Economy -Srm Today's Business Environment

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. Challenges For most companies, demand is down as a result of the slumping economy. As a consequence, firms find themselves to be over capacity in terms of their human resources. As sales decline, the need to control costs becomes increasingly evident to management.

Steep declines such as this one make it difficult for organizations to hold firm on their HR strategy. Indeed, it has been shown that for an organization to successfully link SHR and performance there cannot be a deviation between the intended action and the real action (Khilji & Wang, 2006). If a firm fails to execute its plans, for whatever reason, it will fail to achieve its objectives. If it executes on its SHR plans, it will enjoy a positive and significant improvement in performance (Green et al., 2006).

With revenues declining, the temptation for management is to protect shareholder value at all costs. This notion leads to some unfortunate choices that only harm the company's long-run prospects. Indeed, few companies have ever saved their way out of a recession (Hsu, 2009). Either you are going to get through it or you are not, trimming a little fat here and there is not going to be a major factor. If one believes classical economic theory, the business cycle will bring another downturn sooner or later.

It is then reasonable to sacrifice during one downturn so that the company emerges stronger and builds on that strength going into the next downturn. Additionally, cutting talent during economic downturns eventually will prove a hindrance to the company as that talent will only need to be replaced later when the economic environment begins to improve (Manselli, 2009) One of the major challenges for SRH practitioners during economic downturn is to justify the added costs of their strategy (Mainiero, 1993).

Shareholders will naturally want the company to protect their investments, and too often this means in the short run. In the above Southwest Airlines situation, the decision to stick to established HR strategy was not taken lightly. The company knew there would be costs in other areas. Yet they were able to win support from their shareholders, largely on the strength of their track record of profitability. Firms without such track record, or with more militant shareholders, may not have that luxury.

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.