Can HR remember how to lead in an upturn?

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Now that the UK economy and job market seem to be getting back on track, HR directors will need to re-assess their approach to many business issues. But can HR remember how to operate in an upturn?

It must have been music to election-ready David Cameron’s ears. Britain’s economic strategy was clearly “delivering results”, IMF managing director Christine Lagarde recently pronounced at an IMF meeting in Washington, adding: “It’s obvious that what’s happening in the UK has worked.”

Thus the country’s economic recovery – identified by both the IMF and Office for National Statistics in 2014 to be on significantly stronger footing than either had previously forecast – seemed confirmed.        

The question for HR professionals is to what extent they should be re-strategising around more favourable trading conditions, boosted consumer confidence and a more buoyant jobs market. And, crucially, whether they can remember how to.

Certainly many HRDs will now find themselves faced with a very different set of challenges to those of the last five to six years.

For many HR departments the recession period has principally been about reining in spending – both in terms of ‘nice extras’, value-add engagement or training and development initiatives, and day-to-day operational functions – all while supporting the grim business of restructuring and redundancies.

“HR was hugely valued during the recession with helping organisations to downsize, with thinking about how to restructure jobs, thinking about all the things they could do to cut costs,” says Ann Parkinson, who as subject area leader for managing people on Henley Business School’s MBA programme has produced several pieces of research focusing on HR during and following the recession, the latest of which will be published this year.

“Strategy during the recession has been very much a batten down the hatches approach. People went heavily into cost control,” agrees Katie Pearce, head of HR and facilities UK&I at Molson Coors, which implemented a wholesale organisational redesign during the downturn, cutting staff from 2,350 to 1,950.

But continuing with this approach may well stymie some organisations’ abilities to rise to the upcoming challenges and opportunities of more prosperous times. 

Staff expectations

The majority of employees only have a certain capacity for covering extra workloads or doing overtime, says Gemma Bullivant, HR director at technology consultancy Bluefin Solutions. So employees’ minds, buoyed by media reports of economic recovery and aware of a rapidly lifting jobs market, will now be turning to how their company intends to reward their loyal service over the last five years, and ease the pressure.

“I think there’s inevitably going to be a bit of a reaction when you come out of more austere times and people start to have higher expectations,” she says. “We’re not experiencing too many challenges here because we retained quite a robust result throughout the recession and were able to recruit throughout, for example. But the workforce at large will be wondering if cutbacks will be reversed and more people brought in, or if the new normal is longer hours and them being expected to be more available on mobile devices for example.”

“I think as far as the workforce is concerned there’ll be a sense that this can’t go on forever. I don’t think people have unlimited capacity – they only have so much energy.”

Some companies will of course have made more brutal cutbacks than others, and so will have more serious disengagement ground to claw back. And it won’t be just the wider company needing to get back in employees’ good books. As the department most visibly behind any redundancies and cutbacks, HR will in many organisations be the ones bearing the brunt of the reputational damage. And so, though valued by leadership teams for their recessionary role, HR will often be the ones having to consider most carefully how to regain employee trust.

“Some companies will have gone to a bare bones approach. Lots of organisations will have done that because it was a financial imperative,” says Neil Morrison, group HR director for UK and international companies at Penguin Random House.

“Employee trust I’m sure is quite variable from one organisation to another. There are a lot of businesses where that trust is low, and I think if they’re going to be successful in the coming year that will need to be built back up.”

Jane Pointet, chief people officer at business software supplier IRIS Software, points out that even those companies that have managed not to cut back too extensively on pay, staffing levels, recruitment and benefits and rewards, such as her own (and Bluefin Solutions), will still face this challenge to some extent.

“We absolutely have to contend with increased expectations around salaries. We’ve announced good results and there’s always the question of how much you then put back into the business,” she reports. 

A split workforce

Henley Business School’s Parkinson adds that HRDs are now also contending with a generation of graduates who have never had to adopt a ‘work hard because at least it’s a job’ type of mentality. This demographic may have even higher expectations of workplace reward and work-life balance, she says.

“We’ve got a really split workforce. There are workers that have had to accept things like zero-hour contracts, and then a generation of young people coming in who actually won’t have had a really tough time getting their job. Meeting and managing this latter group’s expectations will be particularly hard because many of them have a degree, and are almost expecting to go straight into management. But the jobs still aren’t there for them.”

The challenge now faced by Pointet’s company IRIS is retaining talented technical individuals in the face of a now buzzing technology start-up market. This, and the more general challenge of employee engagement in an upturn, is being tackled with a marked change of strategy, supported by a more generous HR spend.

“In the recession, spend on employees’ salaries and benefits at IRIS stayed stagnate, and money spent on external processes probably went down by about 15%,” reports Pointet. “What we’re now doing is a sort of catch up on some of those things. We’ve put in a bit more fat for the next two years to get us back on track development-wise.”

Specifically, this will include more external training opportunities for employees, and hiring an internal communications professional who will be tasked with, among other things, communicating exactly why IRIS is or isn’t offering certain benefits. They will also be responsible for diplomatically explaining why the pay and benefits package offered by IRIS differs to that of other, newer technology start-ups.

“Those companies have a lot of money to invest and they don’t necessarily have to turn a profit at this stage in their growth. The challenge is trying to appropriately communicate that. Hiring an internal communications person will help us do that,” explains Pointet. 

Reactive to proactive

The key shift underpinning all of this is the perennial HR imperative of moving from an operational, administrative approach to much more proactive strategic thinking, says Pointet.

Henley Business School’s Parkinson agrees. She warns that the recession was a convenient excuse for many to stick with what they know and do best, and that the temptation for HR, valued so highly during the downturn for its administrative skills, will be to continue in this vein.

“The recession involved a lot of the short-term reactive stuff that HR is very good at,” she says, adding: “HR are in a way their own worst enemies, because they like nothing better than to be reactive rather than being strategic.”

By clinging to this approach, Parkinson warns there’s a danger that HR professionals won’t recognise the challenges of their new environment and fully support newly-emerging business opportunities, such as growth. HRDs so often talk about “the business” as if they were situated outside of it, she believes. Whereas what is required, especially in more positive, growth-orientated economic waters, is real synergy between the business’s aims and how the HR function supports these.

But there is a significant caveat to all this talk of switching from recession to upturn mode, and the upping of HR spend implied. The degree to which a company will need to execute a radical shift will in fact depend on how they handled tough economic times. Though administrative functions certainly took prominence, many in fact didn’t lose sight of strategic thinking. In fact for some, the constraints of recession actually bred particularly creative and innovative ways of doing things.

For Penguin Random House’s Morrison, the bigger danger than HRDs staying operations-focused is them losing sight of important lessons learned around cost efficiencies and which benefits employees really value.

“I actually worry more about people slipping into an approach of ‘we’ve got money now we’ll just throw it at new initiatives’,” he says.

Barry Hoffman, group HR director at IT infrastructure provider Computacenter, agrees. “I think necessity is the mother of invention. I believe you should do things because they’re the right things to do, not because you’ve suddenly got money to spend,” he says, adding: “You need to be inventive and thoughtful and really connect with results. It’s too easy and tempting just to throw money at stuff. The recession was the reset that needed to happen, not just in HR but in all walks of life.” 

Important lessons

The recession was a period for many, then, of discovering exactly which HR costs were crucial to the smooth running of the business. It was a time of uncovering which processes could be carried out for lower cost in-house rather than outsourced, for example.

But it hasn’t just been a case of working out how to do things more cheaply. Many have apparently, through being forced to experiment with new, more cost-effective approaches, in fact also discovered how to do things better.

Take smarter ways of tracking talent, says Anna Penfold, client partner, HR practice, at executive recruitment and talent management consultancy Korn Ferry. “There’s been a move towards smart talent tracking enabled by the internet and clever databases and the cloud. I’ve seen a lot more people investing in HRIS during the downturn than you might have expected. Because you have a better view of who you’ve got, you’re more able to move people around and ultimately it costs you less money. So on the talent front we’ve seen lots of innovation.”

“Reward is another obvious one,” she adds. “It’s thinking how, when you’re having to freeze salaries, you can tie people in with other benefits.”

Parkinson reports that her latest research found that the most savvy companies had realised, in the absence of the ability to offer pay rises and bonuses during the recession, the importance of good line managers in helping to keep employees motivated and engaged.

She adds that HR had to be hugely creative during the downturn about saving money through offering flexible working, such as sabbaticals, unpaid leave and three- and four-day weeks. HRDs shouldn’t underestimate how valuable being able to skilfully manage such flexibility may now be – not for making savings but ensuring employee engagement and retention, she says.

In fact the silver lining to emerge from the recession for many HRDs was a new closeness with senior management and their organisation’s overall strategy and goals. While some, according to Parkinson, further distanced themselves from their business’s strategic side, a renewed focus on costs actually brought many together.

Molson Coors’ Pearce reports that her department now works much more closely with the company’s leadership team. “We now meet weekly on a Tuesday,” she explains. “That might feel quite heavy but it’s really important, as any decision we make we’re aligned on.” 

A new normal

What is emerging for many, then, is very much a ‘new normal’. Certainly HR strategy should be re-calibrated to respond to more buoyant times. But that’s not to say it should immediately revert back to pre-recession norms, abandoning those valuable lessons learnt since.

In fact with this recession and recovery has finally come the realisation it seems, that the economy is likely to continue to move in cycles. Rather than seeing recession as a rare blip to an otherwise prosperous economic outlook, the business community is now apparently getting to grips with the idea of a ‘new normal’: a day-to-day reality of always being lean, mean, and, to some extent, recession-proof.

“I think this recession was particularly difficult and so it’s been a wake-up call to say it’s not a blip and these things happen, so you’ve always got to be as competitive as you can,” says Pearce.

“I don’t think we have the sense of certainty we previously felt,” says Bluefin Solutions’ Bullivant. “The other thing is UK businesses are more global now. Everyone is so interdependent and there’s inevitably going to be somewhere that’s struggling and somewhere that isn’t.”

Of course the balance that a company strikes between keeping costs down and upping its strategic initiative spend will depend on the particular organisation – its specific sector, geographic location and approach taken during recession.

But the majority will need to find a balance between these two poles. Those HR teams who remain purely focused on keeping costs down by concentrating on administrative functions will seriously struggle to remain competitive.

Yet with this recession seems to have come the realisation among many businesses that a prosperous economy does not have to mean a totally different, flashy and expensive approach. The downturn has been a tough experience for many HR departments, forcing them to really scrutinise and interrogate what works and what doesn’t.

So while much more innovative and proactive HR times clearly lay ahead of us, these should in the majority of cases be strongly inspired by the lessons of the past.

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