Managing Employee Relations in the Event of a Financial Crisis
A Look into Management can Effectively Navigate through Adverse Conditions
Austerity Protests (Dowling, 2012)
Employee relations can often be a difficult aspect of maintaining the overall health of an organization. In general, employee relations often refer to the act of fostering productivity, motivation, and employee morale in an organizations human resources pool. However, there are some circumstances in which it is virtually impossible to maintain high levels of morale. One example of this is during a period of economic turmoil. During the global financial crisis of 2008, the world's economy took a sharp turn for the worse. This economic downturn had many implications for businesses and their employees. The level of unemployment rose quickly in many nations and pressure was also applied to lower employee wages.
In the event of such an economic downturn, it is difficult to maintain high levels of morale. During such a period uncertainty is often rampant at all level of the organization. Employees may have to constantly endure the stresses associated with their own perceived job uncertainty. This often puts employees in a defensive position and makes them hesitant to perform their job duties. This paper will examine some of the strategies that can be employed to help mitigate the challenges in employee relations that arise in an economic downturn. It was found that although there is no magical formula that can fix the messy situation, there are many things that can be done to ease employee fears and gain some sense of stability in the workplace.
During the event of a recessionary period, many organizations are forced to make tough decisions. Many of these decisions will be based on the industry in which the organization operates, the level of financial exposure the company has to the crisis, the company's culture, and even geographic dispersion can play a role (Landier, et al., 2009). It is generally assumed that once a company is faced with a financially turbulent environment that it will react by entering a defensive mode. Some of the first reactions often include freezing wages, stopping any new hires, cutting programs such as corporate social responsibility (CSR) programs and even marketing in some instances (Karaibrahimoglu, 2010). In a defensive position, most companies will look to cut costs across the board in a survival mode. Employees who are not critical to the organizational will also often be a source of expense reduction policies.
When budgets are been constantly scanned for any potential cost savings, there is a threat of job insecurity, unemployment and under-employment all threaten employee well-being and a level of economic stress quickly ensues (Sinclair, et al., 2010). Such a situation can make the contradiction and conflict between employees and employers more defined and exacerbated which can lead to situations of non-cooperative labor (Liu, et al., N.d.). There are even changes in the psychological contracts between different levels of the organization that can be studied (Metz, et al., 2012) Despite the immense challenges that can be present in such a situation, there are many opportunities to mitigate the damages imposed by the financial hardships. Furthermore, some progressive companies have actually used the recessionary period to their advantage in order to increase both revenues and market share. Apple and Tiffany's are two companies that serve as examples of how revenues can actually be increased in a difficult environment with a creative response. This paper will provide an overview of the economic conditions, some general strategies to mitigate the worst effects on employee relations, as well as provide a couple cases in which companies quickly adapted to their new environments.
Overview of the 2008 Crisis
The global financial crisis general considered to have emerged around 2007 and perpetuated in its worst stage until at least to at least 2009. However, the 2009 ending date is given does not quite tell the full story. This figure is rather subjectively determined and many argue that we still are not fully recovered as the recovery is not helping the economy rebound as quickly as most hoped. Arguably the crisis began in the United States and then rapidly spread to the rest of the world. The modern globalized economy has created an environment in which markets have become so dependent on each other that any significant developments in one market can spread its effects almost instantaneously to the other developed markets. Therefore, Europe, Japan, China, Brazil, and nearly every other advanced economy in the world quickly felt the effects of the crisis shortly after the recession emerged.
The root causes of the crisis are also far from clear. Although most economists seem to attest to the crisis originating, or at least being perpetuated by, by the United States real estate market. There is some argument however in regards to the reasons why this market developed a bubble in the first place. Some have explained the event as simply a result of the natural boom and bust cycle of a business cycle. Others have cited structural weaknesses to attribute the crisis's progression including such factors as a trend of deregulation. Still others point to the development of new financial tools such as derivatives that were designed to distribute risks more evenly yet were overly complex and hard to effectively manage. Whatever the exact cause may be, there is one key factor that definitely affects employee relations and that is that no one really saw it coming. There was literally no time to prepare and many companies act reactively by downsizing there organizations. This lead to an overall business environment plagued with uncertainty, which caused a majority of employees in fear of their job security. Unemployment skyrocketed to nearly its highest levels in half a century.
Figure 2 - U.S. Unemployment during the Recession (BLS, 2012)
Recession and Employment Relations Strategies
In the event of a recession, this generally shifts the power dynamic to the employers favor even if the industry is unionized and collective bargaining efforts are present (O'Dowd, 2010). Managers, stakeholders, investors, and employees all have a stake in seeing the company adapt to the environment and generally the employees have a heightened sense of compromise. However, this can often be meeting by tougher employer tactics as employers are quick to implement cost savings measures. Although this can be devastating to employee morale, such measures are justified by the greater good of the organization.
Even though many organizations use the recession as justification to implement many cost cutting measures they should balance their measures with maintaining employee relations. In fact, during hard times is actually when employee relations can be the most influential in the company's recovery (QSR, 2012). If an employer goes overboard in their cost reduction measures, then this will likely lead to employee dissatisfaction, negative perceptions, and higher-employee turnover. All of these factors can have significant implications for the company's bottom line. Therefore, in many cases the cost saving measures that are imposed lead to a situation in which they actually cost the company more than the company saves.
Although there is no correct answer as to how to handle human resources during hard times, there are several considerations that can help improve situations. One tactic that can help employee relations is to keep the employees actively and perpetual engaged during the entire process. If an employee is actively engaged they are likely to feel comforted by the fact that they are not subject to complete uncertainty in their company roles.
Finding Success in a Recession
There is absolutely no better way to improve employee relations in the event of a recession than to find a way to use the downturn to your advantage and grow the company. One of the main obstacles is that consumers and businesses generally have less disposable income available for shopping. A recession adds a level of uncertainty to the economy which generally makes people reduce their willingness to purchase and major goods or services. Yet some companies actually thrive during a recession. Quickly adapting to the changing circumstances and keeping the employees engaged can be the key factor in crafting a successful crisis strategy. Although competition is elevated and prices are generally down during such a time which reduces margins, creative companies overcome these barriers by understand their customers and the external environment.
During a recession, the consumers become obsessed on bargain hunting (Business and Marketing, 2009). For example, companies like Aldi naturally thrive in such a market because they are positioned as a low cost leader retailer. However, other retailers have to work much harder to lure consumers into their realm. Many successful strategies include some kind of "free" item. Consumers who are inundated with uncertainty often find comfort when they perceive they are getting a bargain. For example, a movie theater can offer free popcorn with a movie ticket sale to draw in consumers.
Price and its relation to perceived value is also an important factor in times of recession. Although the low…