Companies face unique challenges in managing human capital as the economic downturn takes its toll on businesses in India. It’s not just layoffs and pay cuts that companies are grappling with as they deal with the mounting pressure to maximize use of resources, lower costs and meet the needs of a diverse stakeholder group. Human resource issues such as skills upgradation, performance management and communication with employees are gaining importance.
“The reality is that companies do not have the luxury of ostrich-like behaviour and (have to) take issues head on to manage the current turbulence without endangering the long-term sustainability of an organization,” says Prabhir Jha, senior vice-president and global head, human resources, or HR, Dr Reddy’s Laboratories Ltd.
This new reality is forcing business leaders to turn increasingly to HR managers, who are now expected to add value to their organizations in areas beyond their traditional brief. Boom-time HR managers have never experienced such a business environment, and it is testing their skills and capabilities.
According to experts, the key will be to develop a new HR strategy that spans the entire value chain and still aligns closely with the difficult challenges being faced by companies. “HR must recognize the new business imperatives and put in place work structures that are agile and respond with speed, forge stronger linkage between performance and reward even as you explore alternatives to lay off, manage employee engagement when staff morale is down (and) have consistent communication about new expectations,” says N.S. Rajan, partner, human capital, business advisory services, Ernst and Young India.
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• Communicating clearly
For companies, a decade of economic growth has seen a raft of good news about growth, profits, opportunities and expansion into new markets. The economic downturn has created a new challenge—one of communicating bad news. A well-planned communication strategy is essential.
To maintain employee morale and allay fears, business leaders need clear, unified, consistent and continuous communication, according to Rakesh Malik, practice leader, corporate transactions and transformation, India and Middle East (West Asia), Hewitt Associates Llc., a global consulting firm. Experts say a planned approach, preparing employees for bad news, is important. People are realistic and appreciate the truth, they say. “Flinging a surprise can have negative impact,” says Malik.
And when it comes to communicating major changes, top managers need to take on the role of messengers. Dr Reddy’s Laboratories’ chief executive officer and vice-chairman G.V. Prasad is keeping all employees updated on the organization’s response to market changes. Prasad communicates with his employees through emails, quarterly meetings, a blog called Perspectives accessible only to employees, and by talking to them.
PepsiCo India Holdings Pvt. Ltd’s executive director in charge of human resources, Pavan Bhatia, says, “We are ensuring that employees are informed about (the) business and macroeconomic scenario.”
• Reviewing employee numbers
Many businesses are repositioning and reallocating human resources through rightsizing. This can mean reducing numbers, adding people in certain functions or moving workforce to other businesses.
The most common strategy is to reduce numbers to address short-term pressures. For instance, companies such as the two Bangalore-based manufacturers—Larsen and Toubro Komatsu Ltd and Federal-Mogul Goetze (India) Ltd—filed applications in the state labour department, declaring their intent to lay off 365 and 1,800 employees, respectively (reported in Mint on 27 January).
Experts say if retrenchments are done simply to reduce costs, it will have minimal and short-term impact on the organization. “Rightsizing works when it is part of a planned re-engineering of a company and pays attention to its business strategy, cost implications and human capital issues,” says Rajan. “A well thought out plan could lead to improvements in organizational productivity and effectiveness through redesign of business processes.”
For companies that use a fair performance management system, this is an acceptable way of eliminating the bottom 10% in the performance scale, say HR consultants. Dr Reddy’s has been weeding out underperformers as part of its performance philosophy. “That will continue as always. We may redeploy talent though, if required, to address any changes in business priorities,” says Jha.
• Focusing on costs
In the current scenario, costs have come under the microscope and companies are looking at getting more out of less. Employers across sectors are cutting back on recruitment expenditure, people-related costs such as benefits and perks, business travel and entertainment expenses.
Photoimaging: Monica Gupta / Mint
Like all major corporations, Hindustan Unilever Ltd is now focusing on cash flows (reported in Mint on 14 March). The company has appointed global procurement officers to buy raw material at the best rates from any part of the world to save on cost. Companies such as Dr Reddy’s, low-cost carrier SpiceJet Ltd, LG Electronics India Pvt. Ltd and Pantaloon Retail (India) Ltd are looking at managing costs effectively.
The parent company of Pantaloon Retail, Future Group, slashed executive salaries by 5% and lowered travel and stay entitlement limits for executives about four-five months ago, according to Sanjay Jog, chief people officer, Future Group. Infosys Technologies Ltd has told employees they can opt for a year-long sabbatical to engage in philanthropic activities while they draw 50% of their salary, according to a company spokesperson.
“Firms are clearly aiming at getting appropriate returns on investment in people and establishing a cost-optimization plan as a long-term tool for building businesses,” says Naresh Malhan, managing director, Manpower Services India Pvt. Ltd , part of global staffing company Manpower Inc . “The key is to eliminate costs that don’t add value.” Metals producer Vedanta group, for instance, is looking at 30-40% cost savings from waste elimination and process improvements. “Our target is to be the lowest-cost producer globally,” says A. Thirunavukkarasu, president, HR, of Vedanta group in India, part of Vedanta Resources Plc . “Even our shop-floor operators know about the cost of production and the benchmark levels of global competitors,” he says.
“In the current market environment when business confidence is down, consumer spending is declining (and) profit margins are under tremendous pressure, there is a larger need to take hard decisions to manage profitability, optimize productivity and costs,” agrees Jha.
• Measuring performance
Performance is being tracked more keenly. “Organizations are tracking both ends of the performance spectrum and the spotlight is on creating an even stronger differentiated rewards structure,” says Malik.
It’s time to make a clear-cut distinction between strong and mediocre performance and separate the men from the boys, says Shalini Kamath, managing director, corporate communications and human resources, Ambit Holdings Pvt. Ltd, a Mumbai-based financial services firm. “It’s time for organizations to see if the high performers have been riding high on growth rather than really being star performers,” she says.
For most companies, reviewing performance and helping people improve is a round-the-year programme. However, the performance benchmarks are higher now. While the bottom five or bottom 10 performers were labelled underperformers earlier, the benchmark has now been raised to include 10-15% of the workforce. To make its performance measures relevant in the current market situation, Ambit Holdings has added a section to its balanced scorecard so that employees can list their achievements in addition to their core business objectives. “The idea is to evaluate an employee fairly,” says Kamath. “If an employee has not been able to meet revenue targets but has done quite a lot of client empanelment, then this should be accounted for during appraisal,” she says.
Employees at Vedanta group now have their performance tied to the effectiveness of enabling functions such as finance, HR and corporate social responsibility, in addition to volume and cost of production. Thirunavukkarasu says the group is looking at its rewards practice aggressively. “Performance pay of managers has been enhanced by 50% over the last year,” says Thirunavukkarasu.
• Testing leadership
An economic downturn requires leaders to go beyond their defined roles. Their top-most challenge is employee disengagement and low morale. Organizations need to coach leaders to manage productivity, performance and growth. “Earlier, our business leaders were assessed on technical skills and their performance targets,” says Mandeep Maitra, country head, human resources and corporate services, HDFC Bank Ltd . “Today, there is a lot more focus on a leader’s ability to manage cost-to-income ratio and overall costs, productivity and, most importantly, the morale of employees.”
HR managers say low morale impedes performance at a time when companies need it most. Kamath says leaders are people who can identify opportunities, keep people motivated, handle anxieties, innovate in the face of adversity and win the support of employees, shareholders and customers.
Also, the need of the hour for companies is to adjust rapidly to the changed market dynamics. “What’s really required of firms is to adjust internally in response to external pressures and find ways to facilitate structural and leadership agility,” says Maitra. The key is to address short-term needs without losing sight of long-term objectives. At HDFC Bank, the once-a-quarter town hall meetings are now focused on realigning priorities and discussing ways to improve productivity.
• Training programmes
It’s not just the information technology sector that will feel the need to have its employees learn new skills, which means learning new languages, acquiring knowledge on new platforms and keeping themselves updated with new technologies. Other sectors, too, will see organizations investing time and resources in equipping employees with new skills or upgrading their skill sets, says Malhan.
When employees are taking on more work and doubling roles, upgrading skills becomes imperative. HR managers say cutting back on training is counterproductive because it’s the skills acquired in response to changed demands that will help companies through tough times. “What is, however, required is allocating resources prudently with the use of low-cost options such as work shadowing, developing in-house coaching and mentoring programmes, and doing away with programmes that have limited purpose,” says Maitra.
A number of companies, including Ambit Holdings, Dabur India Ltd and Cognizant Technology Solutions Corp., have trimmed training budgets, but not the focus on training and development. “We are looking at optimization of training programmes and depending less on external trainers,” says Kamath.
In February, Ambit Holdings sent one of its employees to Singapore to attend a workshop on deal negotiation. The employee then trained others. “We are also giving half a day’s training in, say, a certain Sebi (Securities and Exchange Board of India) regulation or (a) case study of an interesting merger and acquisition deal to equip our people better,” says Kamath.
Organizations are clearly being forced to seek ways to realign their people and strategies to deal with the changed business scenario. Ad hoc arrangements (in many cases) are giving way to improved processes and practices. To that extent, the downturn is an opportunity to introduce best practices.