Strategic human resources management during economic downturn

Economy -SRM

Today's business environment is characterized by a high degree of complexity and rapid shifts in conditions. This has placed increased strain on organizations with regards to their ability to meet their stated objectives. One response to this problem has been the development of strategic human resources management (SHR). The core philosophy of SHR is that it helps integrate the human resources function with the organization is such as a way that human resources supports organizational effectiveness (Becton & Schraeder, 2009).

The ongoing global financial crisis has had wide-ranging impacts on most organizations. Sales have declined, investment opportunities dried up and many firms have taken to laying off employees in order to cut their costs. The SRM plans that the organization may have crafted over the course of years can be scuttled with a few months of sluggish sales. Yet, some would argue that such a crisis is precisely the time when a well-executed human resources plan can set the foundation for long-run organizational effectiveness. A firm can take advantages of competitors' weaknesses in order to build a sustainable competitive advantage.

This paper will explore the concept of strategic human resources management, and place it within the context of the current global downturn. There is little hard academic literature with respect to the downtown, but the principles of SRM are not dependent on macroeconomic circumstance, and can easily apply to this situation. Indeed, doing exactly that is what will separate the organizations with effective SRM from those without.

Strategic Human Resources Management

There are several fundamental differences between SHR and the more traditional view of the human resources function. SHR is macro-level as opposed to micro, transformational as opposed to transactional, involves substantially more critical thinking, has a longer time orientation, is adaptive and innovation, and plays a major rather than a minor role in the organization's success (Ibid).

The core of SHR is the concept of the resource-based firm, with the workforce being a valuable resource that must be cultivated and nurtured. If managed correctly, human resources can become a source of competitive advantage (Birdi et al., 2008). Given that SRH is based on a long-term time frame and transformational practices, it therefore stands to reason that a company must be consistent in its human resources approach (Kepes et al., 2008). Thus, the approach of a firm that is engaged with SRH to economic crisis will be different than the approach of a firm not following SRH practices. It is from this difference that the competitive advantage to the SRH firm flows.

One of the most critical tests of a firm's commitment to SRH principles is economic downturn. Southwest Airlines famously uses -- very effectively -- SRH practices to win a sustainable competitive advantage in the U.S. airline industry. Even faced with the severe downturn in air traffic following the terrorist attacks of September 11, 2001, Southwest stuck to its human resources strategy, at the cost of substantial sacrifices elsewhere. It paid off, and the firm has been able to continue its run of profitability right through the crisis (D'Aurizio, 2008).

Economic Downturn

The typical response in times of economic downturn is to eliminate positions. This corresponds with both the Keynesian and classical views of economic downturns -- job loss is the expected outcome. The current crisis was precipitated by a credit crunch and the deterioration of bank assets in the U.S. And several other developed countries. The result has been significant increases in unemployment as firms reduce capacity in the face of declining demand.

The reactive nature of this approach is consistent with classical economic theory. Firms had for whatever reason accumulated too many workers and too much capacity. The layoffs we have seen over the past several months are a natural market reaction to being out of equilibrium. The SRH argument is to essentially break out of this cycle. Instead of basing human resources strategy on the immediate economic and competitive circumstances, firms should instead focus their efforts on SRH and build for competitive advantages in the future.

With each crisis organizations find themselves faced with numerous challenges and opportunities. The distinguishing feature of strategic human resources management is that this holds true in all situations. The way the SRH practitioners deal with economic downturn is consistent with this view.

Opportunities

Practitioners of SRH see economic downturn as the best opportunity to improve the firm's long-term prospects, for a couple of reasons. When unemployment rises, the available talent pool improves significantly. Thus, an organization engaged in strategic human resources management would stockpile talent during this period. There is no inherent need for this talent on a transactional level, but the talent acquired has the power to transform the firm in the long run. This is the reverse of the transactional, reactionary move to lay off workers during downturn.

In addition to stockpiling talent, SRH organizations can utilize economic downturns to surgically remove dead weight from the company. The difference between these and garden variety layoffs is that these are driven by long-term strategy, rather than by a need for capacity or cost reduction. The firm may even see a net gain, but the recession gives the company the opportunity to get rid of mediocre performers who can otherwise be eliminated. This is the transformational focus -- understanding which employees will carry the firm in the future and removing obstacles to their success (Schminke & McCormick, 2007).

Conclusion

It has been shown that the firms most likely to engage in this approach are firms that are already successful, and those that engage in long-term planning (Mainiero, 1993). The successful firms have the war chest, and often this was acquired through strong long-term planning. Thus, successful firms have the ability to build upon that success during economic downturns, which sets them up to be in an even stronger position when the next downturn strikes.

Works Cited:

Becton, B., & Schraeder, M. (2009, January). Strategic Human Resources Management. Journal for Quality & Participation, 31(4), 11-18. Retrieved May 5, 2009, from Academic Search Premier database.

Birdi, K., Clegg, C., Patterson, M., Robinson, A., Stride, C., Wall, T., et al. (2008, September). THE IMPACT OF HUMAN RESOURCE AND OPERATIONAL Management PRACTICES ON COMPANY PRODUCTIVITY: A LONGITUDINAL STUDY. Personnel Psychology, 61(3), 467-501. Retrieved May 5, 2009, doi:10.1111/j.1744-6570.2008.00120.x

KEPES, S., DELERY, J., & GUPTA, N. (2008, August). STRATEGIC HUMAN RESOURCE Management: A SYSTEMS PERSPECTIVE. Academy of Management Proceedings, Retrieved May 5, 2009, from Business Source Premier database.

D'Aurizio, P. (2008, November). Southwest Airlines: Lessons in Loyalty. Nursing Economic$, pp. 389,392. Retrieved May 5, 2009, from Academic Search Premier database.

Hsu, C. (2009, March). Turning the Downturn Upside Down. Semiconductor International, 32(3), 40-40. Retrieved May 5, 2009, from Academic Search Premier database.

Mainiero, L. (1993, August). Does hiring at the wrong time pay off?. Academy of Management Executive, 7(3), 80-81. Retrieved May 5, 2009, from Business Source Premier database.

Manselli, L. (2009, April). Managing Talent In Uncertain Times. Accountancy Ireland, 41(2), 54-55. Retrieved May 5, 2009, from Business Source Premier database.

Schmincke, D., & McCormick, D. (2007, May). The 5 dragons that can burn your culture & how HR can be your strategic weapon. Supervision, 68(5), 9-11. Retrieved May 5, 2009, from Business Source Premier database.

Khilji, S., & Wang, X. (2006, July). 'Intended' and 'implemented' HRM: the missing linchpin in strategic human resource management research. International Journal of Human Resource Management, 17(7), 1171-1189. Retrieved May 5, 2009, from Business Source Premier database.

Green, J., Wu, C., Whitten, D., & Medlin, B. (2006, April). The impact of strategic human resource management on firm performance and HR professional' work attitude and work performance. International Journal of Human Resource Management, 17(4), 559-579. Retrieved May 5, 2009, from Business Source Premier database.