Term

Paper
Cost cutting strategies
in HRM during
economic slowdown

Submitted By:
Sheikh Talha
RS1904 B25
10906035

Submitted to:
Miss. Chanjyot Kaur

LOVELY PROFESSIONAL
UNIVERSITY

Acknowledgement

I take this opportunity to present my vote of thanks to all those guidepost who really
acted as lightening pillars to enlighten our way throughout this project that has led to
successful and satisfactory completion of this study.
I’m highly thankful to Miss. Chanjyot Kaur for her active support, valuable time and
advice, whole-hearted guidance, sincere cooperation and pains-taking involvement
during the study and in completing the assignment of preparing the said project within
the time stipulated.

Lastly, I’m thankful to all those, particularly the various friends , who have been
instrumental in creating proper, healthy and conductive environment and including new
and fresh innovative ideas for us during the project, their help, it would have been
extremely difficult for us to prepare the project in a time bound framework.

SHEIKH TALHA

HRM during Economic Slowdown:

Today, we live in a bit strange world. The economists are not able to say, whether the

world economy will run at the full speed or the economic slowdown will appear to return
some balance into the economies of many countries in the world. To make things even

worse - the real economic slowdown did not appear for more than 20 years and the

companies did get fat a bit over the period. All the HR Processes in successful

organizations are set to support the growth of sales, volumes and net income, but they

are not ready to support the moments of cost cuts, lay offs and many other action

needed during the economic slowdown. The real HR Professional who remember the

times of the economic slowdown are very rare on the market. People working in Human

Resources are not aware of the real need to control and manage personnel expenses

and the line management has no experience as well.

Today HRM is able to quickly:

• provide the business leaders with a detail personnel expenses budget

breakdown. identifying the biggest potentials to cut.

• provide the business with the detailed analysis of benefit portfolio with the

potential cuts.

• provide with a quick list of low performers.

• provide the business with processes and procedures to decrease the number of

employees.

• demonstrate a courage to send important and difficult messages to employees.

• the internal power to make difficult decisions about employees.

Introduction:
During Economic Slowdown downsizing has been a pervasive managerial practice for

the past three decades. Over the years, a firm's standard response to finding itself in

financial difficulty was to reduce its workforce. While there is ample evidence suggesting

that downsizing activities rarely return the widely anticipated benefits, there is also a

sobering understanding that downsized firms are forced to deal with the human, social,

and societal aftereffects of downsizing, also known as secondary consequences.

Research shows clearly that the human consequences of layoffs are costly and

particularly devastating for individuals, their families, and entire communities. While

workforce reductions cannot always be avoided, there are compelling reasons why

downsizing-related layoffs must nonetheless be seen as a managerial tool of absolute

last resort.

During an economic downturn a firm must carefully consider its options and assess the

feasibility and applicability of cost-reduction alternatives before deciding on layoffs.

While a considerable number of research articles that discuss alternatives to downsizing

have been published, there is no conceptual understanding of downsizing-related

layoffs as they relate to the actual cost-reduction stages of a firm. Indeed, it is critical for

an organization to factor in the concept of cost-reduction and to recognize the specific

cost-reduction stage that characterizes the firm's current business position and

environment. Thus, a firm needs to determine the expected duration of the business

downturn. In order to do so successfully, the executive manager must know exactly

where the firm is in its cost-cutting stage. A firm's cost-reduction stage, by definition,

refers to the timeframe the company requires to be able to reduce operational

expenditures successfully.
The purpose of this Term paper is to present a methodology that enables firms to

minimize, defer, or even avoid the adoption of downsizing-related layoffs. In order to do

this, my term paper presents and discusses the framework of cost-reduction stages of a

firm coupled with creative modern-day human resource (HR) practices that firms

typically adopt.

Cost-reduction stages:
The framework comprises three timeframe-related phases. Each commands several

internal cost adjustments that have produced a variety of stage-related HR practices:

Stage one: Short-range cost adjustments:

According to Vernon (2003), the first stage of the cost-reduction framework represents

short-range cost adjustments in response to a short, temporary decline in business

activities. Most likely, the firm resorts to minor, moderate cost-reduction measures in

this early stage. These preliminary adjustments should enable the firm to shun

downsizing-related layoffs and involuntary cutbacks, and return to normal business

activity within a timeframe of four to six months. A firm experiences this stage because

of an unexpected drop in sales and a decline in sales forecast. It is characterized by

short-term expenditure adjustments in order to prevent a medium-range downturn or a

more lasting, long-range decline. The immediate recognition of a temporary business

slip and the resolute engagement in preliminary cost-reduction methods should allow

the firm to focus its operations in a cost-sensitive mode for a quick recovery.
The likelihood of success for short-range cost adjustments hinges on a number of

factors. First, senior management must be able to effectively articulate why the cost-

adjustment measures are necessary and the short time frame of the strategy.

Executives' ability to convey the message that the implementation of preliminary cost-

reduction measures at the present time will prevent future layoffs is critical. Second, the

HR Director's role is to communicate the decision(s) made by the executive board to the

entire workforce promptly and to implement the cost-reduction methods effectively.

Third, employees' flexibility in allowing the firm to modify cost structures increases the

chance of success for the planned cost alterations. In sum, a firm's capacity to

overcome a business downturn in the first stage will depend on the organization's ability

to respond to the new environment by immediately modifying expenditures.

HR practices for short-range cost adjustments

There are several HR practices that firms can adopt in an effort to engage in preliminary

cost reductions. Some of the more popular approaches that have emerged are:

1. Hiring freeze
A hiring freeze constitutes a mild form of downsizing and reduces labor costs in the

short term. Some firms continue to hire new employees while cutting jobs at the same

time. While this practice may make sense in terms of supplying the firm with key

personnel, it also tends to send a confusing message to the rest of the workforce. In its

latest attempt to fight rising jet fuel costs and a weakening U.S. economy, American

Airlines imposed an immediate hiring freeze on management and support staff.

2. Mandatory vacation
Implementing mandatory vacation involves requiring employees to use their accrued

vacation days or mandating that individuals take a number of unpaid vacation days

during a certain time period. While employees might not want to be told when and how

to use their entitlements, they will nonetheless appreciate the reaffirmed job security.

Chrysler LLC currently plans a corporate-wide shutdown of its U.S. operations during

the weeks of July 7 and July 14, 2008, with the intention of improving the automaker's

efficiency and boosting productivity .

3. Reduced workweek

Firms sometimes resort to a reduced workweek. This may translate into the reduction

from 40 to 35 or fewer hours and thereby reduce the short-term payroll expenditures.

While most employees appreciate the idea of being able to spend more time with their

families, they may not always welcome a reduced paycheck. Also, employees may find

that the same amount of work still needs to be performed while they spend less time on

the job. Nucor Steel Corporation in South Carolina has avoided layoffs for 35 years by

reducing to two- and three-workday weeks for its employees during downturns .

Recently, workers at a St. Thomas automotive parts plant in the UK have voted to

reduce their work week rather than see 200 employees leave permanently .

4. Cut in overtime pay

Reducing or abolishing overtime pay for employees can be a potent technique for

reducing operational costs in the short term. Firms may decide on an across-the-board

(i.e., all employees) abolition or it may confine the cut to selected categories only (e.g.,

non-management, blue-collar employees, or salaried employees, etc.). In 2004,

automotive firms, such as Visteon Corporation, General Motors, and Ford, slashed

overtime pay for most employees indefinitely.

5. Salary reduction

Salary reduction has been a standard practice for firms experiencing unexpected

financial pressure. Whereas salary reduction may mitigate financial concerns in the

short-run, extended salary reductions can affect employee morale and loyalty. Also,

while companywide salary reductions may prevent layoffs, there is a clear risk that top

performers will be encouraged to leave for competitors that offer superior compensation.

In 2006, White Electronics Designs implemented salary reductions of 5 percent for

salaried employees and 10 percent for management. Hourly workers remained

untouched. In 2006, a collation of Intel managers agreed to take a temporary 100

percent pay-cut to avoid layoffs. Prior to that, Intel announced that it had planned to cut

10,000 employees, including 1,000 managers .

6. Temporary facility shutdown

Temporary facility shutdowns occur when a work site closes for a designated period of

time, while some administrative functions are still performed. A shutdown allows

employees to have time off without using their vacation days. While the overall company
production decreases, the firm can achieve considerable cost savings while avoiding

layoffs. In 2008, Aleris International shut down its rolling mill production in Virginia in

order to align production with demand. The production for customers was phased out

and transferred to other facilities within the United States.

7. Soliciting cost-reduction ideas from employees

Employees appreciate the opportunity to make a positive impact on their workplace and

environment. Firms frequently solicit cost-reduction ideas from employees who are often

creative in producing cost-reduction solutions. This HR practice has shown to be most

effective when employees are able to make suggestions in the early stages of cost

cutting. At Martin Hayman Associates in the U.S., all professional construction

consultants are encouraged to contribute cost-reduction ideas. Unfortunately, many

executives still do not realize that employees are the best source of cost-reduction

ideas, in that workers on the job are in a prime position to identify and recognize waste.

Clearly, there are many HR practices and options that firms can adopt to reduce short-

term expenditures. While some firms have come up with fairly creative ideas, others

have resorted to corporate layoffs as a first resort.

Stage two: Medium-range cost adjustments:

According to Vernon (2003), the second stage of the cost-reduction framework

constitutes medium-term cost adjustments in response to a business downturn

exceeding six months. These secondary cost-reduction adjustments are frequently

signaled through extended company-wide or industry-wide forecasts of diminished sales

activity. If properly recognized and executed, the firm may be able to transition to mid-

range cost adjustments and thus prevent long-term layoffs and forced downsizing

activities. Constituencies need to recognize that deeper cost-reduction strategies may

be required in order to avert downsizing-related layoffs. Executive management and the

HR Director must be able to articulate the underlying purpose and objectives of the

expenditure adjustments to the entire workforce. This should ensure buy-in and

commitment on the part of employees. The application of HR practices in this stage

could potentially alter employees' work environment. Thus, the HR department will play

a critical role in the conduct and transition of these practices.

HR practices for medium-range cost adjustments:

Firms typically adopt several HR practices in an effort to engage in secondary cost

reductions:

1. Extended salary reductions

Extending salary reductions can be a method of choice if an economic downturn

exceeds 6 months. While extended salary reductions can negatively affect employee

commitment and morale, advocates stress that employees would prefer a smaller

income temporarily rather than seeing their jobs disappear permanently. As with short-

term salary reductions, there is a risk that high-performing individuals will be

encouraged to pursue external employment opportunities. Firms have generally been

creative about altering variable pay options. For instance, while some firms balance the

reduced salaries by distributing once-a-year payments over 12 months, others

substitute stock awards for variable cash payments. The U.S. firm 415 Production

offered an overall 5 percent pay cut or a four-day work week reflecting the appropriate

decrease in pay to its employees.

2. Voluntary sabbaticals

Voluntary sabbaticals, also called furloughs, allow salaried employees to take voluntary

leaves for a designated period of time. Companies may offer sabbaticals with

considerably reduced pay or no pay at all. Most firms continue to provide benefits during

sabbaticals. Sabbaticals enable firms to reduce their medium-term expenditure and act

as a potent method for avoiding downsizing-related layoffs. While employees may feel

motivated and re-energized upon their return, HR experts point out that medium-range

and long-term sabbaticals may cause employees to lose their leading-edge and return

with outdated skills. Interestingly, there is evidence suggesting that firms offer generous

sabbaticals during times of economic growth while companies refrain from this HR

practice during tough financial periods. In 2001, the consulting firm Accenture

announced that 800 employees qualified for a special voluntary sabbatical program,

while 600 employees were going to be laid off permanently. In 2001, one of Siemens'

divisions, Information and Communication Mobile, offered its German employees a one-

year 'time-out' at reduced pay without permanently eliminating the jobs . Siemens was

thus able to reduce costs without losing high-performing employees during difficult

economic times.
3. Employee lending

Employee lending is a modern-day HR practice whereby the current employer, the

lending firm, lends an employee to another employer firm for a set period of time while

continuing to pay salary and providing benefits. The borrowing firm, which can be a

competitor, in return, reimburses the lending company for part or all of the salary. While

employee lending can dramatically decrease medium-range expenditure of the lending

firm, some employees may not wish to work for a third-party. There is also the risk that

the borrowing firm may decide to hire the employee permanently once the contracted

period is lapsed. As a consequence, the lending firm would thus loose a critical

knowledge base. Texas Instruments engaged in lending HR staffers to vendors for up to

8 months with the intention of bringing them back to their original jobs at the end of that

period. The supplier reimbursed Texas Instruments for their staffers' salaries during the

loan period and agreed not to offer them permanent jobs.

4. Exit incentives

This option entails offering employees incentives to leave the firm in the form of optional

severance or early retirement. This strategy enables firms to better target jobs and units

in that it recognizes employees for their service and helps retain the remaining

employees. At the same time, exit incentives can be costly and can create an

entitlement mentality for the remaining workforce in the future . In 2007, technology-

outsourcing firm E.D.S. (Electronic Data Systems) offered extra retirement benefits to

12,000 employees in the U.S. if they were to embrace early retirement.

In sum, corporate executives and HR directors need to find innovative ways to reduce

medium-term expenditures. Unfortunately, similar to the first stage, too many firms

resort to layoffs by default.

Stage three: Long-range cost adjustments:

According to Vernon (2003), the third stage of the cost-reduction framework represents

long-term adjustments which are necessary if a firm experiences a prolonged business

downturn exceeding 12 months and beyond. This stage may be recognized through an

extended decline of current and projected customer demand and/or extremely volatile

economic conditions. This third stage generally requires extended long-range

expenditure adjustments on the part of the firm. It is in this phase that downsizing-

related layoffs are frequently inevitable. While permanent layoffs should always be seen

as a final resort, firms must try to avoid across-the-board, mass layoffs at all costs.

Companies who find themselves forced to engage in extensive layoffs must adopt

practices that instill loyalty and commitment in the remaining and exiting workforces .

HR practices for long-range cost adjustments

Firms that are forced to embrace downsizing have shown to adopt various layoff-related

strategies and with various degree of success. It is beyond the purpose of this paper to

review and present the literature on the actual outcomes of downsizing. Essentially, the

primary goal in this third stage is to set the scene for the firm to be able to re-attract and
re-gain layoff victims in a post-downsizing phase. This, of course, is based on the

presumption that the economy will bounce back sufficiently and that the firm will be

willing and able to hire again.

1. Rehiring bonuses

It is not uncommon for firms to rehire laid-off employees. While some firms provide a

monetary rehiring bonus for veterans to return to the company within a specified period

of time, other companies hire previously laid off employees as external consultants. In

some cases, firms realize that they cut too many and/or the wrong employees, while in

other cases management decides to hire back after the economic downturn. Research

shows that employees and consultants frequently return to the downsized firm with

improved monetary rewards. Back in 2001 and after two rounds of layoffs, Charles

Schwab Corp. offered a $7,500 bonus for any previously downsized employee who was

rehired by the firm within 18 months following the layoffs.

2. Maintaining communication with laid-off employees

Firms should make an effort to maintain friendly relations with laid-off victims. Modern-

day technology, including internet forums, 24-7 hotlines, e-mails, and mailings, provide

and facilitate highly-effective ways to foster and sustain positive employer-employee

relationships . This is particularly important if firms intend to rehire the former employees

when the economic climate has improved.

3. Internal job fairs
Firms should make every possible effort to retain high-performing employees. A

powerful method is an internal job fair, where firms host events in order to help place

and redeploy downsized employees within the company. The Ford Motor Company is

currently running internal job fairs in its plants to entice employees to find new careers

beyond the assembly-line.

Layoffs and Downsizing: Selecting a strategy

Layoffs, frequently called downsizing, describe the process in which companies remove

temporarily or indefinitely a number of employees from their payroll. The general

purpose of this practice is to reduce the organization’s burden of excess labor costs

when human resources cannot be used effectively.

The reasons why the company downsizes are related to dramatic changes

occurring in the environment. This may make the company lose a market share in its

industry or respond to fierce competition from its rivals resulting in the need for the

company to cut costs through altering its size to fit its market and customer base.

Globalization and the breakdown of trade barriers among nations and the emergence of

technology and automation have also necessitated the company to downsize. Thus, the

overriding rationale for downsizing by the company appears to be the need for survivial

and the ability to compete in the new global economy

Selecting a downsizing strategy:

Facing the threat of job loss and seeing others lose their jobs can be a traumatic and

bitter experience. This is one reason why many excellent companies do everything

possible to avoid layoffs. However, even the most employee-friendly companies may

deal with difficult economic conditions by reducing their workforce. Companies

therefore have to ensure that they develop appropriate and well thought-out plans

before implementing the downsizing and layoff process.

Determining an appropriate workforce management strategy remains a vital task for

firms. In order to select a downsizing strategy effectively, aligning a firm's cost-cutting

methods with the cost-reduction stage may prove to be a powerful method. While there

are many HR tools at an executive's disposal, each practice works most effectively

when implemented during its established time frame, or cost-reduction stage. At the

same time, the assumptions underlying the framework are somewhat simplistic and

probably do not capture the complexity of corporate decision-making. According to

Vernon (2003), at least six factors affecting the selection of a downsizing strategy need

to be considered:

• time, or the expected duration of an economic downturn);

• resources, such as cash resources at hand

• budget, namely the financial condition of the firm);

• corporate culture, for example, the institutional values and anticipated effects of

cost cutting
 • demographics, the location of the firm/demographics of employees the firm would

like to retain or rehire, and

• labour market, specifically the state and condition of the labour market.

These factors should be considered when selecting a particular downsizing approach.

For instance, if the expected duration of an economic downturn is prolonged (i.e., factor

time) and, thus, the firm opts to engage in across-the-board layoffs, then there will be

the inevitable impact upon the firm's corporate culture, as mass layoffs have shown to

produce negative consequences. Similarly, an established 'no layoffs' policy (i.e.,

corporate culture) may prompt the firm to retain all its salaried employees if it has the

capacity to remain liquid during an economic downturn (i.e., factors budget and

resources).

For the company to practice effective and successful downsizing, the following steps

should be included:

 Education

 Reinforcement of the company goals and values

 Honesty/dignity at all times

 Planning

 Communication

Education – The company needs to educate its employees on the needs of the

organization through regular meetings with employees in focus groups or feedback

sessions. This will send a clear message to employees that the management is

receptive to their needs and at the same time, it will help the management to design an

effective downsizing program. Education can also take the form of training the

employees to look beyond their existing roles and duties thus prepare them for taking

additional tasks and roles in the event of a downsizing.

Reinforcement of the company goals and values – The company must ensure that the

vision, mission, goals and values of the organization are clearly articulated and

reinforced at every opportunity so that the employees embrace them. In the event of a

downsizing, workers will then better relate to the rationale of the downsizing. This has

to start with the leadership of the CEO and be reinforced by HR policies and practices

that support these values.

Honesty and dignity at all time – Employees should be treated with honesty and

dignity from the recruitment process through to eventual employment. If employees are

dealt with honesty, in the event of a downsizing, they will better understand the rationale

for this decision and thus develop a sense of wanting to overcome the problem with the

company. Employers should also treat employees with compassion during a

downsizing. In particular, HR should follow-up with each displaced employee in

whatever way the company can support or assist him/her in his/her outplacement needs

(Greenspan, 2002).

Planning – In order for layoffs and downsizing for be effective, successful workforce

planning is crucial. For a company to develop a successful workforce management

strategy, it must first understand the cost-reduction stage of characterizes its current
business position. This reveals how long the company needs to reduce expenditures

and takes into account the current economy and the duration of the economic downturn.

Some Best Practices:

The Japanese Approach

As the Japanese economy faces one of its worst financial crises in decades, it is

faced with a downturn to a decrease in their workforce. Unlike American companies,

the concept of “lifetime employment” is important to the Japanese and has shaped their

approach to downsizing. Downsizing is planned as a series of stages aimed at lowering

cost by at the same time trying to maximize and preserve the highest number of jobs

possible. This is done through what is known as “koyochosei” meaning the “adjustment

of employment levels. The different stages in the Japanese way are:

 “Koyochosei” which means a reduction in the number of hours worked through

overtime; reduction in the hours/days worked and the practice and internal

transfers through job rotation (to develop the skills of the worker) or transfers due

to a vacancy.

 Employment freeze, non-renewal of contracts of part-time workers and the use of

temporary leave. The objective of the temporary leave is to cut labor costs as the

leave will be accompanied by a wage cut.

 Transferring workers to other companies (suppliers and subsidiaries). The

transfer takes two forms, “zaiseki shukko” where the workers are temporarily

transferred by are still considered part of the original company and “iseki shukko”
 where the workers are released to be employed by other companies. The latter

is basically considered a form of early retirement from the original company.

Only after the other alternatives have been used to adjust employment levels will

voluntary and compulsory redundancies be used. This approach is equivalent to

layoffs and downsizing. As voluntary redundancy does not involve coercion, it is

widely used in Japan through compulsory redundancies are not uncommon

(Mroczkowski and Hanaoka, 2000).

The salient features of the Japanese way to downsizing involve careful planning and

a gradual and systematic approach. Employees are consulted at all stages and

communication is open. Layoffs are considered as a last resort after all other

alternatives have been employed. Policies and programs are in place to minimize

the effects of negative downsizing. Training and retraining is also provided.

Inventec Corporation

Established in 1975, Inventec Corporation, a Taiwanese company, began its

operations with production of calculators. For other 24 years, it has evolved into a

large environmentally friendly enterprise with ISO certifications and is currently one

of three largest producers of laptops in Taiwan. Its workforce is composed of

approximately 4,000 dedicated employees, and its revenues are in excess of NT$46

billion, which is equivalent to US$1.34 billion.

 In 2002, Inventec Corp. was forced to close one of the factories located in

Linkou, Taiwan. The reasons that forced Inventec Corp. to make this tough decision

are the following:

 Higher direct payroll costs than those of its major competitor-Quanta

Computer, as well as low sale revenues.

 Manufacturing cost in Taiwan is six times as much as that of China.

In order to maintain financial balance and competitive advantages, the company

decided to reduce personnel cost by laying off employees who worked on the assembly

lines.

Inventec Corp. executed its downsizing plan by way of voluntary terminations.

They prepared very generous compensation packages, which included severance pay

based on years of service. For instance, employees who have worked over one year in

the company are eligible to receive at least ten months payment as compensation. The

longer their length of employment, the higher the compensation they can receive.

Currently, Inventec Corp is the only company that has offered this type of compensation

package in Taiwan. In addition, Inventec Corp. also surveyed employees’ opinions and

discussed it with them before announcing the layoff to obtain employees’ reaction to the

change. The company encouraged the employees to leave voluntarily and if they

wanted to transfer to other factories, management offered the necessary training and

development needed to successfully perform the new job. The most important purpose

of offering this assistance was to provide employees with opportunities that will promote

their competencies and thus become more marketable (Shui, 2002).

 With the global economic depression in recent years, Inventec Corp. is following

the global step of downsizing. Therefore, restructuring the organization and reducing

personnel and manufacturing costs are inevitable. Without properly controlling cost and

developing the proper action plans for this situation, the organization would have been

bankrupt. Inventec Corp. has chosen to reduce personnel costs by transferring their

assembly lines from Taiwan to China in order to stay competitive. With the careful

planning, Inventec Corp. received little complaints and protests when downsizing and

layoff.

Performance Management:
Another Alternative for cost
cutting
Performance management is the systematic process of planning work and setting

expectation, continually monitoring performance, developing the capacity to perform,

periodically rating performance in a summary fashion and rewarding good performance.

In times of global slowdown, managing performance has always been a major challenge

for the industry. The steps taken by Jet Airways and TATA automobile is an indicator of

a greater risk of social disturbances caused by it. The issue like talent shading and

potential employee’s engagement has to be handled appropriately. This Paper seeks to

identify how in times of slowdown, it is important for the HR department to come up with

alternate innovative strategies to ensure performances by all its emloyess, while still

keeping a check on the rising costs. The paper also discuss different ways of achieving
the above stated goals and also looks into some of the methods already adopted by

organizations to deal with this problem. Simultaneously, the

paper suggests a proper and continuous talent management system should be

formulated to deliver the twin benefits of lowered cost as well as increased productivity,

which is especially welcome in a constrained business environment.

The present realization of an economic slowdown possibly leading to a recession has

compelled many organizations to tighten and control spending on their operation and

work

activities through all measures possible. The outlook of potential expenditure on their

human resources which often form a significant proportion of their respective resources

has even caused some organization and their recruitment and retention initiatives by

freezing hiring and going in for massive layoffs.

The likes of TCS, wipro and keane are either going slow on recruitment or are hiring

more number of trained hands,TCS,which recruits about 18000 employees every year,

has decided to make significant cuts in recruitment patterns every year, has decided to

tide over the current global economic crisis. The high-end pay packages have also

taken a backseat with investment banks withdrawing from the placement process. for

instance, Lehman Brothers which made an offer of 18 lakhs to a Delhi

university(DU)graduates in2007 backed out from the process after its bankruptcy. As

the economic slowdown has also affected the use of credit cards, the BPO sector, call

centers in particulars; have also reduced recruitment, human resources outsourcing

company convergys laid off nearly 400 people after it closed on of its Mumbai centers.

Companies like patni, Fidelity and 24/7 are shedding low performers and will continue to
cut staff and freeze hiring. Kingfisher Airlines also stopped the intake of pilots till further

notice owing to downfall of aviation industry in India.

The knee-jerk reaction to a slowdown pressure often compels them to take steps like

downsizing and layoffs but these steps like downsizing and layoffs but these steps in

turn tend to negatively affect the organization’s overall long term strategy, also these

short sighted decisions carry the risk of ending all important dialogue with existing and

potential employees.

Hence, even in a slowdown, these organizations need to assess the impact of their

spending on performance to determine its return and effectives .sure, cutting a

percentage of the salary or deleting a holiday gift program may cut expenses from the

bottom line .but they may also have a more significant longer term impact on profitability

as employees disconnect from the organization.

The concept of managing performance through promoting taken in a constrained

Environment requires to be a driven by practices which lead to financially sound

decisions rather than decision taken in haste which impact the organization ‘s long term

strategy.Infact, HR practices right from the recruitment to retention stage should be

backed by ways which eliminates waste while still retaining a motivated workforce.
The seven –steps strategy to enhance
performance during economic slowdown
are :

STEP 1: ELIMINATE THE FINANCIALLY UNSOUND HUMAN CAPITAL

PRACTICES:

In general , a large number of companies invest in human capital practices that make

financial sense, certain practices applauded by conventional wisdom-360 degree

review, development training and implementing human resource technologies with

“softer” goals in mind-do not always add economic value when implemented in a

misguided way. Until employers align their human capital management Practices with

their, employees needs, they will continue to waste resources on strategies that

diminish, rather than increase, shareholder value. But rather than eliminating or

replacing these practices, all other employee related expenses like salaries, bonus or

other benefits allowances become the first to be targeted for cuts owing to their visibility

in the system. Hence, the process of employee related expense cutting

should be very well planned and reviewed before implementation.

The process should-

(i) Review all employee related expenses and assess those that do not make a

significant difference to the employees.

(ii) Survey employees to determine the benefits that have greatest value.

(iii) Cut those that add least value

(iv) Build value by adding small high –impact benefits at a time when the rest of the
business world is cutting.

The positive emotional response to an “addition”(related to performance) at the time of

cuts cannot be underestimated ,As it is ,in today’s intellectual era, spending wisely,

holding employees accountable for performance and building a more positive workplace

is the key to surviving and thriving in a slowdown economy.

Also, innovative ways to cut down cost without compromising an employee’s salaries or

learning and development should be taken up. For instance, sterlite technologies has

stopped all travel related to in-house meeting,and all meeting would be conducted via

conferencing.

STEP 2: RETENTION –TALENT RETENTION

Economy slowdown is generally marked by larger scale layoffs and recruitment freezing

across the organizations. Hence, the employees prefer to stick to the present employers

rather than switching to different jobs which are already scarce. Hence, retention for the

organization is comparatively easier during the slowdown. Still, these organizations

need to remain alert in order to retain top perform to ensure productivity in the times to

come. Hence, retention as such be treated as an ongoing process even during the

slowdowns.

Strategies for retaining top talent

(i) identify top performers and high-potential employees

(ii) Track turnover rates of these key employess separately from overall turnover figures.

(iii) Have senior executives talk individually with key employees to communicate the
employee’s value to the company.

(iv) Invest in proven retention practices including development opportunities for key

employees.

STEP 3 .COMPENSATION –STRATEGIC STEPS FOR FIXED AND

VARIABLE

COMPONENTS

STEPS 4: MOTIVATION- LITTLE THING MEAN A LOT.

STEPS 5: TRAINING ANDDEVELOPMENT INITIATIVES.

STEPS 6: RIGHT RECRUITMENT –AS PER BUDGETARY PROVISIONS.

STEPS 7: EXIT-REDUNDANT WORK FORCE.

Conclusion:
This Term paper has demonstrated that the ability to correctly forecast the cost-

reduction phase assists a firm in determining appropriate employment strategies. This

paper presented a methodology of cost-reduction stages enabling firms to minimize,

defer, and avoid downsizing-related layoffs. It appears as if the key lies in the alignment

of a firm's downsizing methods with the cost-reduction stage in which the firm finds

itself. While the introduced framework remains simplistic, it is nonetheless alleged that

implementing HR practices that are aligned with the six factors above should allow for a

more successful downsizing. There is ample evidence that downsizing-related layoffs

are devastating for all parties and that permanent layoffs should be not be considered at

all costs.

Reference:
• http://hrguide.applezoom.com

• http://www.allbusiness.com/labor-employment/human-resources-personnel-
management

• http://www.scribd.com/doc/14477120/PERFORMANCE-MANAGEMENT-
DURING-ECONOMIC-SLOWDOWN

• http;//en.wikipedia.org/economic_slowdown