating these decisions internally and externally? What about the image of the company after such a restructuring process? And last but not least, what happens to the morale of the remaining employees after these restructuring plans take place? Broadly, companies appear to be giving only a short sighted message to all these programs: the message going is that ‘it is all just a question of cost savings’. However, research has shown that if a lay off program is poorly executed, while the market may initially respond with a jump in share value, investors are likely to lose all of those gains, and sometimes even more.

Even in the current economic global situation, companies may soon find talent scarcer than funding. To tackle this challenge, companies must consistently and deliberately communicate their value proposition and identify new talent pools, both internally and externally. In order to enable talent affiliation, organizations need to implement appropriate development programs, leadership improvement plans and efficient work-life balance policies.

Conclusion

The Commission for Employment, Social Affairs and Equal Opportunities best sums up the solution to the present-day problems:

Each actor – government, enterprises, employees and their representatives – has its role and responsibility in times of crises. These roles must be clear and should be rehearsed in advance so that implementation runs smoothly and efficiently. Public authorities, at all levels, must not stand in the way of change. One of their main roles is to lay down the rules of the game and to help organize cooperation and partnerships at local levels. (…) The management of change at the territorial level must be achieved through a joint effort on the part of all those active in the territory, under the aegis of local authorities. The objectives of the authorities must be to enable all those involved to act coherently, in a way that anticipates change, and to transform an overt crisis into a sustainable strategy for redevelopment. The guiding principle for companies is to be competitive and profitable while living up to their social responsibilities.

As for the people, they must be ready to adapt to the new economic environment – crisis period could lead to lower salary ranges – and focus on their own professional development, always emphasizing that today, it is their knowledge and know-how that make them valuable to the business.