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HR Takes on Tough Times

August 31, 2001
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Related Topics: HR Services and Administration, The HR Profession, Downsizing, Featured Article
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Today, corporate America is not a place for the faint of heart. Between March2000 and March 2001, corporate profits plummeted more than 7 percent. This causedthe U.S. stock market to nose-dive, and today virtually all major stock indexesare down. Nervous investors are not only putting a hold on additional investmentsin public companies but are also -- for the first time since 1990 -- yanking significantamounts of money out of investments they already have.

    In an effort to stem the crimson tide of profit and investment losses, companiesare laying off workers at a rate not seen in almost 10 years. In fact, morethan 1 million job cuts have been announced so far this year, according to Chicagooutplacement firm Challenger, Gray & Christmas. The same number is reflectedin unemployment claims filed this year, the U.S. Bureau of Labor Statisticsreports. The agency says the number of employees affected by mass layoffs isup more than 40 percent from a year ago.

    If you are the kind of person who wears rose-colored glasses, you might regardthe economic woes as good news for human resources. After all, if companiesare laying off workers, maybe the end of the five-year labor shortage is athand. Maybe now you can turn your attention away from all those vexing staffingissues and relax for a little while.

    Oh, would that it be so.

    In fact, although the economy has come to a screeching halt and many companiesare having a tough time eking out a profit, there is still an enormous talentshortage in this country. Put these factors together and you have the recipefor a full-blown HR nightmare, complete with mixed messages, conflicting priorities,and a boatload of additional work. As Tom Casey, a partner with Unifi Network,a Boston-based HR consultancy within PricewaterhouseCoopers, explains: "Today,the top competency for HR professionals is how to deal with ambiguity."

    If you thought times were tough over the last five years, as HR grappled withrecruitment, globalization, rising health costs, increasing use of technology,and massive outsourcing of HR duties, brace yourself: things have just takena turn for the worse. Today, strategic HR is not an option. It's an imperative.

The ripple effects of an economic downturn
    So how bad is it out there? By the end of April, 64percent of companies throughout the nation had already made job cuts, imposedhiring freezes, and reduced new investments because of recession fears, accordingto a survey of 804 executives conducted by the American Management Association.Nearly half of those executives say their companies will not meet revenue targetsset at the beginning of the year. Worse yet, 38 percent of them think the economywill slow down further before beginning a recovery.

    Granted, the slowing economy has hit some industries -- e.g., technology andtelecom -- harder than others. But the overall uncertainty is causing all employersto tread lightly. "The marketplace uncertainty has gotten everybody's attention,"explains Jane Weizmann, senior consultant, Watson Wyatt Worldwide, based inWashington, D.C. "Even the more mature organizations are anticipating rippleeffects and are being very cautious."

    Indeed, caution seems to be the big buzzword today, as more and more executivesadopt a wait-and-see attitude. Two-thirds of them, according to the AMA study,have chosen to reduce spending and put business plans on hold. "Executivedecision-making has become a lot more conservative," Casey says.

This executive fear plays out in the workplace in a number of ways. First, thereis an increased emphasis on cash. "When companies have financial problems,there are only two things they can do: raise revenue or cut expenses,"says Barbara Yoli, principal, Change Results Consulting, Centereach, New York.Because it is hard to raise revenue now, she says, companies are looking atthe efficiency side of the equation. Weizmann agrees. "A universal issueis cost," she explains. "Cash is king. Bottom-line results are everything.All expenditures are being looked at very closely."

    The emphasis on cost-cutting has caused many companies to target one of theirbiggest line items: the cost of labor. Consequently, workforce reductions, whichwere common in the early 1990s, are once again making headline news. Companiesas diverse as Lucent Technologies, DaimlerChrysler, and Sara Lee have all announcedmajor layoffs in the last several months. At the end of May, almost 900,000U.S. employees had received pink slips since the beginning of the year.

Although to date many of the job losses in certain industries -- e.g., manufacturingand technology -- have been offset by job gains in the service sector, the factremains that mass layoffs tend to generate workforce anxiety throughout theeconomy. And when employees get nervous, they fight back, says Philip A. Miscimarra,a partner with Chicago-based Seyfarth Shaw and a senior fellow in the Centerfor Human Resources at the Wharton School. This presents another set of challengesfor HR.

    "In a recession, the threat of litigation is increasingly significant,"he says. "If there is an economic downturn, the areas that are going tobe especially active are age discrimination and sex discrimination, and sexualharassment."

     In fact, it's surprising how much of a correlation there is between the economyand new litigation. According to Miscimarra, the filing of new private civil-rightslawsuits plateaued at the beginning of 1997 and declined in 1998 and 1999.

     "Although you can attribute that progression to a number of differentfactors," he says, "one of the most significant causes of the plateauand decline is the opportunity for employees to vote with their feet, to getanother job instead of staying and suing." Because employees no longerperceive that they have the same opportunities elsewhere, the threat of litigationhas increased.

All this and a talent shortage?
    The last time this country faced recession and masslayoffs was the early 1990s. But there is a big difference between then andnow, explains Richard Wellins, senior vice president, Development DimensionsInternational, in Pittsburgh. "During the last downturn in the economy,there was not a talent crisis," he says. The labor supply -- with an unemploymentrate of 7.5 percent in 1992 -- was still bountiful.

    This time around, the situation is very different. At press time, the unemploymentrate stood at 4.5 percent, which, while up from last October's all-time lowof 3.9 percent, is still considered by economists to be close to full employment.This means that companies will continue to have considerable difficulty findingquality people for certain positions. While it may be easier for some technologycompanies to fill positions because of layoffs, the majority are going to havetrouble filling jobs for quite some time.

    This is due to a number of factors. First, according to the BLS, employmentin the United States is expected to grow by 20 million jobs -- or 14 percent-- between the years 1998 and 2008. This job growth will occur at the same timethat the number of available workers declines because of an aging workforceand a significant drop in the birth rate. Research conducted by the Hudson Institute'sWorkforce Center indicates that the over-65 population will increase 60 percentby the year 2020. During the same time, the number of 18- to 44-year-olds willincrease a mere 4 percent.

    The low unemployment rate, combined with retiring baby boomers and the dearthof replacement workers, means that recruitment and retention will remain ontop of HR's agenda for quite some time, despite the slowing economy. Sure, layoffswill be necessary in some sectors of the economy and in certain divisions ofsome companies, but employers will only be harming themselves if they eliminatetheir strategic staffing functions and revert to wholesale layoff strategies.

    "I think it is common knowledge now that downsizing alone is not a strategyfor business improvement," Weizmann says. "What companies need todo is look at scalability; that is, how they can flex down and up without losingmuscle and without losing thrust when they need it."

    "If an organization has a viable business case at all," Casey adds,"that business case would suggest that they need to continue to be alwaysrecruiting and selectively hiring even in times like this."

The impact on HR
    There's no denying the pressure HR professionals arefeeling. The focus on cost-cutting, the renewed interest in downsizing, thefear of litigation, and the ongoing unemployment situation are forcing HR tobalance competing goals in a number of areas.

    A year ago, HR was told to focus on aggressive recruitment and retention. Now,in some companies, HR is being instructed to downsize and redeploy.

    HR professionals are trying to be leaders, but nervous executives don't alwaysallow that to happen. In many companies -- especially those that are managinglayoffs or trying to avert them -- HR is juggling heavier workloads while alsodealing with its own staff cutbacks. At the same time, more and more HR professionalsare being asked to focus on downsizing and recruitment, which is not an easycircumstance to explain to nervous employees.

    Added to all this is the pressure that comes from within the HR departmentitself, over issues such as split loyalties.

    "There is a very strong inclination for people to pick sides and joinwith either workers or managers," says Dr. Arky Ciancutti, a physicianand CEO of Learning Center Inc. in San Anselmo, California.

All of these competing, contradictory messages mean that HR is not a very comfortableplace to be these days. But it is the tough times that test what we are madeof. Everyone can sail when the breeze is blowing in the right direction. Butthe true navigators also know how to advance in the deadliest of storms. Thekey lies in understanding the source -- and potential outcome -- of each stomach-churningchallenge.

    "Now is the time for HR professionals to work up a sweat," Weizmannsays. "They need to dig in and understand how their company's businessstrategy is evolving and what role HR plays in translating that strategy intooperational success."

    Simply stated, the current economic uncertainty means that HR professionalsare in a good position to finally move forward as strategic players in theircompanies. By combining knowledge about labor-force trends with an understandingof the company's strategic concerns, HR can steer through today's recessionarywaters without swamping the company boat. It won't be easy, but nobody eversaid the practice of human resources was.

Workforce, September 2001, pp.32-36 -- Subscribe Now!

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