Article (October-2019)

Articles

It is for HR to detect weak signals early and act beforehand

Emmanuel David

Designation : -   Director

Organization : -  Tata Management Training Centre, Pune

01-Oct-2019

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How do you see the current economic slowdown, on a larger scale?

ED The slowdown in Indian economy building up for the last 18 plus months is unprecedented. While the signs have been cyclical in nature as indicated by reduced investment by corporates, low savings growth, slow rate of inflation because of weakening demand etc, the auto sector being the most affected with ripple effects on other sectors in the area of job losses particularly; it's more than that meets the eye.

The liquidity crunch due to NBFC crises triggered by IL&FS default has dented the trust and put brakes on lending activity. It also has to do with structural inconsistencies that the govt should be looking into correcting through policy interventions.

Having said that the Indian economy is relatively in a better shape than the rest of the world, as the domestic consumption story is still intact. So far there is no widespread panic so far being witnessed. It just needs appropriate injections at the right time to push consumer spending up and supply steadiness to tide over the slowdown.

Also strained US - China relationships coupled with the uncertainty in the geo-political atmosphere in the Asian region, looms large over the trade relations between nations.

Is it restricted to India only because of localised circumstances or have reached to global level?

ED Though there are global reasons that could cause this, like trade tensions between the US and China, troubles in Iran and Brexit amongst other geopolitical factors. India's problems seem to be influenced more by faulty public policy and its execution.

However, it depends on the exposure of India to these factors to the extent of trade relations and country dependence. So far, India seems to be doing fine as the foreign reserves are in good shape, the govt is sending positive feelers by relaxing FDI norms and policy around the ease of doing business.

What are the factors that have triggered this downturn?

ED Economic downturn is an outcome of slowdown in demand for goods and services. Investments aren't forthcoming as consumption slows down, which in turn affects the revenues, and job creation, which in turn affects the income levels, leading to reduced consumption. It's a vicious cycle.

Reforms and disruptions : Sometimes cleaning the proverbial Aegean Stables would have unintended outcomes. Perhaps Demonetization in 2016, GST in 2017 could be some of the factors. The IL&FS crisis triggered the NBFC credit crunch in 2018, US - China tariff war at the end 2018 are certain other factors.

Monetary and Fiscal policies : Monetary policy was focused on inflation control and impacted the interest rates. Firmed up crude oil prices have put inflation pressures.

NBFCs faced a severe liquidity crunch as MFs stopped refinancing the loans of NBFCs which has had a ripple effect on other sectors due to reduced lending.

How do you specify the relationship between economic downturn and job losses and how HR should address the challenge of job losses and maintain existing employees' morale?

ED The mood and morale in an organization during a downturn is one of apprehension and uncertainty; yet the call of the hour is performance.

In this context, HR has a challenge in retaining and keeping people motivated. HR needs to anticipate and understand the inflection points in the business and environment to take appropriate steps to maximise and optimise the utilisation of people by rotating, re-skilling and re-allocating.

There is a no man's land HR can occupy, that is of detecting weak signal is an indicator of a potentially emerging issue, that may become significant in the future. Once HR has been able to identify they need to have that ounce of courage to communicate the same, and the conviction to initiate action when the going seems good.

In the words of the HR guru, Prof. Wayne Brockbank, the world would see high velocity disruptions in the following areas :

  • Information proliferation and technological innovation.
  • Shortened product lifecycles.
  • Global competition for labour, capital, information, ideology.
  • Demographics.

Leaders must build institutions with the capabilities to respond to and pre-empt the above environmental dynamics and create pockets of opportunities. Many will be short lived; some may be longer.

The strategy should be in building organisation capabilities rather than focussing on individual talent.

How HR should prepare well in advance for such massive job casualties?

ED Let me share an example. About two decades ago when we all faced a similar situation, I was in an automobile company at that time and we were working towards our annual production plan. We had to hire some more people on the shop floor and as usual the production head had put pressure on us to get the people quickly. My young HR manager came to me and asked me "did you notice that there are many automobiles in the stockyard? Do you think that we really need to hire more people?"

That set me thinking and we as the HR team influenced our colleagues to stop the hiring. A few weeks later the production volumes came down and the number of vehicles in the yard only increased. By then we were all a very worried lot - a school of thought also propagated the closure of the business. My team and I had discussions with the production and service departments and suggested if shop floor workmen could be transferred to the service function in various locations in the country we could tide over this crisis. We held communication meetings, made meticulous plans and since we hired people from all over the country the relocation was smooth. However had we retrenched it would have made headlines then. The silver lining is that the company still exists and enjoys harmonious relationships with its employees.

In retrospect, HR has to equip itself with business acumen and skills to understand the business cycles and business environment and make some scenario planning for emerging trends. Secondly, HR needs to constantly, at regular intervals, check the skill level of the employees to see the capabilities needed for the future and accordingly retrain and re-skill the employees so that they meet the business needs.

Who do you think suffers the most during recession - employee or the employer?

ED Consider a family, if either a child or a parent is injured or there is a bereavement, who suffers - the family suffers. So it is in an organisation both the employer and employee suffer.

I have a firm conviction that when you hire you hire an individual, and when you fire you fire a family!!

The levels of suffering are different for different stakeholders. For example, an employer who has made capital investment would be paying interest costs far greater than an employee cost in a negative cash flow situation or face liabilities.

For an employee, if he or she has liabilities, the imminent job loss is unthinkable and as we have seen has been life threatening. Add to that cocktail, aging parents or ailing family members, can you put whose suffering is greater?

Let us now go further to the value chain, your suppliers and their employees also suffer. However, since this is just not in our radar because we don't see them. Furthermore, an often unknown form of suffering is the suffering of being idle and unemployed. Normally this is also not perceived because everyone suffers in isolation and maybe silence. So you see when there are bad times, many suffer. I think in good times we need to exercise prudence and live within our means.

What are the jobs and domains that are most susceptible to economic slowdown? Are there industries or roles which are recession proof, in some way or the other?

ED While no industry is recession proof, cyclical industries like the auto, cement and steel industries etc are more susceptible. Low value add and routine services that are easily replicable and transferable which have no entry barriers are also susceptible.

Services and products that are discretionary and depend on income levels are also sensitive.

However sectors which are into Food, Healthcare and Clothing would not be impacted easily as it is linked to direct human consumption. As we know human consumption has been increasing with population growth.

Do you think that labour reforms have anything to do with enhancing job opportunities and why rolled out labour reforms are not able to improve business sentiment and help recovering industry from recession?

ED Labour reforms, definitely, play an active role in enhancing and generating job opportunities. For example, the labour force participation rate has come down over the previous years, resulting in more people looking for jobs. Youth unemployment is also high. Interestingly with life expectancy going up there are more people who are still working till ages of 65+. This is choking up the job opportunities for the youth and requires major structural or policy reforms.

Add to this the inequality of opportunity for whatever historical reasons and low vocational skills inhibit any reforms to take root. Perhaps there is an opportunity for the Ministry of Labour to first educate, then engage with its stakeholders and as a last resort enforce. Usually we have noticed it is first enforcement which causes resistance to any "reforms".