The end result of the recent financial crisis has weakened the profits of financial services industries and thus they are not able to invest on a large scale. Nick Heath reports, “CB Richard Ellis found that not one bank or law firm chose to take up space in London, with new space split between approximately two-thirds retail and one-third technology.” (Heath 2008: 3) Thus, it is obvious that financial services companies are facing a great problem in the context of finance. The financial crisis in the UK is seen to fall into a full-scale recession. In its wake, it was found that a large number of about 20,000 jobs in the City were lost.
Credit rating agencies in London have drastically scaled down for job growth by almost 5 % after a correction in their initial estimate that jobs would remain static. Around 400,000 work in the financial districts of London. This would mean that the resulting 20,000 jobs lost caused the already depressed corporate property segment of the market to sink further on news of the scale down on jobs. Under this condition, the financial services industry had no other way but to consolidate the entire scenario by service charges and finance rates. One of the favorite modes of operation in cost reduction is outsourcing. (Heath 2008)
Under this circumstance, it was found that “Almost half (41 percent) of 70 financial services managers questioned in a survey by the Management Consultancies Association (MCA) and the British Bankers’ Association (BBA), expect to increase their current levels of outsourcing because of the credit crunch.” (Heath 2008: 2) Additionally, it was also reported that around 90% of the managers felt it was inevitable.
The fundamentals of operation thus show a drop in cost from the point of view of the industry. This, however, is not encouraging for the employees of the industry but the reduction of cost indicates the sustainability of the companies in the long term. This is backed by competition to sustain the existing financial service markets too. For this reason, the companies are competing to reduce charges and interests levied on the customers. But the worst suffers in this whole scenario are the employees. Thus it becomes important for the management to implement a human resource management strategy to consolidate the situation. (Kesler 1997)
The case of CompuWorks
CompuWorks, a London-based software company faces the same problem. Due to the continuous reduction of CompuWorks’ business profits, it has been evaluated and analyzed that the Department of Information Technology and the Department of 1-800 Helpline needs to discharge its employees. Over the last few years, it has been found that there is a gradual but sure decline in profit for the company. After evaluating the situation it was found that the increased workforce of the Department of Information Technology and the Department of 1-800 Helpline due to increased market demands during the 90s compelled the company to hire several employees into the Department of Information Technology and the Department of 1-800 Helpline. However, with decreased market demands these two departments are advised to discharge employees as their service would no longer be required by the company due to lack of potential market conditions. There were several measures taken that were not at all in favor of the employees.
To survive in the market the company is compelled to outsource its productions. It should be stated that the basic approach of the industry and the company is to sustain itself during the time of economic crisis. However, the crisis has resulted in an easier and cheaper mode of service for the users. On one hand, outsourcing has made it possible to sustain the industry and on the other hand reduction of price has enabled the industry to lure customers with added benefits. Thus, to survive the crisis it is necessary for the company to outsource and reduce costs so that the customers are pleased. At any cost, pleasing the customer is any company’s goal.
It has been calculated that a high amount of average annual salary of $55000, plus benefits are spent on the 50 employees of the Department of Information Technology, but in the given situation there is not enough production opportunity to support these employees. It is evident that the step would be beneficial for the company to sustain itself in the market.
The same is applicable for the Department of 1-800 Helpline answering customer questions about software and hardware concerns as the demands have fallen and there is a low need to answer such calls. It was found that on average the employees earn approximately $32000 annually and the company finds the amount quite high as there is a low requirement of employees in this department.
It was also found that each of the employees hired needed office space and office equipment. This led to facility expansion and additional costs of approximately $15,000,000. As a result, the increased salaries, benefits packages, and office equipment costs have hurt CompuWorks’ bottom line and the company is compelled to issue the Report of Employee Discharge.
The management planned to convey the employees about the decision. In an open notice it was stated that over the past decade the administration and the employees have worked together to achieve targets on time and make the company what it is today. However, due to the credit crunch and economic recession, the call of the day is to survive the period in order to develop in the near future. Given the situation it is clear that to sustain it is essential to maintain a cost reduction policy and for the purposed we are constrained to issue this discharge notice and look towards outsourcing options. The fundamentals of operation thus show a drop of cost from the point of view of the company.
This, however, is not encouraging for the employees of the company but reduction of cost indicates sustainability of the CompuWorks in the long term. This is backed by competition to sustain the existing IT service markets too. For this reason the companies are competing to reduce charges and interests levied on the customers. Thus, even under the conditions of crisis the ultimate beneficiaries are the customers of the IT services industry and this is our ultimate goal. However, once the crunch period is over we all hope that the company would start production in its original production rates.
But this approach was not appreciated by the employees and there was a brief commotion among the management and the employees. Thus, it is necessary to design a new approach that would be favourable for the situation. It is needed for the Human resource management to formulate proper strategy to counter such situations.
Approach of Human resource management
Management can be defined as the art of creating industrial relations of any kind, between people engaged in the industry, such as relation between employers and employees, relation between individuals entering into commercial contracts, relation between investors and debtors etc, in order to maintain true cooperation of all concerned. Efficiency of management lies in not only making the employees to work, but to make them work willingly, sincerely and consciously, by employing new knowledge, new methods, new designs, new machines and novel techniques of production and by allaying mistrust and antagonism. (Mathews 1998)
The Human Resources Management (HRM) purpose take account of a several activities, and the most important among them is making a decision what staffing requirements one have and whether to use autonomous contractors or take into service employees to meet these needs, appointing and training the most excellent employees, making sure that they are better performers, handling performance related problems, and ensuring that the human resources and administrational practices do the accepted thing to various set of laws. Actions also take account of supervising the steps taken towards employee benefits and reimbursements, employee accounts and personnel guiding principle. Where as the Strategic human resource management efforts to join together decisions about workforce in an organization along with the strategies formulated by for obtaining its cherished goal.
In addition to being a very important advocate to organizational mission completion, Strategic human resource management t is the eventual level of human resource management responsibility, while human resource management responsibility must set in motion with basic legal observance, it in due course encompasses all four levels of the management hierarchy, including being indicative of how human resource management advocates accomplishments of the organizational strategic goals. Research point towards those organizations that successfully arrange in a line human resources management with organizational mission completion do so by putting together human resource management into the organizational planning procedure, giving emphasis to human resource management activities that hold up mission goals, and constructing strong human resource and management relationships. (Lawler 2003)
As the Strategic human resource management aims at converging decisions about the employees with a prevalent apprehension about the objectives an organization is demanding to achieve, the increasing significance of competitive advantage and of the growing presence of multinationals has resulted in noticeable changes in strategic Human Resources Management (HRM) ideologies. Globalization has led employers to push for implementation of fewer directives of industrial relations, less standardization of the employment affiliations, and a greater focus on the workplace as the centre of gravity of Human Resources Management.
Of the three popular models in Human Resources Management, the global Human Resource Management model has the utmost coverage in international point of view due to worldwide growth approaches, degree of delegation, organization’s dimension and requirement for deportee reimbursement etc. Due to steady Industrialization and accelerating competition in market, today organizations have to face tough time to survive. These conditions also affect human resource (HR) strategy and policies up to a great extent. (Kesler 1997)
Such an environment gives rise to organizational conflicts. Such as conflict of power verses moral values, which include raising standards of production along with humanizing the workplace, Managerial prerogatives with ownership policies such as system, reliability, hierarchy, uniformity etc conflict with sensitivity, responsiveness, interactive ness, novelty and sub optimization. In this competition organizations are gradually loosing their ethnic values and morals. Today competence of an individual or a corporate is judged by his or her ability to cope up with constant fundamental changes in the organizational structure. All over the world, organizations aligning new products engineering teams around ‘pit crew’ model. Cross functional teams to design, manufacturing sales and service engineer’s work along with the workers, who at some point of time have stake in the product. This ensures manufacturing and sales people having their say all through the design process and building up the manufacturing capability early on that is currant engineering. (Lawler 2003)
The goals are simple, such as speed, equality and competitive price. Commodities have become international for most industries and the impact of engineering is significant. In many organizations, the learning curve in engineering has become an unaffordable luxury. Competitive pressures mandate finding ways to reduce the total time required to introduce new products in the market. Competition along with more complex production and distribution environments requires identifying and reducing necessary costs, such as costs associated with development, manufacturing, distribution and service. Working conditions in some industries are very hazardous.
The precipitation areas in industries have caustic vapours these cause skin problems. In some industries people work in fluoride environment. Continuous exposure to fluoride leads to a disease Fluoric in which bones and teeth are effected. In all these less attention is paid towards the interests of their workers, hence the relation between the management and the workers get seriously damage. Such circumstances account for greater need for application of Human Resources Management (HRM) in organizations. (Mathews 1998)
The new Strategic human resource management role is to be observed from the planned point of view in which Strategic human resource management plays a significant and very important role at the same time as scheming and delivering the human resource policies for the organization. The approach of human resource planning commotion is an end to segregation but very much associated to the policy of the organization as a whole. Delivering a planned impact, the human resource strategy is required to be in sync with the business goals and the schemes and procedures incorporated must also hold up by being indicative of the required domino effect. (Lawler 2003)
It can be concluded with that healthy relations between the management and the employees only can bring prosperity to the company. Thus the Human Resources Management (HRM) system is not simply about trade unions and industrial relations between managements and employees. (Mathews 1998) In fact it is a definition which portrays the projection and maintenance of understanding, togetherness, and essential values and ethics as accepted by both the management and the workers of the companies. In contemporary Strategic human resource management based on higher profit earning attitudes of the business authorities human resource has come to dominate and employees are again being viewed as a cost to managed rather than an asset to be effectively deployed. Thus it is basically a managerial frame of reference which does not easily bring itself together with companies or social positions which are distinctively more politically influenced. As taken from the examples of the ‘leading edge’ companies like BP, Glaxo, BT, Hewlett Packard, Citicorp, WH Smith etc, instead of all drawbacks in Human Resources Management (HRM) ideologies of management, it has numerous facilities. (Lawler 2003) Thus this approach could always be followed by the companies for finding solutions of their management-employee problems.
Heath, N. (2008) “Credit crunch boosts outsourcing”. Silcon.com. Silcon, Web.
Heath, N. (2008) “Credit crunch hits London datacenters”. Zdnet.co.uk. silicon.com, Web.
Kesler, G.C. (1997) ‘Implementing Major Change in the HR Organization: The Lessons of Five Companies’, Human Resource Planning, vol. 20, no. 4, pp. 26-37.
Lawler, E. (2003) ‘HR as a Strategic Partner: What Does It Take to Make It Happen?’, Human Resource Planning vol. 26, no. 3, pp. 15-31
Mathews, A. (1998) ‘Diversity: A Principle of Human Resource Management’, Public Personnel Management vol. 27, no. 2, pp. 175-183