Role of Human Resources in Economic Downturn

The economy isn’t just growing all the time, there are times when the appetite to buy leaves us and growth slows or stops. There are times when the economy goes down and then there are difficult moments for many companies. All the plans fall apart and the company has to focus on saving itself to come into the next period of growth well prepared. How should Human Resources behave in a recession? What does the company need to work on to come out of the crisis in better shape than its competitors?

The role of Human Resources in an economic downturn is challenging because it must prepare the company for potential cost-cutting while at the same time not allowing the HR department to jeopardize growth opportunities. On the other hand, much of the big change happens in times that are not easy. The recession encourages companies to take more risks and it is also an opportunity to get ahead of the competition.

The role of Human Resources does not change dramatically in such a crisis, but it must be taken into account that most employees are concerned about their future at such a time. This means that the HR department needs to focus on other areas to provide employees with the support they need to get the whole organisation through the recession with as little damage as possible.

Employees need reassurance that their future is in their hands in particular. HR needs to encourage managers to talk to their teams constantly and gather useful feedback. Being supportive is a very important role.

What is HR’s role in times of economic difficulty?

This is a list of activities that a company and HR department must address during an economic crisis:

  1. promote morale and employee engagement
  2. regularly communicate news from the Leadership Team
  3. encourage innovation to save money
  4. support the accelerated implementation of change
  5. look for growth opportunities with others
  6. review and focus HR investment
  7. develop a Contingency Plan

Supporting employee morale is very important in a difficult situation. HR Managers need to take an active interest in the mood of the teams and give quick feedback to managers on where action needs to be taken. With good morale and an optimistic view of the future, all difficulties are better overcome. If the situation calls for it, the HR department must do a quick Employee Survey which can help identify weak areas and also employees can suggest changes that will help the company get through the difficult period.

When difficult times come, Employee Engagement is always under a lot of pressure. Suddenly, the conditions in which employees find themselves change. They begin to have doubts about the future of the organisation and are also concerned about their jobs. Human Resources needs to introduce activities to help overcome such a period and also focus on the area of Mindfulness and various short relatively fun activities so that employees also focus more on themselves and their personal development.

The Leadership Team plays a vital role and Human Resources must make sure that it regularly and truthfully communicates what state the company is in, what the outlook is and what activities the company is planning to come out of the crisis stronger. Often the Leadership Team relies on people not changing jobs in a difficult economic situation, but the best employees can afford to change jobs even when labour market conditions are difficult.

The best cost-saving ideas usually come from employees. Human Resources needs to come up with a plan to encourage employees to look for cost-saving opportunities and give them the freedom to try it out on a limited basis. Empowerment is a powerful weapon in tough times because employees can show their own initiative to help the company and can immediately see the impact in company results.

Change management is another important area. If a company does not start to change quickly in a crisis situation, it will weaken. It must actively implement change and needs the full support of managers and employees to do so. HR Managers must actively act as Change Agents in teams and support them in finding new ways of working.

HR must be an active part of the team looking for new opportunities for growth. The market cannot be expected to be the same after the recession and everything will continue. The market will change, customers will have different expectations and preferences, and the company must prepare for this in order to immediately resume growth. And Human Resources needs to help find opportunities and also start preparing employees for the new conditions. The Human Resources department must work on developing Skills and Competencies.

The HR Leader must review the list of investments in HR management. They need to identify investments that can be stopped, that can be done less expensively and adjust the overall timing. The HR Leader also needs to evaluate the HR Strategy and the HR Strategic Plan and adjust them to make both documents relevant to the current situation. And they need to act with deliberation, because not everything needs to be stopped immediately. There are investments that must be completed even in a difficult economic climate.

And finally, the HR department must create a plan in case the situation is worse than everyone anticipated at the beginning. They must have an HR Contingency Plan.

What is an HR Contingency Plan? What should it contain?

In a recession, you need to be prepared for all eventualities. While there is a plan for how to return to growth and how the company needs to change to make it stronger in a crisis. However, the crisis may be worse, longer or may affect the sector more than originally expected. That’s why it’s important for HR management to have an HR Contingency Plan in place.

What usually needs to be in such a plan:

  1. review open positions in detail and establish recruitment rules
  2. Identify new positions for further growth
  3. Revise the compensation structure
  4. Prepare several options for staff reductions
  5. Prepare a new organizational structure and a plan to change the organizational structure

Recruitment in a recession must be cautious, but at the same time it is not wise to declare a general recruitment freeze. This can undermine a company’s ability to grow. Positions that are in direct contact with the customer should not be cut back in order for the company to maintain the desired level of customer experience and customer satisfaction. However, recruitment rules must be established and opening a vacancy must be a relatively challenging process. This motivates managers to look for solutions other than hiring another person and burdening the payroll costs.

Following the company’s growth plan, Human Resources must determine what new positions will be needed and what the gaps in the company are. Based on this, the department can answer the question of how many and what new positions will be needed. And the department can also tell what the cost impact will be.

A recession is also often the point at which the compensation system needs to be analyzed and adjusted. During a long period of growth, new components are often added to the reward system, but nothing is eliminated. The system then becomes opaque and only makes it difficult for the company to support its operations. Simplifying the reward system is usually painful because employees lose some components and have to make efforts to achieve the income they were used to. However, if a company wants to make a successful reboot, a change in remuneration is necessary.

However, HR must prepare for bad news as well. And it is better to have a downsizing plan in place, even if it will not be necessary to use it. In a close working group, the Leadership Team must help identify several options based on the percentage of staffing reduction of the new ideal organizational structure. They have to keep the whole activity confidential, otherwise all the employees will become nervous and expect only the worst.

Along with the staff reduction plan, the entire change, its communication, timeline and the new organizational structure must be prepared. It seems like a lot of extra work, but it’s worth it. Even if it’s never used (and then it’s only a good thing), going through the detailed structure of all employees and making an assessment is worthwhile.