Implications of the Credit Crunch on Recruitment and Selection, and Training and Development

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Table of Contents

Introduction
Methodology
Results
Analysis of Implications of Credit Crunch
Strategies to cope with implications of credit crunch on HR functions
Conclusion
References

Introduction

Credit crunch is the defining moment of the current economic business cycle in the UK. The housing slump that happened in the spring of 2007 in the United States of America initiated the crunch. It later developed into what people described as the liquidity crisis of global economies during the late summer of 2007.

In autumn, the UK experienced credit crunch repercussions through financial crisis that resulted to collapsing of businesses coupled with erosion of consumer confidence during winter (Finn 2008, Para. 1). However, now, it sounds relieving to the businesses especially that signs of the first phases of the crisis are arguably over.

Nevertheless, the damage done on the UK economy prospects coupled with recruitment markets is irreversible (Finn 2008 Para. 2). With this point in mind, the paper essentially focuses on scrutinizing the impacts of credit crunch on recruitment, selection, training, and development. At times, to help deal with economic crises, organizations adopt stringent measures to cut costs including measures of cutting employees’ benefits.

Quoting the words of Dr. Ronald Leopold, the vice president of institutional business, “In this age of ‘consumerism,’ open enrollment is often the one time of year when employees have the chance to act like true consumers by evaluating their benefits coverage and ensuring that they do not have gaps or costly overlaps in coverage” (NorthgateArinso 2011, Para.3).

NorthgateArinso argues out that, credit crunch can affect the human resource functions negatively. Awarding benefits indeed entangle one of the mechanisms of helping the human resource to establish and maintain a motivated workforce (Daniels & Burns 1997, p.34).

Therefore, it is plausible to evaluate how measures predominantly meant to cut costs such as digging into employees’ benefits would affect the human resource functions of training and development.

During the periods of economic crisis, many organizations consider slashing down the number of employees in the endeavor to cut down costs. This is because the consumption rate reduces during such times due to the decrease in consumer buying power. Increased unemployment rates give an indication that the human resource arm of an organization magnitude of work reduces.

This is perhaps widely true especially for the tasks of selection and recruitment. In this context, this study sounds relevance since it attempts to validate or invalidate this position. To accomplish this, the paper considers Nissan Company as a case example, showing how the credit crunch affects HR functions of selection, recruitment, training, and development.

Apart from relying on secondary data and scholarly findings, the paper also takes intense use of primary data acquired through Skype interviews and questionnaires. This paper is arranged in the following order: Methodology, results, implications of credit crunch on selection and recruitment, training, and development.

The use of this order is highly determined by the fact that, before looking at the impacts of credit crunch on selection, recruitment, training, and development, some data must have been availed, which in turn must have been obtained through a specific methodology. Recruitment and selection are looked into first since, in the HR tasks list, training and development cannot be accomplished before recruitment and selection is done.

Methodology

Confronting the problem of determining the effects of credit crunch on HR functions at Nissan Company requires that a reliable primary data is available for analysis. However, for making inferences and deductions, secondary data that shows the impact of credit crunch on other companies coupled with existing literature are vital.

This is particularly useful where general conclusions and deductions of implications of credit crunch on any company, apart from Nissan, are to be made. Proposal of strategies for dealing with the effects of credit crunch on HR functions also demands an all-inclusive view of various companies and or various industries.

The procedure for determining the impacts of credit crunch on HR functions of selection and recruitment, and training and development, is therefore a review of existing literature on the impacts of credit crunch on selection, recruitment, training, and development. The paper then makes comparisons of the inferences of this literature to the results obtained from the analysis of the primary data.

Determination of appropriate means of garnering primary data is based on a number of factors including timelines, available resources and the type of question required. After a careful scrutiny of the options available, an email was sent to the human resource department of Nissan Company requesting him to answer a questionnaire.

While this approach is quick, especially bearing in mind the narrow timelines available, the credibility of such a survey has limitations in that people may complete the questionnaires in a hurry. This would lead to gathering inaccurate responses. However, this demerit is overcome by the administration of clear and straightforward questions that are easy to understand, as it gives a feedback that is resourceful for this study.

In an attempt to acquire an answer that is more specific, Skype interviews were also found essential. However, a challenge was encountered in that the HR manager did not have ample time to respond to the interview questions.

Nevertheless, this method of acquiring primary data is justifiable for this study in that it helped the interviewer to save a lot of time associated with the data processing and the challenge of carrying around hefty number of questionnaires.

Another limitation of Skype interviews is that the method has low rates of responses in comparison to face-to-face interviews. However, in comparison to the mailed questionnaire, the response rates are higher and hence justifiable for use in this study.

Results

Upon conducting Skype interviews, followed by a careful analysis of the questionnaires, the responses indicate that Nissan Company considers internal recruitment followed by external recruitment in its first priority. Recruiting externally, the company uses essentially print media to reach out for potential pool of requisite applicants.

Training and development of the company’s workers is done essentially in the house. However, at times, the company outsources such services. The response to the question of how the company responded to 2007 credit crunch reveals that the company considered largely interventions such as dismissal or downsizing its workforce and stopping recruitment and selection process completely. To reduce costs, though not implemented, a consideration was given on digging into the employee’s benefits.

Analysis of Implications of Credit Crunch

Implications of credit crunch on selection and recruitment

Introspection of a wide variety of literature reveals that there exists no widely agreed upon definition of the terms recruitment and selection. However, the increasing number of scholarly works on the human resource activities within an organization suggests that recruitment may be looked at from either narrow or broad definitions.

However, in both approaches, recruitment is related to selection. Indeed, according to Bach (2008), there are two main types of recruitments- internal and external recruitments. Internal recruitment entails creating opportunities and inviting the existing workforce within an organization to make applications for the opportunities (p.89).

Arguably, using this approach, an organization accords existing workforce the first priority to fill the opportunities from its current human resource. For the case of external recruitment and selection, an organization dedicates to fill its vacant positions with candidates derived from the labor pool extrinsic from the organization (Bloisi 2007, p.67).

Externally, an organization can recruit staff from a variety of sources and through various means. With regard to Stone (2008, p.12), these sources and means include government agencies, industry and professional bodies, commercial agencies, educational sources, and even media and newsprint sources. Compared to internal recruitment and selection, selecting and recruiting staff externally to the organization is a more costly endeavor.

Selection encompasses the process by which organizations choose from an extensive pool of potential applicants by deploying specific selection tools (Keenan 1995, p.11). Traditional selection process deploys three main methods- references, interviews and application forms.

Application forms and interviews are, however, the key tools in the traditional selection process. References serve subsidiary roles. They work as either evaluation or information sources. The information garnered through an interview and questionnaires from Nissan human resource reveal that Nissan Company continues to employ traditional human resource selection technique before and even after credit crunch. The organization greatly contends that deployment of an alternative approach is risky.

Various organizations adopt differing methods of recruiting staff- either external or internal. As a way of example, Nissan Company deploys rotational strategy to fill various vacancies. This implies that the company endeavors to recruit from extrinsic sources on rare incidences.

Consequently, the company dedicates itself to cover its new human resource needs from the pool of the existing staff. Essentially, employees assume new tasks that are related to their position they initially held. Arguably, this helps the company to save a lot of financial resources and time associated with recruitment and selection process of staff from the greater pool of labor market external to the organization.

For the case of Nissan Company, the use of this strategy indicates the impacts of credit crunch of HR functions- recruitment and selection, in the sense that this strategy adopted by Nissan is principally meant to save costs that would indeed disadvantage further an organization struggling with financial crisis. Therefore, this strategy is an indication of the manner in which credit crunch has influenced recruitment and selection process of various organizations.

Following the evolvement of human resource in mid 1980s, it became apparent that people were one of the most significant vessels for permitting an organization to gain a competitive advantage. Therefore, “how the workforce was recruited, selected, challenged and involved became critical components in ultimate organizational success” (Stredwick 2000, p.9).

Selection and recruitment comprises some of the key areas, which concern the HR’s arm of an organization (Messmer, Bogardus & Isbell 2008, p.25). Credit crunch affects the selection and recruitment of employees negatively in the sense that, in most organizations, the employers are largely made unconfident to hire new staff apparently due to financial uncertainties associated with it.

In this context, Nissan reckons, “the Chartered Institute of Personnel and Development (CIPD), the body that represents personnel managers, blames economic “turmoil”…saying that bosses are not confident enough to employ new people” (p.3). In the time of economic crisis, organizations are placed at a dilemma on how to pay workers, suppliers, access credit, which is normally expensive, and even on how to collect debts.

One of the most plausible mechanisms to mitigate the increase of production costs is through looking for mechanisms to reduce them. This, in a big way, justifies why Nissan and many other Greek automotive companies are constantly suspending workers without negating their complete dismissal. Another mechanism of cutting costs entangles the reduction of working hours and or salaries (Schuler & Jackson 2008, p.102).

Nissan in particular has resulted to implementing the shift-work model in which it employs people based on a four-day work. Financial crisis is experienced in the automotive industry of Greece following a sharp fall in consumer confidence coupled with tough consumer credit terms. Therefore, Nissan is anticipated to experience a reduction of HR activities especially selection and recruitment of new professionals to join its workforce in an endeavor to handle impacts of credit crunch.

Implication of credit crunch on training and development

Training and development plays pivotal roles in enhancing increment of the productivity of employees within an organization. Training encompasses systematic and planned efforts aimed at modification and or employees’ knowledge and skills development (Buckley & Caple 1990, p.67).

This is predominantly achieved through learning and experience building. The main aim of employees’ training and development is to make effective performance of an activity or even a range of activities achieved by the employees concerned in an attempt to meet the goals and objectives of the organization they work for (Banner & Graber 2001, p.40). Most organizations apply one or more of a variety of training strategies.

These varieties include on-job training, in-house training, external courses training, and external bespoke courses and or self managed learning. In the context of Nissan Company, employees attend periodic specialized seminars organized by the company through the department of human resource. At times, the company also hires external organizations to conduct trainings and seminars on behalf of Nissan Company with the intention of hiking the skill-base of the workers.

However, given the financial difficulties associated with credit crunch, the company largely focuses on reduction of costs. Essentially, therefore, credit crunch has resulted to making the company reduce significantly expenditures on training and development, which is achieved through educational programs. Nissan Company particularly considers on-job training as the most subtle option to ensure that the organization continues with endeavors to train and develop its workforce amid the repercussions of credit crunch.

This is perhaps widely justifiable since on-job training has the advantage over other ways of training and developing the skills and knowledge of workers in the sense that it is conducted while the workers are still engaged in their daily routine tasks.

This means that, as they train, they are also engaged in productive activities, which go into increasing the productivity of the company. This is indeed essential since, to mitigate costs and provide risks resilience in hard times of economic activities, organizations only engage in activities that are helpful to the organization in terms of profitability.

Nissan Company considers ensuring that bonuses associated with magnitudes of sales are eliminated (Nissan n.d. p.10). This would affect education of employees and consequently the HR’s functions of training and development. This implication is substantive by considering Novo’s (2009) insights.

He says, “A recent survey shows that addressing staff retention does not just involve improving salaries, as employees are no longer primarily motivated by financial rewards, workers are more willing to put in extra discretionary effort to help their organization succeed if they believe their company is investing in them and their skills” (Para.2). For the case of Nissan, the employees see the change of payments plans from a negative angle (Nissan n.d. p.11).

Therefore, their motivation is also likely to end up being impacted negatively, hence, the profitability of the organization. These strategic measures adopted by Nissan entangle some of the viable options considered by the automobile industry in Greece as a mechanism of relieving some impacts of the financial crisis on the automotive industry.

Considering the case for Nissan Company, as discussed above, it is evident and apparent that coping with the HR’s duties of training and development and aftermaths of the repercussions of credit crunch requires hefty consideration of cutting training and development budgets.

Precisely in the UK, in 2008, “the Learning Skills Council announced employer training hit a record high at £38bn” (Gough 2008, Para. 1). However, this was anticipated to live shortly due to the embracement of mechanisms of cutting down training and development budgets.

The impacts of credit crunch to the UK’s training and development organizations are evidenced well by Carter. Credit crunch made the industry business untenable prompting the organizations to change their line of business to administration. On the other hand, Parity Group-the organization that provided IT training, went on to record poor results in the first quarter of its business in 2008.

In this end, it is plausible to declare that credit crunch has the effect of either voluntarily or through consequences of increased costs to make organization cut their budgets on training and development and hence impairing negatively some of the roles and obligations of the HR department within an organization.

Strategies to cope with implications of credit crunch on HR functions

Selection and recruitment

Recruitment entangles one of HR’s functions that are immensely impacted by credit crunch or recession. During the recession period, a large number of organizations offers minimal or totally no vacancies at all. Essentially, as Priyanka et al reckons, “the organization has to change the focus of the recruitment and the recession is a good moment to focus on the recruitment process development and redesign” (2010, p.33).

During recession, businesses come to a standstill especially the ones, which do not add value, thus, prompting the transfer of human capital to businesses that are more crucial, and which can operate at low costs. Priyanka et al adds, “in time of the recession, the HRM role is to make cost cuts, and the HRM Function has to provide the list of the policies and procedures to be cancelled or discontinued” (2010, p.33).

Recruitment and selection happen to be one of the functions stopped or sharply minimized by organizations in the occurrence of a credit crunch. While this strategy may aid in cutting down costs of business during recession by far, it is not necessary that the entire recruitment and selection function be stopped. For instance, in automotive industries such as Nissan Company, adoption of winning strategies is essential in an attempt to confront pragmatically crisis on midterm basis.

A more plausible strategy to confront the implications of credit crunch on selections and recruitment is to ensure these two HR’s functions are not stopped completely. The argument and justifications for stopping completely the recruitment and selection rely on the need to cut costs during recessions.

In fact, the economics of any organization during recession always factor the element of cost. However, mechanisms can be adopted to ensure that recruitment and selection process is a cost effective process. Collins supports this line of view. He adds, “many companies embark on expensive media advertising that is not very cost effective and does not generate the talent the company requires” (2012, Para.5).

HR, therefore, needs not halt its recruitment and selection task but rather employ effective methods, which are cost effective such as requesting for supply of skilled people from the long lists of potential candidates, and maintaining the databases of commercial recruiting companies such as Collins McNicholas.

Continuing with the strategy of recruiting and selection of employees even in the event of credit crunch is justifiable incase an organization employs strategies that improve on the accuracy of acquiring just the right people with minimal searches and or advertisements.

All that an organization deserves to do is to make use of effective procedures while recruiting during recession. In this end, with regard to Get feedback (2011), an organization needs to “define a high performance behavioral role profile based on current star performers and the views of key stakeholders on the future of the role” (Para.1).

Consistent with the argument, credit crutch does not encompass making trial and errors. An organization needs to recruit people who can surpass the predecessors. Secondly, the recruiting staff needs to establish realistic desirables and specifics of what potential candidates must have in the selection criteria. This goes hardy with utmost honest on the declaration of what the job is about, and what it is not.

Apart from making use of psychometrics to ensure that costs are maintained to minimal levels, the recruiting personnel also needs to incredibly lay hiring decisions squarely on facts, as opposed to feelings about the capacities of individuals. Bearing in mind that, upon recruitment, extra costs are also anticipated being incurred through training and development, the most preferable person is the one who would require minimal training before becoming fully cognizant of the rule of trade in any organization.

By following through the case for Nissan, and using the data obtained through questionnaires and Skype interviews, it is apparent that the organization incurs many cots through its recruitment and selection process even during the 2007 credit crunch.

After exhaustion of its internal pool of potential human resource for hiring in new positions, Nissan considers using newsprint and various media sources to acquire its workforce. This is possible through placing advertisements on professional journals and even newspapers. In one hand, this is an expensive endeavor and hence not worth during the time when an organization is facing financial difficulties.

However, on the other hand, at times when the company considers hiring executive staffs, it invites commercial hiring agencies to take over the task on behalf of the organization. Arguably, this a cost saving strategy that is widely compliant to the strategy proposed in this paper asserting that, even during times of recession or credit crunch, organizations do not need to generally stop the process of recruitment and selection completely.

Training and development

Many of the people who have experienced business cycles perhaps know it too well that freezing training and development is too far from being a viable option to deal with the impacts of credit crunch. On recovery of the economy, organizations need to have requisite human resource base to handle increased business activities irrespective of the sector or industry under consideration.

In this context, as Losey, Meisinger and Ulrich argue, withholding of HR activities as a short run intervention is risky (2005, p.45). Therefore, a long-term tactic needs to be considered. Indeed, development and training are pro-active and ongoing activities for organizations seeking to gain competitive advantage in the market place (Sloman 2003, p.90).

Consideration of long-term tactics is, therefore, particularly useful where an organization is talent-starved. During the times of credit crunch, many of the skilled labor in a given industry are normally redundant and hence it may contemplate leaving an industry in totality. This would translate into more shortage of skilled labor upon recovery of the markets.

To ensure that such shortage is not experienced, it is essential then that as part of long-term strategy HR continues to consider carrying on with its core activities of training and development of employees. However, this does not mean that the directors of HR need not ensure that training and development budgets are well guarded. Indeed, training and development of employees contributes immensely to increasing their morale and hence their retention (Decenzo & Robbins 2007, p.67).

Retaining a pool of skilled employees even during times of financial hardships is arguably critical since, when economy recovers; the organization taps its skills and experience and utilizes them in enhancing the competitiveness of the organization.

On considering the implication of credit crunch on training and development, the main challenge is what trainers need to do to ensure that they are able to handle the credit crunch storms. This challenge is indeed relevant since, upon recovery of markets, the trainers are required to supply the organization with skilled labor to handle increasing organizational business (Mannion & Whittaker 1996, p.14).

Arguably, most paramount to note is that the battle for talent hardly recedes. Therefore, while cutting of training and development budgets due to the credit crunch evidences recession in any industry, it is perhaps crucial for organizations to keep on with their commitments in staff training and development. However, while doing this, HR directors need to consider myriads of alternative means of achieving equal results through deployment of cheaper alternatives (Nickels1999, p.78).

For instance, from the dimension of an organization’s financial well-being and bearing in mind the perspectives of risks sensitivity, on-job training can indeed aid in enhancing increment of employees’ skills and knowledge just as in-house training, external courses training, external bespoke courses, and or self-managed learning would. As Bohlander et al (2001) reckons, on-job training “does not require the development of potentially expensive training materials or classroom/computer-based instruction” (p.103).

This means that the method is cost friendly and hence a viable strategy for consideration during the times of economic hardships. Stemming from the definition of training, “gaining knowledge and learning aspects about a job while actually working at that specific job” (Draft 2000, p. 218), it is apparent that an organization is able to cut cost effectively.

As compared to other training and development techniques, in case of on-job training, workers are productive to the organization, as they receive instructions about the trade. With on-job training and development, the necessity to hire new staff as some of the other staffs are undergoing training and development becomes invalid.

The preceding discussion has argued that freezing training and development programs in the event of occurrence of a credit crunch is not the solution to deal with aftermaths of the credit crunch. Directly congruent with Bowman and Wilson’s (2008) argument, in the consideration of the most plausible strategy, “ there are also considerations about whose interests are being addressed by the strategy i.e. is the training being imposed?, does the training represent the needs of individual people, their managers and or the organization?” (p.38).

What is important about any training and development technique is that it should result to increased productivity of the employee and hence the entire organization. In the light of an occurrence of a credit crunch, such techniques also need to be cost effective. In any job, training arguably is the strategy and technique that qualifies these two qualities.

Conclusion

Conclusively, credit crunch constitutes the defining moment of the current economic business cycle in the UK. Recruitment entangles one of HR’s functions immensely influenced by credit crunch or recession. During recession period, many organizations offer minimal or totally no vacancies at all.

This study utilizes Skype interviews and questionnaires to garner data from the Nissan company department of human resource on impacts of credit crunch to its core roles of recruitment, selection, training, and development. Upon analyzing this data by considering the inferences of existing literature, the study confirms that, during recession, organizational businesses reach a standstill especially the ones, which do not add value to an organization in terms of profitability.

This prompts transfer of human capital to businesses that are more crucial, and which can operate at low costs. A more plausible strategy to confront the implications of credit crunch on selections and recruitment is to ensure these two HR functions are not stopped completely.

The paper holds that freezing training and development is too far from being a viable option to deal with the impacts of credit crunch. In support of this argument, the paper holds that, on recovery of the economy, organizations need to have requisite human resource base to handle increased business activities irrespective of the sector or industry under consideration. Such a labor force cannot be availed if an organization freezes recruitment, selection, training, and development: the core activities of the HR department.

The justification of this argument lies on the fact that development and training are pro-active and on-going activities for organizations seeking to gain competitive advantage in the market place (Sloman 2003, p.101).

From the dimension of an organization’s financial well-being and bearing in mind the perspectives of risks sensitivity, the paper argues that job training can indeed aid in enhancing increment of employees’ skills and knowledge just as in-house training, external courses training, external bespoke courses and or self managed learning would.

The paper has proposed job training as a viable strategy, which is cost effective. It ensures that an organization has a well-trained human resource available to handle increased business when business resumes after credit crunch is over.

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