6 HR lessons from the economic downturn

Thoughtful talent management during a downturn separates good performers from the ordinary, says Kanika Datta.

If there is any one compelling example of poor human resource management in a downturn it is the fiasco over the dismissal of Jet Airways cabin crew members in October 2008 and the abrupt reversal of that decision.

This much is obvious to almost any HR manager. But the Jet Airways imbroglio, which went on to acquire political dimensions, provides a misleading idea of HR responsibilities when the going is bad.

Indeed, managing talent in a downturn involves much more than just handling downsizing and cutbacks sensitively. It's about putting together an integrated strategy that will stand the company in good stead. "It's important to take long-term perspective," says P M Telang, managing director, India operations, Tata Motors.

Creatively designed HR polices during the bad times "truly differentiate a company on performance," adds N Sankar, executive director, PricewaterhouseCoopers (PwC), "because in good times, most companies swim with the tide."

Here are six lessons culled from HR managers and corporate chiefs in industries that bore the brunt of the downturn.

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1. Transmitting the red signals

The standard HR axiom is that communication lies at the heart of talent management at all times. During a downturn it becomes a critical tool.

"It's important to send out strong signals so that employees understand that management is not panicking and taking knee-jerk reactions," says PwC's Sankar.

For starters, this entails stepping up communication at all leadership levels to squeeze out the rumour-mongering and misinformation. Managers down the line, thus, need to be briefed on the message. At Genpact, which derives the bulk of its revenues from the US and Europe, economies that shrank in 2008 and 2009, the top management sat together and worked out a plan so that, as Piyush Mehta, senior vice-president (human resources), puts it, "we set the right expectations in an unambiguous way".

This involved, among other things, using the regular town hall meetings that enabled CEO Pramod Bhasin to answer employee queries and allay apprehensions. To the same end, leaders down the line also increased the "frequency and intensity" of communication. Mehta himself started an internal blog to communicate to associates. 

If the frequency of messaging is vital in bad times, tone and tenor also matter. The question, as Mehta puts it, is "How much reality do you take back to your associates?"

Tata Motors' Telang suggests that it's a question of transparency. "Maintaining morale is certainly an issue," he says, "but it's also important that the organisation must be made fully alive to the realities of the business."

For Tata Motors, which operates in the bellwether business of commercial vehicles that takes the first hit when economic growth slows, this meant doing more than getting the senior leadership to talk more often to people down the line. It also involved signalling via action. "We made sure that the top management walked the talk," says Telang.

As part of this exercise, the company's top 15 executives voluntarily took a 10 per cent salary cut. Although the move was not publicised, it helped build what Telang calls "good alignments with people". Other moves like encouraging senior management not to stay in hotels when they travelled may have been symbolic gestures but they prompted "everyone to think tightly".

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2. Employees as cost cutters

Indeed, filtering the message of cost-cutting through an organisation is a tricky business since it inevitably generates rumours and, as management thinker Rosabeth Moss Kantor wrote in an article titled "13 Unlucky Mistakes in Managing Traumatic Change", "potentially destructive rumors take on a life of their own".

Genpact took a creative approach to the problem by turning it into an opportunity to align its employee base -- a mammoth 37,000 people -- more closely with the message. It created an initiative called "I Think" via the intranet asking its associates to suggest ways of cutting costs. The effort not only yielded results of some practical value -- suggestions ranged from cutting back the use of paper clips to issuing only soft copies of bonus letters to save paper -- it also "made people feel empowered," says Mehta.

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3. Wielding the big axe creatively

Still, when markets slow down and customers either exit or decline to raise prices, management cannot escape the big reality of cost cutting. "Your first instinct is to start looking at costs," admits Anoop Bhasin, chief operating officer, United Lex, a legal process outsourcing company based in Gurgaon. 

The problem then becomes one of priority: What costs to cut and what to leave intact? Yet, as Sankar points out, "job cuts should be the last resort". Corporate chiefs agree -- but that still leaves the issue of employee costs to tackle.

Tata Motors demonstrated one approach. In 2008, as demand for commercial vehicles, which account for roughly half its sales, tracked steadily downwards, the company opted for block closures of its commercial vehicle plants in Jamshedpur, Lucknow and Pune to match production to demand and prevent an inventory build-up. Employee salaries were not, however, cut during these closures. Instead, half the closure days were credited to leave -- employees could choose between lopping it off privileged or casual leave -- and the remaining days were written off. 

Of course, such closures are typically part of the management's agreement with the unions. But in this case, a spokesman says, the unions actually extended support by allowing closures beyond the contracted agreements, a demonstration of employee alignment with the business problems of the day.

Some companies have found that thinking differently is often the key to small successes. In general, companies say they chose to focus on squeezing costs as much as possible before turning to salaries and allowances for cutbacks. Obviously, small things add up to big gains -- such as replacing car services with bus services, as Tata Motors did, to lower transport costs. But there's also the need to weigh cost-saving measures against morale.

In United Lex's case, for example, the management took the contrarian decision not to cut back on providing air-conditioned cabs for its employees, a perk it had introduced in 2008. Instead, says Bhasin, the company decided to negotiate harder with service providers and equipment vendors to pare communication costs, so that the company remained "cost neutral". "We decided that the consequence of having employees unhappy because of such cutbacks was outweighed by such costs," Vijay Srivastava, the company's vice-president (human resources), explains.

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4. Performance counts

For HR managers, a downturn is not an unmixed blessing compared with the nightmare of high attrition levels and the constant challenge of finding quality replacements when the economy is growing fast. Attrition levels drop and "employers no longer need to pay through their noses for talent," as Sankar puts it. United Lex, for instance, saw attrition levels drop to 12 to 14 per cent from 18 to 20 per cent pre-2008 (and against an industry average of 30 to 35 per cent).    

But if a slowdown lowers the exit ratio, it also creates a golden opportunity to raise the bar on performance and productivity. United Lex chose to do just this. In bad times, companies typically skip increments and lower variable pay. United Lex, however, resisted that temptation. Instead, it chose to keep increments "at double-digit levels" and, at the same time, raise the proportion of variable pay from 8 to 15 per cent to 10 to 20 per cent. "This was just to indicate that we were putting a premium on performance," says Srivastava.

The message was bolstered by maintaining its generous recognition and rewards policy. Sure, the TV that was handed out in 2009 was slightly smaller, but the three days, two nights holiday package was intact because the company had negotiated down the rate with the resort concerned. "The idea is to take care of the back-end so that there is less impact at the front-end," says Bhasin.

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5. Staying in training mode

Another reflex reaction to revenue stagnation is to cut what most managements regard as the "frills": Training budgets. Most HR managers suggest that this is the wrong thing to do. United Lex, for example, realigned its training budget, which accounts for about a third of its expenditure, to suit the new needs. Since the need for people management skills had become more urgent, the company focused on "developing soft skills such as managing teams or communication," says Bhasin.

Tata Motors' Telang says instead of cutting back on training, "it was the other way around, our efforts here were a little higher", especially on in-house programmes.

Of course, there are opportunities even for companies that were not impacted by the slowdown. Chinese telecom equipment major ZTE is a case in point. Telecom was one of the few industries that actually saw a boom in 2008 and 2009, and ZTE was no exception. So, although training budgets were not impacted, "but ZTE did take a few steps to control and make optimum use of training costs," says Emily Yu, head (HR), ZTE Telecom India. Among them were centralising joining formalities, back-to-back orientation, and induction and training in India itself instead of sending employees to China.

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6. Preparing for the upturn

In the final analysis, however, the necessity to manage talent well in a downturn is embedded in the upturn. If a slowdown stems attrition rates, it also provides opportunities to hire right -- and, crucially, prepare for a turnaround in the business environment.

United Lex, for instance, saw an opportunity in expanding its footprint and exploring an onshore model in the US, where wages were falling. Last year, the company set up a unit in Kansas, hiring 50 people.

Genpact, meanwhile, aggressively hired and built up a sales force. "We increased our sales force by 30 per cent to prepare for the upturn, says Mehta, adding, "The downturn is a great time to bring in talent."