Economic Crisis On HRM Practices In Organizations - A Case Study Of Tesco PLC, UK Essay

Question:

Critically assess the impact of the 2008 global financial and economic crisis on HRM practices in organizations.

The assignment question reflects some core themes addressed during the ABP HRM module. The aim of the assignment is to encourage students to combine theoretical and practical aspects of HRM by referring to organization case study examples when assessing the core themes in the HRM academic literature. In particular, students are expected to engage in critical analysis of relevant HRM academic literature, from sources recommended below, in the module outline, at the end of lecture slides, or sources derived from their own wider reading. It is not enough to rely on lecture notes or non-academic internet sources. Students that can show evidence of critical thinking and engagement with academic literature, and illustrate this with practical ‘real world’ examples, are more likely to achieve favourable grades.
In 2008, the most serious financial and economic crisis to hit the global economy since the Great Depression began in the US and spread rapidly to Europe. Many economies are still experiencing negative or declining growth rates and economic restructuring, as well as unemployment and austerity (ILO, 2014). While various studies have explored the impact of financial and economic crisis at the macro and micro level - examining issues such as firm growth and survivability, financing, market investment, and organisational strategy - less attention has been given to the human resource management (HRM) and employment relations implications of the global economic downturn, how this has affected organisations, HR management in organisations, the employment conditions and living standards of workers, and so forth.

Select a Case- one that you can access relevant HRM information about (for example, one you have worked for, an organisation familiar to family/friends, or that you have been able to find detailed information about in journal articles, books, newspapers, internet).

In completing the assignment question, you are expected to address the following issues:

1. Broad political economy context: start by providing a general summary of the overall impact of the 2008 financial and economic crisis on HRM practices, jobs, work and employment in the country or countries where your chosen case organization operates;
2. Impact on strategy in your chosen case organization: then, assess the impact of the 2008 financial and economic crisis on the case organization’s overall business strategy and then its overall HRM strategy.
3. Impact on HRM policies and practices: next, analyse the effects of the 2008 financial and economic crisis on the various specific components of HRM policy and practice in the case organization under the four main HR functions covered in the module: resourcing the organization, human resource development (HRD), employment relations, managing performance and reward. The list of HRM policies and practices that might be assessed under these four areas include: talent management, recruitment and selection, organizational culture, training and development, employee voice and participation rights, pay and reward, performance management and appraisal (these might have other labels).
4. Context: Another theme to be discussed in your assignment is how different organizational, sector/industry, country, and international contextual circumstances might influence and mediate the impact of the 2008 financial and economic crisis on your chosen case organization.
5. Finally, provide a conclusion summarizing your arguments, and, if appropriate, identify any practical recommendations relating to HRM practice.

Answer:

Introduction

The global financial and economic crisis exhibited its first indication in the late 2007 and it made significant and dramatic impact on the economic stability and overall socio-economical environment of United Kingdom (Ren, 2011). So in order to avoid the financial losses and the efficiently maintain their business operations, the organizations were forced to cut their expenses to the lowest level possible. Thus, the business functions like Human Resource Management (HRM) also faced new challenges in the context of the ways in which it should prioritize their day to day activities taking into consideration the uncertainty that has been created by the economic environment.

Thus on the basis of the above aspects, the report emphasizes upon analyzing the impact of 2008 global financial and economic crisis on the HRM practices of Tesco PLC which is British multinational general merchandiser and grocery retailer headquartered at Hretfordshire in England in UK (Tesco plc, 2010). The report in the initial section provides a broad political economy context, analyzes the impact of the crisis on the strategies of Tesco, provides an impact of crisis on the HRM policies and practices of Tesco and the ways in which Tesco emphasized upon mediating the impact of 2008 financial crisis. The final section of the report is the conclusion part that summarizes the findings and also provides recommendations for HRM practices during crisis situations.

1. Broad Political Economy Context

Analyzing the impact of the 2008 global financial and economic crisis, it is observed that it made a significant impact on the UK economy. The businesses in UK struggled to stay afloat and the economy continued to move in the wrong direction irrespective of the government’s effort to spur economic growth. By the end of the year 2009, the economy shrunk by 4.9% from the pre-recession level and in the 3rd quarter of 2009, the economy of UK experienced a negative growth of 0.2% in comparison to 0.6% fall that was experienced in the previous quarter (Bohrer, 2010).
Moreover the crisis also led to large fall in the retail sales and the businesses that has already been hit by falling sales and profitability also faced problems in securing the support from the banks to continue their trading. This led to the closure of several well known brands where others either went of business or had to close their outlets and this led to significant rise in the level of unemployment. This can be illustrated with the help of figures like when the economy was hit by the crisis, the unemployment rate was 5.6% (1.6 million) and by the end of the year 2009, it rose to 8.5% (2.5 million) and by the end of the year 2011 almost 2.7 million were unemployed (Bosworth, 2008).

Thus fall in the retail sales coupled with unemployment rise led to falling tax revenue for the government and this led to a significant fall in the GDP of UK i.e. fall of 1.5%.

Moreover, the 2008 global financial and economic crisis also forced UK to make adjustments in its labor market which resulted in high levels of unemployment and falling level of wages. The demand for labor force declined and the business organizations like Tesco in order to reduce expenditures and save cash adopted flexible working practices like part time employment. Again with increasing unemployment level, the HRM practices were developed to reduce the salary levels and the average monthly wages experienced a decline by 6 to 8% (Cashfloat, 2015). The wage growth also slowed down and this was because the crisis constrained the bonuses the average decrease in the salary by the end of the year 2009 was 5%.

Thus from the above discussions, it is inferred that the global financial and economic crisis significantly impact the entire world and UK was no exception. Almost all the sectors of the economy experienced a hit. This led to falling GDP, rising unemployment and difficulties on the part of the organizations to conduct trade as a result of which the organizations like Tesco made changes in their HRM practices and focused upon part time employment, reduced salary, low intake, less expenditure on training and development and practices like downsizing were also adopted.

2. Impact of 2008 Global Financial and Economic Crisis on Tesco’s Strategies

Impact on Tesco’s Overall Business Strategy

As a result of the 2008 global financial and economic crisis, Tesco PLC experienced a downfall in its sales and it was mainly due to the high level of unemployment and reduced purchasing power of the individuals. The sales growth of Tesco almost halved since it also lost customers to the competitors like Lidl and Ladi that are budget retailers. The main reason was that during the recession period, the customers became highly price sensitive and were eager to save than to sound. Thus by the end of the year 2008, the value of sales that Tesco generated through its UK store operations experienced a mere annual growth of 2% which was considered as the worst figure in the last 15 years (Vriesendorp and Gramatikov, 2011). Tesco’s declining sales was clear from the fact that it got ?1 for every ?8 spent on the High Street where it used to get ?2 for every ?8 spent on the High Street. Tesco also experienced a loss of around ?22 million and this was because of the customers who switched to its budget competitors like the Morrisons, Asda and Aldi.

In response to the global financial and economic crisis and declining sales volume, Tesco emphasized upon adopting certain business strategies. The company realized the fact that due to the crisis, the customers have become high price sensitive and thus the company in order to attract the customers moving to budget retailers launched 400 cheaper and value products in order to present itself as a discounter brand in the retail market (Mail Online, 2008). The company in response to the price sensitivity aspects of the customers reduced the price of its in-house brands. The company also worked with its major suppliers in order to refine its product range and drive the volume with lower and stable prices. The company also started the price cuts campaign on its popular brands in order to tempt the shoppers back to the store.

On the other hand the dropped its plan of opening new stores and also took the decision of closing around 43 existing stores in UK and these closures made a significant impact on the express format of the retailer. In addition, Tesco also emphasized upon maintaining tight control over its capital expenditure.

Impact on the Overall HRM Strategy of Tesco

Global financial and economic crisis made a cataclysmic effect on the HRM strategy of Tesco and it also affected the viability of the long prevalent employment models (Ordo?Ѓn??ez de Pablos, 2015). The company as a result of the crisis emphasized upon relocating its transactional HR processes to the low cost countries and the company shifted the focus of the HRM strategy from delivering the routine transaction HR functions to a department that can take proactive actions in the context of aspects like efficiently managing the problem of recruitment, managing the teams and human capital in the process of downsizing by holding special meetings, motivating the employees, facilitating them with challenging assignments and opportunities, providing a detailed explanation of the importance of their existence in the jobs, initiating the change like low price campaigns by efficiently identifying the key people and identifying the achievers and rewarding them together with performing the tasks of stress management and return on recognition during the recession period.

Moreover, during the period of crisis, the company made some specific alterations in its objectives like offering cheaper and valuable products to the customers, attracting the customers from the competitors and so the company mainly emphasized upon its HRM department to enter into a perfect alignment with the company’s altered objectives arising due to the crisis management planning and implementation.

Again, due to the closure of several stores, Tesco also practiced downsizing of its employees that facilitated it in reducing the human capital (Ordo?Ѓn??ez de Pablos, 2015). However in this context, the HRM of the company emphasized upon making an optimum utilization of the existing talent and skills and the employs were made to feel valued that kept them motivated to perform better and dedicated towards the organization and this led the organization to recover efficiently from the crisis situation.

3. Impact of 2008 Global Financial and Economic Crisis on HRM Policies and Practices

Due to the global financial and economic crisis that took place in the year 2008, it was observed that the HR departments of the organizations like Tesco Plc had to strive towards renewing their strategies. It was also observed that the before the period of crisis, the HR departments used to play the major role of ensuring the recruitment process, selection process, payments of salary and managing the training and motivation programs. However, with the development of the global financial and economic crisis led the HRM department to perform more active functions of the company (Valentine, 2009). The HRM department worked in close collaboration with the managers in the process of finding ways in which the labor expenses can be reduced and the HR managers were also asked to develop new and cost efficient training and motivation programs. The HR department also undertook the tasks of labor forecasting. Where before the crisis, the business used to estimate the employees to be hired on the basis of the market situation and after crisis, the forecasting was practiced to gain an understanding of what is going on both outside and inside the company and this facilitated the company to remain prepared for future differing scenarios.

Recruitment

Before the crisis, the business organizations like Tesco had to experience some hard times in finding the required skilled, knowledgeable and experienced talent and thus the company maintained a rigorous and tough recruitment and selection process. So, for this reason the wages of the employees also used to grow on year to year basis.

However due to crisis, severe downsizing took place in UK and in almost all the sectors and thus the people were forced to accept work whatever they could find so that they can secure their livelihoods. Thus there developed a shift in the balance of power from the employees to the employers. Thus Tesco enjoyed the favorable position to choose applicants from wide labor pool and it was also in a better control of salary level. Then also finding the right candidate was not an easy task and this was mainly due to the perception of the HR managers the laid off employees during the recession do not possess the required skills (DesJardine et al., 2010). Thus recruitment process of Tesco was kept rigorous and tough mainly because of the change in the policy that the company would recruit only the deserving candidate that can add value to company and in this case also bargained high on the salaries due to crisis. On the other hand emphasis was upon hiring the experienced individuals so that training and development expenses can be saved.

Selection

Due to high level of unemployment, the talent pool has increased and so it led to certain changes in the hiring policies and practices of Tesco. The company mainly emphasized upon recruiting and hiring the qualified specialists from the market (Yu et al., 2014). The recruitment process itself experienced a change like the company reduced the use of outside recruitment companies and thus it led to the fact that the company hardly recruited during the crisis.

On the other hand Tesco in order to select the best talent also made cooperation with the universities to select the best performers and help them in their education but in this process also the candidates have to undergo several interview phases coupled with the psychological, language, aptitude and personality tests. The tests were performed to ensure that the candidate exactly match the company requirements.

Thus it can be said that due to the crisis, the selection policy and the practice of Tesco became tougher, the company became more selective and they started demanding and selecting exactly what they needed.

Talent Management

The crisis forced to the development of the situation where the employees have to work more and earn less and have to face difficulties like the reduced benefits and bonuses. In this context, the HRM department of Tesco emphasized upon reducing and cutting down the bonus and benefits that were offered prior to crisis. The salary levels were also reduced, almost by 10% but tend to increase with increased workload.

Moreover, Tesco was also aware of the fact that employees are aware of the situation i.e. they are in a situation where people are losing jobs and so if in this situation if Tesco can assure its employees of job security with reduced benefits, bonus and pay, the employees would be willing to work and the company did the same (Zagelmeyer and Gollan, 2012). However the company also emphasized upon offering some of the benefits like the parking lot, lunch benefits, small events and celebrating the birth day of the employees which made the employees feel that the company even during the crisis situation is taking care of them and this enhanced the level of motivation to perform better and remain committed because they knew that the things would change in the future after recession is over.

Training and Development

Tesco in response to the crisis, emphasized upon shifting from the utilizing the external training programs to internal programs conducted by the company itself and it mainly emphasized upon on the job training. It also eliminated the extra programs like the motivational training and only the basis level training was conducted so that they can learn the basic skills required to perform efficiently (Keeble-Ramsay and Armitage, 2015). However, Tesco in order to remain competitive emphasized upon the development of the capabilities of its employees. Thus the company mainly emphasized upon language skills training and retraining its employees for different specialties and leaders were facilitated with extensive training to enhance their marketing, selling and communication capabilities.

Organizational culture

Tesco in response to crisis that took place did not make many alternations in its organizational culture and it still used to value its employees. However, since the company was going through the crisis situation, it was clear that there were no room for faults and wastage and mistakes and thus the employees were closely supervised and decision were taken by the top leaders and the employees had to follow the instructions (Frank, 2012). Thus it can be said that the company emphasized upon adopting an effective mix of the role and people culture during the crisis situation.

Employee Voice and Participation

Due to the crisis situation, Tesco adopted an effective mix of the power and people culture and in this context where in some cases the employees feedback and responses were taken into consideration, their work were closely supervised to avoid mistakes and losses and most of the important decisions were taken by the top leaders. Their voice and participation within the organization was limited and they had top strictly follow the instruction.

Pay, Reward, Performance Management and Appraisal

The performance management and appraisal system of Tesco was not altered and it was conducted on yearly basis. The salaries were reduced and the benefits and bonuses were declined, however some basic benefits were provided to the employees (Razavi, 2009). Moreover the performance appraisal was conducted to provide and receive feedbacks on the performance of the employees and salary negotiation was declined from the appraisal process.

4. Context

It was observed that while one hand Tesco was suffering global financial and economic crisis in the year 2008 by low level expenditure on the part of the customers, the company was also facing tough competition from the budget stores like Lidl and Aldi and this was mainly because of the fact that the customers have become highly price and were not willing to spend much on the high priced items (the Guardian, 2008). So with the frozen food specialists like Iceland, two discounters powered ahead of Tesco PLC in the UK grocery sector. The sale volume of Aldi increased by 20.7% and thus the company achieved a record share of the grocery market of 2.9% (The Independent, 2008). On the other hand the sale of Aldi increased by 12.8%, it moved well ahead of Tesco.

Thus from the above discussions, it becomes clear that the economic circumstances in UK played to be a favorable factor for the discounters and the budget retailers since they proved to be appealing to the price sensitive customers.

Conclusion and Recommendations

Thus from the above discussions, it can be inferred that the global financial and economic crisis that took place in the year 2008 made a significant impact on almost all the business sectors across the globe and thus Tesco Plc also got affected due to high level of unemployment and reduced purchasing power of the customers.

As a result of the losing business and declining sale volume, Tesco had to make certain significant changes in its business strategies like closing some of its stores and postponing its investment plans to reduce expenditure and save. It also made significant changes in its HRM strategies, policies and practices to reduce the expenditures. From the discussions it is observed that Tesco made its recruitment and selection tougher, avoided third party recruitment, made cooperation with the universities to select the best candidate, declined outside training and emphasized upon in house and basic training programs, bonus and benefits were reduced and effective mix of power and people culture was adopted.

Recommendations

The company during the recession period should try to refrain from downsizing practices. However in this context the company can motivate the employees by facilitating them with challenging tasks and targets and opportunities since it would motivate the employees to perform because of their urge to sustain their employment to lead their livelihood and it would also increase the performance and commitment of the employees.

The business organizations during the crisis situation should respond by investing more on the training and development of the employees which would improve the quality of its employees and their skills which would have a significant impact on the financial results of the company.

References

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