HR & The Economy.

Economic conditions provide the background to the everyday business of HR, so it is important for organisations to be aware of developments in the economy. You’ll find here information on HR in the economic cycle, including recession. In this topic we will focus on the current economic challenges and the projected environmental future of HR.

Unsurprisingly, the survey reveals that HR is greatly affected by the current economic situation. Three in five respondents feel the current capital markets directly impact on their organisation, with three-quarters also feeling they have a direct impact on HR. Similarly, the vast majority of organisations (95%) are either-freezing, or decreasing, their annual HR budget, in areas such as training and development, external training, the use of external consultants, recruitment and HR systems. Evidence suggests this is likely to be the case regardless of what the predicted financial performance is for their organisation.

Against this backdrop of economic uncertainty and budget cuts, and despite having a slightly biased sample, it is reassuring that the HR function is seen as having a crucial role to play in improving organisational performance, with 88% believing that senior management in other functions feel that HR has some, or a big, influence on performance. There is no direct link between this and the annual HR budget available.

The economic situation has led to 82% of respondents making changes to their HR strategies. Of these, three in five (58%) expect such changes to be long term rather than short term. Where respondents feel that their organisation’s financial performance will get worse over the next six months, there is a bias towards short-term HR measures being implemented. However there is no clear pattern when comparing HR strategy to financial performance over the next 12 months.

With HR strategies clearly changing during these turbulent economic conditions, organisations were asked to identify, from a list of 15 activities, those which they feel are their biggest current priorities.

The top three priorities selected are:

• Performance management;

• Leadership and management development; and

• Employee communication and engagement.

Where respondents expect changes to HR strategy to be short term, restructuring is another key issue, whereas talent management is seen as being important for organisations with a longer term HR strategy. Performance management and leadership/management development are seen as important for both short and long term strategies.

Further feedback indicates that many organisations appear to be carrying out efficiency reviews on their work practices. As a result, performance management and leadership development are understandable priorities since strong, visible leadership will be critical as companies feel the strain caused by the recession. Moreover, it is argued that, since recession forces organisations to examine performance in sharper detail, under-performance will increasingly be dealt with in a more direct and proactive manner. Respondents were also asked to identify those areas that are their lowest priorities.

The bottom 3 priorities listed are:

• HR outsourcing;

• Flexible working; and

• Diversity.

With employee engagement a clear priority, it is not surprising to find that the majority of organisations surveyed (80%) currently measure it. A clear pattern emerges here: it is in the organisations where senior management feel that HR is influential that employee engagement is most likely to be measured.

Finally, it is encouraging to find that the economic situation is not adversely affecting all aspects of employment; with almost a quarter of organisations (23%) believing it is having a positive effect on employee engagement. Around half (52%) feel engagement levels have remained stable; while only one in five think they have decreased.

The research highlights the difficulties facing HR in the current environment. Most corporate HR departments are freezing or decreasing their annual budgets and there is an enhanced need for HR leaders to focus on the urgent business critical initiatives. However the survey also reveals the key role HR has to play in driving organisational performance. Now more than ever before, HR needs to show itself to be about more than making redundancies by helping the organisation to reduce costs and improve efficiency and performance. Organisations that intelligently manage talent and communicate with employees honestly, accurately and at the right time will ride the current turbulence and be successful in the future.

What is the knowledge economy? The knowledge economy encompasses all jobs, companies, and industries in which the knowledge and capabilities of people, rather than the capabilities of machines or technologies, determines competitive advantage in any economy.

 From retail sales to computers to biotechnology these jobs will be more knowledge-intensive in their demands on workers and organizations. Although the service sector is an obvious place to find more knowledge-intensive work there are other alternatives to be raised to increase the look on much needed work. The rapid development of computers and microprocessors has made it possible to collect and use vast amounts of information from a variety of sources in a more integrative an interactive manner than ever before. Networking and connectivity, coupled with the Internet, have made it possible for information to be acquired and shared globally, work together collaboratively: Combined these basically altered business and everyday life.

In this information-intensive economy, competitive advantage is based primarily on the application of knowledge, and not all of the data, intelligence, and wisdom with which a global company needs can be found in one place easing, knowledge is dispersed around the world.

Furthermore, the cost of overcoming distance is falling rapidly for commodities that are mobile, such as capital, goods, and information.

Consequently, these commodities are readily accessible to firms that previously faced limitations because of their geographic location,

Knowledge, rather than the concrete characteristics of goods or services or the mechanics of production processes, is becoming the defining characteristic of economic activities. The impact of knowledge is pervasive in both the "old economy" as well as the "new economy." Human know-how is a crucial component in virtually everything we produce, and it determines how we produce valued goods and services.

The knowledge economy is about adding ideas to products and turning new ideas into new products. The knowledge economy has even spawned a new type of global, knowledge-based organization, labelled a "meta-national".

In contrast to global organizations that view the world as a single, fairly homogeneous market, or multinationals that see each country as a distinct segment, these meta-national organizations view the world as a global dotted with pockets of technology, market intelligence, and capabilities.

Thus, meta-nationals are able to capitalize on the synergies of global commonalities while adapting to specialized opportunities generated by local capabilities. Meta-nationals see untapped potential in these pockets of specialist knowledge that are scattered around the world. And, by sensing and mobilizing this dispersed knowledge, meta-nationals are able to innovate more effectively than their rivals. Rather than promoting a universal set of products that are globally competitive, meta-nationals weave together a tapestry of many local specialized capabilities to create local customization with global reach.

To sum up, knowledge is becoming virtually the primary component of all products, services and work activities. It is also imperative to look at all the attributes of the environment so that when a pragmatic measure is made the results will be right next to certain other than prospects which are uncertain.